Consumers by definition, include us all. They are the largest economic group, affecting and affected by almost every public and private economic decision. Yet they are the only important group whose views are often not heard.
John F. Kennedy Page 3 Content: 1. Introduction 2. General notion about consumer loan and consumer protection 3. USA legislation - Serbian legislation 4. EU legislation - Serbian legislation 5. Conclusion Page 4 Problems in Serbian legislation concerning consumer loan protection :
not enough laws and regulations consumer loans are one of the most used banking product in the market-it is the only way for many to buy certain things- autos, house renovation, TV, etc. consumers are not properly informed about their rights
On the other hand EU and USA have developed legislation in this area.
The aim finding better and more developed legal solutions for consumer loan protection in Serbia
Page 5 Recent changes in Serbian legislation:
New Serbian Consumer Protection Law-2011 The part concerning consumer loan is absent from this law New Financial Service Protection Act will be effective from 2012 At the moment only Serbian Obligation Law has some articles concerning consumer loan (it regulates loan is general)
There is no proper act that regulates consumer loan, which makes consumers extremely vulnerable and unprotected. Page 6 Consumer loan-general notion, history Loan in general, is a certain amount of money lent by the financial institution (usually bank) to the borrower, which should be returned on or before fixed date with an interest. The basic rights and obligations of parties of loan contract (agreement)-for lender (bank) -giving certain amount of money to the borrower in terms and conditions specifies in the contract and for borrower (loan beneficiary) -returning of the borrowed amount on a date defined by the banks repayment plan. Consumer loan is money loaned to individuals by a financial institution (bank usually) for personal, family, or household purposes.
Development of a loan through history: Babylon-Hammurabis Code Greece-Pythius, metics (Pasion) Roman Empire- bancu Renaissance Italy - Florence, Venice, Genoa, Jews, Bardi, Peruzzi, banca rotta, financing the wars, Banca Monte dei Paschi 1472 Page 7 Loan Contract-legal term, contract clauses A Loan Agreement is a contract entered into between two parties, that defines the terms of a loan which is repayable with interest over a fixed term. Written form None of the clauses are in consumers favor, because the lender (bank) is the party that writes the contract
Page 8 The differences between consumer loan and consumer credit In Serbian language the consumer loan and the consumer credit can be considered synonyms. However, in Serbian we can draw a line between a loan and a credit from a division based on a loaner. In the case of the credit the loaner can be only financial institution (usually a bank), but in the case of a loan the loaner can be both financial institution and an individual.
In English language consumer loan is part of consumer credit that besides consumer loan includes: credit cards (classic, gold, platinum), personal loans (short-termed loans), T&E cards (travel and entertainment cards), C&D loans (construction and development loans), private label card, oil company cards, lines of credit and home mortgages.
Page 9 Risk/Reward Ratio of Banking Products
CREDIT LINES
PRIVATE LABEL CARDS T&E CARDS C&D LOANS
STANDARD CREDIT CARD BUSINESS LINES GOLD CARD
DEBIT CARDS
HOME MORTGAGES PROFIT R I S K PREMIUM CREDIT CARDS AUTO LOANS
Page 10 The Typical Content of the Consumer Loan Agreement 1. Parties to contracts with their addresses 2. Date of the agreement 3. Definitions or interpretation provisions 4. Responsibility 5. Breakdown of loan 6. Repayment provisions 7. Prepayment 8. Cancellation provisions 9. Late charge 10. Security 11. Default 12. Right for offset 13. Collection fees 14. Co-borrowers Page 11 Example of consumer loan agreement, Vojvodjanska banka
Uniformed, in written form
More powerful side of the agreement-bank determines the terms of agreement
Page 12 In first line of the contract are named the parties of the contract, the bank and loan beneficiary, a person who is borrowing the money from the bank, as well as their addresses and date of signing the agreement, which is the first and second typical content of Consumer Loan Agreement. Page 13 First article explains the nature of this agreement and gives definitions of the subject of agreement and responsibilities of each party in the contract, and it is the third and fourth element that every loan contract has to incorporate. First article explains the nature of this agreement and gives definitions of the subject of agreement and responsibilities of each party in the contract, and it is the third and fourth element that every loan contract has to incorporate. In first article is also given breakdown of loan (the amount of money, interest rate, number of installments, etc.) and repayment period and provisions, which are content number five and six. Page 14 Article two of the loan agreement gives the information about late payments and consequences for the borrower in this case, which is the ninth element of the consumer loan form.
