First signs of change in payday loan market
At the end of 2015, the first signs of change were seen in the payday loan market, allowing to state that this market is becoming more sustainable, and, therefore, more responsible. During the final quarter of the previous year, the number and amount of new consumer credits granted by consumer credit providers dropped by a tenth. Payments overdue grew slower.
‘It is evident that the payday loan market begins to understand the clear-cut message that has been sent for quite some time now — irresponsible lending has never been and will never be tolerated. This was driven by active supervision, requirements to assess customer solvency, penalties for irresponsible lending, and termination of activities of the largest credit provider due to significant violations. Hence, we assume that the quality of the assessment of solvency in the payday loan market will continue to improve this year,’ said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.
In the fourth quarter of 2015, quarter on quarter, the amount of new consumer credits granted decreased by 10 per cent — to EUR 65 million, while the number of new consumer credits granted decreased by 11 per cent — to 195 thousand.
‘We hope that favourable trends will also be reinforced by amendments to the Law on Consumer Credits, proposed by the Bank of Lithuania and approved by the Seimas. Amendments to the Law that came into force as of 1 February will not only ensure better consumer protection but also give more powers to the supervisory institution. All this will undoubtedly contribute to the development of a more responsible consumer credit market,’ said V. Vasiliauskas.
However, even though favourable trends started to emerge, statistics of the previous year were affected by them only partially.
As of 31 December 2015, customers were given 562 thousand payday consumer credits — 11.1 per cent more than at the end of 2014. The loan balance was EUR 251 million — it increased by 30.2 per cent.
The number of past due loans, in comparison to the overall consumer credit portfolio, increased (from 33% at the end of 2014 to 36% at the end of 2015); however, in the last quarter, the share of past due loans grew at a twice slower pace, compared to the third quarter of 2015.
The Bank of Lithuania began supervising the consumer credit market on 1 January 2012, obeying the law on the transfer of supervision of the whole financial market to a single body, adopted by the Seimas. Since then, the Bank of Lithuania dealt with 58 cases of violations of the Law on Consumer Credit according to claims received or on its own initiative. In relation to them, various enforcement measures have been applied — from notices to removal from the list of consumer credit providers; 25 financial fines were imposed on consumer credit providers, the total amount of which already exceeds EUR 207 thousand. The largest fine was imposed this year — EUR 30,000.
Amendments to the Law on Consumer Credits, which must ensure more responsible lending and borrowing, came into force on 01 February 2016. Stricter supervision of the consumer credit market was proposed by the Bank of Lithuania, which prepared draft legal acts. The ceiling of interest and other taxes, paid for the amount borrowed, rates was established, lending at night was forbidden, and the event of default will be calculated only for a limited period of time. Consumer credit companies must check information on revenue and liabilities, submitted when applying for a credit, in databases or documents. More information on market regularisation innovations is available online.
In 2015, the Bank of Lithuania received 75 complaints about actions of consumer credit providers — this is the largest amount of complaints ever (52 complaints were received in 2013, 47 — in 2014). Also, 34 applications regarding disputes with consumer credit providers were received.
In 2015, consumer credits were granted by 37 enterprises (non-credit institutions) out of 66 that are included in the public list of consumer credit providers. Last year, 13 new enterprises were included in the public list of consumer credit providers, whereas 7 enterprises were removed (3 — at their own request).