A new Consumer Credit Act entered into force at the end of last year.
What is its main objective and what role does the Czech National Bank play in it?
We will discuss this with CNB Board member Tomáš Nidetzký.
Good morning.
Good morning.
So what is the objective of the new Consumer Credit Act?
I personally can see objectives on three levels.
he first objective has been widely publicised – consumer protection.
The new law's motto could be
that borrowers' problems are caused by those who lend money and then want it back.
So that's the first objective – to protect consumers.
For providers, there's more emphasis on checking customer creditworthiness.
For borrowers, there are benefits or processes
allowing customers to repay loans early under certain conditions, penalties are limited, etc.
The second objective – which is not talked about as much – is harmonisation of European legislation.
The Consumer Credit Act transposes two directives:
the Consumer Credit Directive and the Mortgage Credit Directive.
What does that mean for customers and providers?
Customers should have a level playing field in the EU and the European Economic Area
for access to such loans and consumer protection.
That's the harmonisation of conditions.
The third objective of the new legislation
is to create a uniform environment, uniform conditions for all market participants.
In the past, only banks were subject to licensing and subsequent supervision by the CNB.
Then there were non-bank credit providers,
which were subject to no licensing process and no supervision.
Because they provided loans as well,
customers might have felt that they too were supervised by the CNB
and that the CNB guaranteed the quality of such providers.
According to media estimates, almost 60,000 individuals and small firms in the Czech Republic
were making a living from lending before this law took effect.
What is the number now that the CNB is registering providers?
This number was often mentioned in the media when the law was being debated.
It's an accurate sum of inaccurate figures.
The 60,000 non-bank credit providers were obtained by looking at the register of sole proprietors.
The sole proprietors whose registered activities included the provision or intermediation of loans
were added up and a figure of 60,000 was obtained.
Of course, this figure is inaccurate.
First, not every sole proprietor with this registered business activity was a provider;
many were intermediaries.
Second, not all of them were active.
Sure, many sole proprietors listed this activity in their trade licence in case they did it in the future,
but they aren't doing it actively now.
When the law was under preparation, the CNB did its own estimates and calculations.
We calculated that there were about a hundred such providers.
We currently have 108 applications from these providers.
We must distinguish between three types of applicants.
The first are providers, actually non-bank providers, banks in inverted commas,
which genuinely keep loans in their books and bear credit risk.
There are 108 of them at the moment.
Then there are intermediaries – legal entities or individuals
who intermediate loans, independent intermediaries.
We currently have around 400 of them registered.
Those intermediaries are linked to tied intermediaries.
They are the actual individuals who sell credit.
We have 26,000 of them registered.
Then there are accredited entities.
That's another category in the licensing process.
They are the organisations that train and subsequently test intermediaries
using exam questions we prepare, on the basis of an examination system in general.
Based on the results of those examinations,
we grant licences to intermediaries, or the intermediaries enter the register.
This examination is proof of their competence.
If we look at the figures you mentioned, can we now assess the success of the law?
I think it's too soon to say in terms of the impact on customers,
but what we can assess, and what was definitely done right,
was the actual making of the law.
It's said that law-making is very similar to sausage-making – it's better not to know how it's done.
The difference here is that I must praise the communication and cooperation
of the Ministry of Finance, the organisation that prepared the law for the legislative process.
Of course, the CNB was also involved as a standard commenting authority
and as the authority with the biggest interest in ensuring that the law was set up correctly.
Last but not least, we also worked with market representatives, who were also involved.
So that provides a basis for the law to work well.
I'm convinced that the law has been set up well.
Life will no doubt throw up some details that could have been done better,
but I think there'll be no reason to amend the law in the coming 3–5 years.
It is important for it to be digested in practice.
Anyway, I think it's one law that will certainly contribute to market cultivation in the Czech Republic.
So you aren't worried that the law could have the opposite effect
and that some persons or usurers could move into the black market?
The law was also well-designed in that
there was no effort to set it strictly and interfere in the market set-up.
In some countries – Slovakia, for example – there's a limit on the interest rate.
This, of course, can significantly affect the operations of non-bank providers,
as their business model is rather different from that of standard banks.
They work with higher margins and take on greater risk.
Such interference could, of course, lead such entities to hide in the black market.
But that's not the situation here in the Czech Republic,
as we don't restrict the business model of non-bank providers.
On the other hand, the benefit of this law is that it has enabled us to distinguish what the black market is.
Now, any entity that wishes to lend in a trustworthy way goes through a licensing process.
In the past, we couldn't even target the black market.
The CNB is thus the authority that by law should combat illegal consumer credit intermediaries and providers.
Is it already doing so?
I don't think the Czech Republic had the problem of a black market of non-bank providers.
Entering this sector was so easy that there was no reason for it.
There's something else I'd like to say about this:
I don't think the Czech Republic had a systemic black market problem as such either.
We had a number of institutions lending to entities
that for some reason had failed to obtain credit or pass scoring with commercial banks
or were unable to prove their income.
This had no systemic and fundamental impact
on the functioning of the financial system in the Czech Republic.
There were such cases of course,
but there were only a few dozen of them rather than it being a systemic issue.
As for the current situation,
we are now receiving really just a handful of reports from customers
alerting us to possible illegal bank or non-bank credit providers.
How do you check such firms? How are lending conditions regulated?
Can you explain how the CNB monitors this? How much it can intervene?
I don't suppose you expect us to reveal our supervisory methods to you,
but at present it involves gathering customers' complaints and monitoring the public arena,
for example via the internet, where firms offer these loans.
We check whether these entities are licensed and whether they really offer non-bank loans.
Naturally, these entities have no incentive to provide such loans at present thanks to this law,
because if it's found that loans were provided illegally, debtors will pay no interest
and will even get back the interest they've paid in such cases.
Moreover, they can then repay the loan collateral depending on their economic situation.
We also must add a penalty to this, of course.
What are the penalties for failing to comply with these conditions?
The ability naturally depends on the offence.
There are three categories – five, ten and twenty million koruna, plus the highest penalty, licence revocation.
I'd like to emphasise here, though, that it is not the CNB's job to impose penalties.
One of the myths surrounding the CNB is that penalties are our income.
No, we transfer penalties to the state budget.
We have no incentive to impose penalties.
Our goal is to make sure the financial market functions safely and soundly.
Going back to those penalties, they cannot be described in such general terms.
They differ according to the offence and also according to the economic strength of the entity concerned.
The penalty takes that into account.
What does this law and all these changes mean for the consumer?
If I borrow from an entity that is not registered with the CNB,
who can I turn to and what happens next?
You can turn to the CNB or the Financial Arbitrator, whom the CNB works closely with.
However, I'd like to say
that you should never have borrowed from an illegal non-bank provider in the first place.
One reason for creating the law
was to give customers the chance to check out the institutions providing such credit.
You can currently find all the entities licensed in this category on the CNB's website,
so you can easily check whether an entity is licensed.
I would always recommend this to every customer.
If such a situation were to arise,
the law is written to benefit customers.
This means no penalty for you.
On the contrary, the law is framed in such a way
that the penalty and the economic impact discourage non-bank providers of such loans.
So this is certainly good news for consumers.
Thank you for the interview.
I look forward to seeing you again sometime.
Goodbye.
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