Article three gives instructions and provisions of prepayment, the element number seven of the list. The tenth content, security, is covered in article four of the agreement, and it is about financial security instruments (bills of exchange), that guarantee the repayment of the loan. Page 15 In article six of the consumer loan agreement is given explanations about cancelation of the loan (but only from the banks point of view, which is not correct). In article seven are given provisions and consequences of loan cancellation.
Article eight can also be concerned as part of security of the bank, because it releases the bank from any obligation in the case of malfunctioning of the goods or services, which are bought with the consumer loan. Page 16 Article number nine of the agreement covers fourteenth element from the list, the co- borrowers. The loan beneficiary could not transfer his rights and obligations to another person, without prior consent of the bank. However, bank can assign its rights and obligations to another bank, or financial institution (offset business-twelve content from the list). Article number twelve and fifteen are about eventual disputes between parties and sources of law in the case of dispute, which are given in the list of contents under number eleven-default. Page 17 Consumer protection: definition and history
Consumer protection is a way to protect consumers by applying certain standards and laws. The consumer protection is the product of a long civilization development of human rights and economic growth. Caveat emptor, contra preferntem 1960s USA-the beginning of modern consumer protection, John F. Kennedy 15.3.1962 Bill of Consumer Rights
8 Consumer Rights incorporated in UN Resolution 39/248:
Adam Smith and the classic liberal economy - "the invisible hand," Welfare of the Nations, laissez-faire convictions, the main duty of the state is to provide an environment suitable for economic growth, to contribute to progression by failing to influence the economy, in the center of the theory-consumers who are key force in regulating market- offer and demand by their preferences Keynesism- The End of Laissez-Faire, free market and consumers possibilities of choice were restricted by international trusts, the state must intervene Economy of welfare states - social security and education must be provided by the state for each citizen, by the means of the redistribution of goods directed by the state, equal rights and chance to obtain goods and services Neoclassic school - Milton Friedman, state intervention only to the extent necessary for a basic level of security, budget deficit, slowdown in economic growth The awareness of need for consumer protection and theories about this subject, developed through the ages. The consumers protection right is the product of the growth in economy and improvement of human rights. Every period had its own economics theory based on the present development. Page 19 Consumer loan protection in United States of America
The Fair Credit Reporting Act - regulates the collection, dissemination, and use of consumer information, including consumer credit information Fair Debt Collection Practices Act - regulates debt collection practices Equal Credit Opportunity Act - prevents discrimination in the granting of credit Electronic Funds Transfer Act & Fair Credit Billing Act - establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements Fair Credit Practice Rule - define and prevent unfair or deceptive acts or practices Truth in Lending Act explains in great detail disclosures, usage and different situation in all credit business, including consumer loan Page 20 Fair Credit Reporting Act passed in 1970, enforced by the US Federal Trade Commission, designed to protect consumers privacy
The major rights under the FCRA: Consumer must be told if information in his file has been used against him Consumer has the right to know what is in his file Consumer has the right to ask for a credit score Consumer has the right to dispute inaccurate or incomplete information Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information Consumer reporting agencies may not report outdated negative information Access to consumers file is limited Consumer must give his consent for reports to be provided to employers
Consumer may limit prescreened offers of credit and insurance consumer gets, based on information in his credit report. Consumer may seek damages from violators
FSPL-Article 18-bank has to get written consent from consumer in order to assess his credit score-bank has to inform consumer about the reasons of loan denial from National Credit Bureau Page 21 Fair Debt Collection Practices Act purposes are to eliminate abusive practices in the collection of consumer debts, to promote fair debt collection
FDCPA requires debt collectors to : Identify themselves and notify the consumer Give the name and address of the original creditor Notify the consumer of their right to dispute the debt Provide verification of the debt File a lawsuit in a proper venue Abusive and deceptive actions that FDCPA prohibits: abusing consumer by the phone communicating with consumers at their place of employment contacting consumer known to be represented by an attorney misrepresentation or deceit publishing the consumer's name or address on a "bad debt" list seeking unjustified amounts communication with third parties abusive or profane language threatening arrest or legal action contact by embarrassing media reporting false information on a consumer's credit report or threatening to do so in the process of collection FDCPA covers final stage of consumer-bank relationship-the unwanted one, where consumer cant fulfill his obligations to the creditor (bank). Not present in Serbian legislation. . Developing of similar legal act will be not only beneficial to consumers, but also in legalizing of financial institutions that collect debts on behalf of another. Page 22 Credit Practices Rule The purpose of the Credit Practices Rule is to declare certain acts or practices by banks in connection with consumer credit transactions to be unlawful
Prohibited provisions are : A confession-of-judgment clause A waiver of exemption An assignment of future wages The taking of non-possessory security interests in household goods pyramiding late charges misrepresenting a cosigners liability
Only a confession of judgment clause is present in Serbian Law of Financial Services Protection. Opportunity for consumer to be heard - National bank of Serbia , article 42 of the Law. Consumers right on a law suit is stated under article 46 of FSPL.
