Bulgaria’s new Consumer Loans Act, approved by Parliament on March 28, came into effect on July 22 2014, capping 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 legislation provides that a client that repays a mortgage early in the first 12 months of the term of the loan, the fee may be no more than one per cent, where previously it reached up to 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 clients will have to be given a form specifying all details about the conditions of the loan and fees.
The changes were introduced as what was stated to be a response to people with low incomes ending up with huge financial burdens because of “hidden” conditions in contracts.
The amended law sets the ceiling on 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 in March during the second-reading debate on the legislation.
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.