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Latvia: Legislator puts brakes on “fast loans”

In recent years, the financial industry in so-called “fast loans” has boomed in Latvia. Now the parliament has adopted rules which substantially slow down business.

Recent amendments to the Consumer Rights Protection Law, which were already adopted in 2018, reduce the estimated total costs of credit to a consumer. Furthermore, the amount of credit granted is also limited and the procedure for repayment changed. These regulatory measures are flanked by restrictions on advertising. Finally, the law introduces stricter requirements for creditors to assess the consumer's ability to repay credit.

Under the amendments to the law, the amount of a credit agreement may not exceed 50% of the minimum wage (EUR 215) if the credit agreement is concluded for a period of up to 30 days and is meant to be repaid in a single payment. Extending such credit repayment period more than twice is prohibited. This condition will not apply in cases where a payment schedule is offered, according to which the principal amount is to be repaid by instalments.

In order for the creditor to be able to assess the consumer's ability to repay, the law states that information received from the consumer can only be relied on if it is sufficient and documented (evidence-based). Creditors are required to exchange information on the liabilities of the consumer and guarantor, as well as their progress, via the Credit Information Bureau.

Changes to the law that entered into force on 1July 2019 stipulate that the total cost of credit to the consumer, if exceeding 0.07 % per day of the amount loaned, is deemed to be disproportionate and inconsistent with fair commercial practices.

Advertising by credit service providers is also generally prohibited. An exception is advertising on the business premises of the creditor or of an intermediary, as well as on the website or mobile application of the credit service provider, if the potential client has identified himself. To address a potential customer in person or by telephone, however, requires the customer’s consent. The exception also applies to postal or electronic messages to consumers if the consumer has agreed to receive them, and in certain cases provided for by law.

General advertising under the brand of a credit service provider hence not for one of its specific products remains admissible. But general or specific advertising are both prohibited in projects implemented by television or radio within the framework of public procurement, financed from State and local government budgets.

Source: Amendments to the Consumer Protection Law 16.10.2018., Nr. 204 (6290) Official gazette no. 2018/204.6