Analytics, Banks, Financial Services, Lithuania

‘In carrying out market supervision, we noticed a practice implemented by some banks and part of consumer credit providers to apply the agreed credit borrowing rate not only to the paid portion of the consumer credit under the consumer credit agreement, but also to some other charges related to consumer credit agreement. Due to such actions of the supervised financial market participants some complaints from consumers have been received. We took action to stop this inadmissible practice and urged the companies to indemnify for the damage done to the consumers,’ said Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania. 

According to him, consumers who think that the credit borrowing rate established in the consumer credit agreement they had concluded was applied inappropriately are first of all recommended to apply to the company that had granted the consumer credit with a written request to return the overpaid credit borrowing rate and, where necessary, to the Bank of Lithuania. 

Article 2(20) of the Law on Consumer Credit which regulates the consumer credit granting activity provides that the credit borrowing rate can only be applied to the paid portion of the consumer credit. This means that the consumer shall be paid (shall be provided the possibility to use) the total amount of credit, whereas the credit borrowing rate shall only be applied to the paid portion of consumer credit, i.e. granted for use. Such opinion of the Bank of Lithuania was also presented in paragraph 26(3) of the recast of the Guide to Granting of Consumer Credit, approved by decision No 241-176 of the Supervision Service of the Bank of Lithuania of 2 October 2017 published on the Bank of Lithuania website on 6 October 2017.    

In early March, the Bank of Lithuania applied in writing to all supervised entities entitled to engage in the consumer credit granting activity, asking to provide detailed, specific proof-based explanations as to whether their consumer credit granting activity meets the above-named legislative provisions.  

After analysing the information and documents from all companies that replied (a total of 110 financial market participants) a conclusion should be derived that the actions of the majority of them (106 companies) did not provide grounds for a possible breach of Article 2(20) of the Law on Consumer Credit at the time of responding to the Bank of Lithuania’s survey. Four companies did not follow the requirements of the Law.  

More: https://www.lb.lt/en/news/bank-of-lithuania-curbs-ill-founded-application-of-credit-borrowing-rates