Page 23 Equal Credit Opportunity Act
unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction
Under the Equal Credit Opportunity Act: Consumers cannot be denied credit based on race, sex, marital status, religion, age, national origin, or receipt of public assistance. Consumers have the right to have reliable public assistance considered in the same manner as other income. If consumers are denied credit, they have a legal right to know why
ECOA is a very detailed and developed act and some of its solutions should be included in future Serbian law-Serbian Antidiscrimination law have general antidiscrimination provisions, but specific antidiscrimination regulation present in banking practice should be enacted also Applicants 60+-difference in Serbian and USA law Page 24 Fair Credit Billing Act and Electronic Fund Transfer Act
establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements, including : charges or electronic fund transfers that consumer have not made; charges or electronic fund transfers that are incorrectly identified or show the wrong date or amount; math errors; failure to post payments, credits, or electronic fund transfers properly; failure to send bills to consumer current address provided the creditor receives consumers change of address, in writing, at least 20 days before the billing period ends; charges or electronic fund transfers for which consumer asks for an explanation or written proof of purchase along with a claimed error or request for clarification.
FSPL, article 31- bank is obligated to give consumer free credit statement at least twice a year, and for current accounts at least once a month. FSPL does not regulate all the situations stated in U.S.A. FCBA and EFTA act. These electronic errors are mostly regulated by banks good business practice. When consumer notices the error, he complains to bank, which usually finds a solution. Nevertheless, it is better and more secure to determine all these situations in written form and include them in FSPL. National Bank of Serbia controls electronic fund transfers in Serbia and there is also the Serbian Electronic Communications Law.However, neither of these laws has provisions mentioned in EFTA
Page 25 Truth in Lending (TILA) 1968 , designed to promote the informed use of consumer credit (loan) The regulation is divided into subparts (from A to G). Subpart A gives general information about the authority, purpose, coverage, organization, enforcement, and liability of the act, as well as definitions and rules of construction, and exemption of the rules and finance charge. In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met: The credit is offered or extended to consumers The offering or extension of credit is done regularly The credit is subject to a finance charge The credit is primarily for personal, family, or household purposes Subpart C Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentages rate calculations, rescission requirements, and advertising It is the most important and detailed part of TILA, that regulates consumer loan.
Rules on disclosures: Written form The disclosures shall reflect the terms of the legal obligation between the parties. information necessary for an accurate disclosure is unknown to the creditor-the disclosure is based on the best information reasonably available- state clearly that the disclosure is an estimate transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest shall be considered accurate if the disclosure is based on the information known to the creditor
Page 26 Advertising: Actually available terms, Advertisement of rate of finance charge, Advertisement of terms that require additional disclosures-Triggering terms, Catalogs or other multiple-page advertisements; electronic advertisements, Alternative disclosures--television or radio advertisements, Tax implications, Misleading comparisons in advertisements, Misrepresentations about government endorsement, Misleading use of the current lender's name, Misleading foreign-language ad. Subpart D - miscellaneous information (oral disclosures, Spanish language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions and rate limitations.)
FSPL contains many important provisions included in TILA act such as: right to recession, necessary form of credit (written form), advertising of banks products, important elements of disclosures, etc.
Calculation of interest rate and more detailed information about advertising (in FSPL there is provision of clear and understandable advertising, prohibition of inaccurate and untrue advertising and prescribed penalties in case of law violation) as well as subpart D should be incorporated in future Serbian Law. Page 27 Basic Principles of Consumer Protection in EU:
Consumer can buy what he wants, where he wants If it doesnt work, send it back High safety standards for food and consumer goods Awareness of food ingredients Contracts should be fair to consumers Sometimes consumers can change their mind Making the easier to compare prices Consumers should not be misled Protection while consumers are on holiday Effective redress for cross-border disputes recognized and approved by European Commission Page 28 EU Directive 48/2008: Directive 48/2008/EEC was enacted by European Parliament and Council of European Union in 2008.
