2012-11-12
The Bank of Lithuania: for fast credit companies–obligation to be guided by Responsible Lending Regulations, for irresponsible advertising–prohibitions
Taking into account the rapid expansion of the fast credits market, the Bank of Lithuania will shortly start applying responsible lending requirements to the providers of such credits. They are aimed at protecting residents from carelessly assumed financial burden and avoiding painful social consequences. Advertising that encourages irresponsible borrowing will be prohibited.
“We feel that one of the major problems in the consumer credit market is offhand assessment of customer solvency. Therefore we will impose on all providers of consumer credits a strict obligation to observe the Responsible Lending Regulations–the credit share payable by the consumer, interest and other liabilities are not to be in excess of 40 per cent of his/her sustainable income,” said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.
According to him, bound by the obligation to identify whether the limit has not been exceeded, credit providers will have to assess income with particular thoroughness and responsibility, which is currently missing in the market.
After taking the supervision of consumer credit market over from the State Consumer Rights Protection Authority this year, the Bank of Lithuania has conducted a study, which revealed that only one out of ten fast credit providers observes the Responsible Lending Regulations. One fifth of consumer credit providers do not check whether the customer has income and do not apply the income-to-liabilities-ratio rule. In many cases the customer’s other financial liabilities are not considered either.
Tighter solvency assessment requirements will be embedded in the new Regulations for the Assessment of Consumer Credit Borrower Solvency and Responsible Lending as well as in the respective amendments to the Responsible Lending Regulations.
“Easily accessible money becomes bait which can easily draw one into a vicious circle of debts when one borrows to be able to repay old debts. There is no doubt that aggressive advertising, which sometimes is reminiscent of the temptations of drug traffickers, has a significant influence on that. To curb such likely encouragement of addiction, we are tightening the legal acts regulating advertising,” said the Chairman of the Board of the Bank of Lithuania, Vitas Vasiliauskas.
The Bank of Lithuania has already prepared and will shortly supplement the Guidelines on Advertising Financial Services with a provision which will prohibit the encouragement of consumers’ irresponsible borrowing in advertising consumer credit. The Bank of Lithuania will also propose providing for the prohibition to encourage irresponsible lending in advertising consumer credits in the Law on Consumer Credit.