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Wednesday 19.09.2018 | Name days: Verners, Muntis
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Economy Minister: “fast” credit industry may experience a new bubble

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Daniels Pavluts

One of the most rapidly growing types of consumer crediting in Latvia are the so-called fast credits. Such credits can be received by sending a short message from a cellphone or the internet. Fast credits allow consumers to resolve their short-term financial difficulties. Unfortunately, facts show that this industry is going through a poorly regulated but rapid bloom, which created serious risks – Latvian borrowers can end up in a long-term debt trap by taking short-term debt obligations, warns Economy Minister Daniels Pavluts.

According to the data from nozare.lv and gudriem.lv, 22% of Latvian residents have used fast credits. Of them, 48% are experiencing problems with timely performing credit payments.

In order to provide stricter regulation of fast credits and more effective protection of consumers’ interests, Economy Minister has created a working group, which will be in charge of developing amendments to regulations, including the Consumer Rights Protection Law, for their submission to the Cabinet of Ministers and Saeima. Furthermore, the minister approves the already developed amendments to the Civil Law. These amendments provide for setting a maximum possible cap on fines in order to avoid a situation when a borrower is required to pay a disproportionate amount (formed from the fine, interest rates for missed payments and compensation for losses).

“Before the crisis of 2008, our country experienced a “real estate bubble”, which was maintained by the easy availability of mortgage loans. We have all felt the consequences of this period. A troubling situation is forming in the fast credit industry; there are risks of a new socio-economic bubble. Crediting without a serious solvency assessment and the issue of new credits to pay for old ones leads people into a debt trap, getting out of which is troublesome to say the least. Young people and individuals with irregular income often fall into this trap,” – notes the minister.

Pavluts noted that borrowers may become indebted for life if they are unable to pay back a credit in time. “The current commercial practice forces us to seek solutions, because the current interest rates are too disproportionate (from 170% to 360% per year, aside from first registered credits). Often marketing and advertisement companies are very manipulative and deceiving in this regard, offering statements like “first credit – for free” or “apply for a credit and receive a free pizza.” The duty of the state is to find a reasonable solution to this situation. Perform strict supervision in the interest of consumers, preventing very unpleasant consequences in the process,” – notes the minister.

The Economy Ministry’s created working group will need to develop relevant amendments before April 1, 2013. Representative of the Economy Ministry, Consumers Rights Protection Centre, Finance Ministry, State Revenue Service, Finance and Capital Market Commission, as well as non-government organizations.

It is also planned to expand the authority of the Consumer Rights Protection Centre, giving the centre more freedom to acquire the information it needs from non-banking credit organizations.

Ref: 103.109.109.5770


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