Protects consumers with 4 sets of norms: obligation of pre-contractual information obligation of fair consumer loan advertising with minimum of information prescribing required form and content of consumer loan agreement definition of rights and obligations of the consumer
Pre contractual phase-main features: duration of the credit agreement, total amount of credit, the borrowing rate ,annual percentage rate of charge and the total amount owed by the consumer, the amount, number and frequency of installments, the cash price for goods or services supplied against specific payment terms or a linked credit agreement, costs linked to or resulting from the agreement, contractual obligations, consumer rights, the consequences of late payments and defaults, sureties.
adequate explanations to consumer right to withdraw (14 days) early repayment Serbian FSPL = EU 48/2008 Page 29 Financial Service Protection Law New Serbian Law, effective from 2012 regulates the rights of consumers of financial services provided by banks, financial leasing institutions and traders, as well as conditions and ways of applying these rights Article 5 of FSPL defines 5 principles of consumer protection in financial services: right to equal relations with creditor antidiscrimination right right to information right to definition of contractual obligation right to protection of interest of consumer
Article 6 insures clear and understandable way of advertising financial services. It prohibits placement of inaccurate information and possibility of misinterpretation about credit conditions. Article 7 prescribes written form of credit contract. Every party should receive a copy of a contract. The contract cant contain articles where consumer declines his rights guaranteed by this Law.
In Article 10 it is prescribed that creditor must inform consumer about his general provisions and gives him the explanation and instructions about applying of general provisions. Creditor is obligated to provide consumer with the written form of general provisions on consumers request. Page 30 Financial Service Protection Law Article 12 entitles consumer on right to recession of loan. Consumer can rescind from credit agreement within 14 days after signing, without giving any reasons, if he hasnt start using the credit. Consumer must inform the bank about his change of mind. If consumer wishes to rescind from contract of trade (in 3 party loan agreement), consumer is obligated to return the object of trade. Consumer has an obligation to compensate to seller, if any damage were detected o the object of trade. Consumer has no obligation to pay any fees to bank, except the real costs that bank had in process of granting the credit. Article 13 explains consumers right to information. Consumer has the right to receive instructions and conditions concerning consumer loan. Article 14 is a request for minimum professional qualifications. Employees in bank have to have education, experience and knowledge as well as professional and personal qualities. They have to respect consumer and to inform consumers accurately and completely about consumer loan. The bank has an obligation to give a proper training and instructions to its employees. In article 15 are given pre-contractual information that bank has to provide to consumers : nominal interest rate, effective interest rate, currency, period covered by the contract, total amount of loan and all other costs borne by consumer. This information has to allow consumer to compare offer of different banks. Article 17 of Financial Services Protection Law provides the elements of credit offer that bank must provide to consumer . Article 18 explains credit reporting and consumers right to view his credit report, without charge. Page 31 Article 19 prescribes provides the basic elements of credit agreement article 28 is provided that bank cant single-sided change the elements of agreement. Bank has to obtain written consent from consumer. In article 30 gives consumer right to free credit statement. Bank has to provide at least twice a year consumer with a free credit statement. Article 32 gives bank the right to charge penalty rate in case of late payments
article 40 of FSPL states that if the consumer rescinds the contract of sale, seller has an obligation to inform the bank about recession of the contract. Bank has to return the amount that consumer already paid, including interest rates. This article covers the situation when consumer is denied a consumer loan. As a result of this, previous contract of sale must be rescind. Page 32 Conclusion: Confusing situation in Serbian Law concerning consumer loan-without the proper regulation New regulation-FSPL, effective 2012 completely transcribed from EU Directive 48/2008 Absolute need of the law dedicated solely to consumer loan as a special type of credit transaction (example Croatian Consumer Loan from 2009) Improvement in FSPL : currency clause, prohibition of aggressive and abusive bank marketing, required current account alongside credit account) National Bank of Serbia should follow and harmonize its regulations with other not financial regulations (example-Financial Service Protection Law and Consumer Protection Law should have complementary articles) Page 33 THANK YOU FOR YOUR