Legislative Measures for Promoting Responsible Lending in Estonia Nordic-Baltic Seminar “Consumer Credit in Nordic-Baltic Area: From SMS-Loans to Responsible Lending?” Kristiina Koll, Adviser, Ministry of Justice, Estonia

General aim of responsible lending Responsible lending – credit products are appropriate for consumers’ needs and are tailored to their ability to repay the credit Aim to avoid over-indebtedness

Consumer Credit Directive Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (hereinafter CCD)

Transposition of CCD The law amending the Law of Obligations Act and other Acts (võlaõigusseaduse ja teiste seaduste muutmise seadus) The changes in the Law of Obligations Act (hereinafter LOA) came into force on the 1 st of July 2011.

Recent amendments The Law amending the Law of Obligations Act and the Advertisement Act (võlaõigusseaduse ja reklaamiseaduse muutmise seadus) The changes came into force on the 1 st of July 2013

Estonian legislation Article 8 CCD Article 5(6) CCD + some clarifications § LOA

LOA § Obligation to comply with the principle of responsible lending The creditor has to: Acquire relevant information; Carry out a creditworthiness assessment; Provide adequate explanations to the consumer.

Acquiring necessary information Obligation to gather information, including: the consumer's financial situation, regular income, other financial obligations, performance of earlier payment obligations and the impact of potential increase of the financial obligations arising from the consumer credit contract. List non-exhaustive

Acquiring necessary information (2) Information is to be obtained: from relevant databases or from the consumer The creditor is obligated to inform the consumer of the information the consumer has to submit to the creditor. The creditor is prohibited from encouraging the consumer not to provide the information required for the creditworthiness assessment.

Creditworthiness assessment Obligation to assess, whether the consumer is able to pay back the credit under conditions stipulated in the credit agreement.

Adequate explanations Obligation to provide adequate explanations to the consumer taking inter alia account the creditworthiness assessment The aim – place the consumer in a position where the consumer to assess whether the proposed consumer credit contract corresponds to his needs and to his financial situation

Legal nature Informed decision upon conclusion of the contract No prohibition to grant credit to a consumer, who is not creditworthy A part of pre-contractual information duties

Burden of proof In case of a dispute the creditor shall demonstrate the performance of the obligations required for compliance with the principles of responsible lending.

Infringements and sanctions Article 23 CCD In Estonian law: Sanctions by the Estonian Consumer Protection Board Contractual remedies, for example compensation for damages

Compensation for damages Decision by the Estonian Supreme Court, 27 th of November 2012 If the creditor does not perform the obligation to implement the principle of responsible lending, the consumer has the right to claim compensation for damages.

Compensation for damages (2) The aim is to place the person claiming for damages in a situation as near as possible to that in which the person would have been if the circumstances which are the basis for the compensation obligation had not occurred, In this context the aim is to place the consumer in a position, as if he had not concluded the credit agreement.

Compensation for damages (3) Damages – all of the negative consequences, which have arisen from the credit agreement, for example late payment interest, contractual penalties, loss of assets. Right to set-off the claim for compensation of damages against the claim for repaying the credit

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