Bulgarian new rules on consumer loans enter into force on July 22

The new Bulgarian law on consumer loans, approved by Parliament on March 28, came into effect on July 22, 2014, capping loan interest rates and requiring banks to print all loan agreements in at least 12 font size, eliminating the fine print.

The law provides that a customer who repays a mortgage loan at the beginning of the first 12 months of the loan term, the fees cannot exceed one percent, whereas previously they were as high as five percent.

Banks will no longer be able to unilaterally change the terms of loan contracts.

Loans up to 400 leva will now also be covered by the Consumer Loans Act and customers will need to receive a form detailing full details of loan terms and fees.

The changes were introduced as what was supposed to be a response to low-income people finding themselves with huge financial burdens due to “hidden” conditions in contracts.

The amended law sets the annual interest rate cap at 10 percent above the legal rate set by Cabinet for overdue payments in leva or foreign currency, multiplied by five. This means that the current cap is around 50.5 percent, given that the government rate for overdue payments is 0.1 percent. [(0.1 +10) x5]Socialist MP Georgi Kadiev said in March during the second reading debate on the legislation.

The cap is unlikely to affect banks and appears to target non-bank lending institutions offering quick loans, with interest often reaching triple digits. Quick loans in Bulgaria are different from the payday loans which have become popular in Western Europe – the amounts borrowed are higher (up to and exceeding 1000 leva, or around 500 euros) and they have a longer repayment term, although that it is usually one year.

The fast lending industry has come under heavy criticism in recent months, with media reports alleging that some lenders have engaged in unfair practices, including failing to clearly and accurately disclose terms and conditions or fees. owed by loan recipients.

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