Bulgaria’s Parliament passed at second reading on March 28 amendments to the country’s Consumer Loans Act, which set a ceiling the loan interest rates and required banks to print the entirety of the loan contracts in at least size-12 font, thus eliminating fine print.
The amended law set the ceiling on the annual interest rates at 10 per cent above the legal rate set by the Cabinet for overdue payments in leva or foreign currency, multiplied by five. This means that the current cap is about 50.5 per cent, given that the Government rate for overdue payments is 0.1 per cent [(0.1+10)x5], socialist MP Georgi Kadiev said.
The cap is unlikely to affect banks and appears targeted at non-banking lending institutions offering quick loans, the interest on which often goes into triple-digits. Quick loans in Bulgaria are different from payday loans that have become popular in Western Europe – the amounts borrowed are higher (up to and exceeding 1000 leva, or about 500 euro) and they have a longer repayment time, although this is usually one year.
The quick-loans industry has come under much criticism in recent months, with media reports alleging that some lenders engaged in unfair practices, including failure to clearly and accurately disclose terms and conditions or fees owed by the loan recipients.
All current loans that exceed the legal interest rate cap are declared invalid, according to one of the clauses in the new law.
Additionally, lenders are forbidden from unilaterally changing interest rates unless such a provision is stipulated in the loan contract and only if the loan contract outlines “the objective reasons for doing so that are independent of the creditor’s will”.
Another key provision of the bill passed by MPs is the requirement for lenders to offer their customers contracts written in uniform font size (no less than 12), thus eliminating fine print in lending contracts.
Parliament also voted to ban banks from charging fees related to the servicing of outstanding loans, but decided to allow lenders to charge fees for loan applications. During the debate, Yordan Tsonev – chairperson of the budget committee and one of the authors of the bill – said it was possible for banks to introduce new fees to make up for the lost revenue, but said he hoped that the competition in the banking industry will prevent that from happening.