Consumer credit means a deferred payment, credit, a loan or a similar financial service provided or pledged to a consumer by a lender or intermediary. Supervision of compliance with duties in the provision of consumer credit by lenders who do not provide credit on the basis of an authorisation, licence or registration with the Czech National Bank (e.g. non-bank credit, hire-purchase and leasing companies) is performed by the Czech Trade Inspection Authority.
Furthermore, supervision does not pertain, for example, to credit
- where the claim is secured by a lien on property and the credit is provided in connection with covering housing needs,
- negotiated in the form of hire or leasing unless it results in acquisition of ownership title to the subject of the contract after a certain period of time,
- provided without any interest and remuneration,
- totalling less than CZK 5,000 or more than CZK 1,880,000,
- provided by an employer to his employees at a preferential rate and as part of his ancillary activities,
- provided by an investment firm or bank in connection with the securities transactions it executes
(the above list is not exhaustive)
- Information duties of a consumer credit provider (hereinafter the “lender”)
- Advertising offer
If consumer credit or the intermediation thereof is offered in the form of an advertisement containing any information about its cost, the advertisement must give in a clear, accurate and distinct manner
- the annual percentage rate of charge as a percentage of the total amount of the consumer credit (APRC),
- the borrowing interest rate together with information about any fees included in the total cost of the consumer credit for the consumer,
- the total amount of the consumer credit,
- the amounts of the individual repayments and the total amount to be repaid by the consumer,
- the duration of the consumer credit,
- in the case of consumer credit in the form of deferred payment for specific goods or services, their price and the amount of any advance payment,
- information on any obligation to conclude a contract on an ancillary service relating to the consumer credit, in particular insurance, where the conclusion of such a contract is a condition for obtaining the consumer credit under the terms offered and the cost of such a service cannot be determined in advance.
- The required information must be stated in the form of a representative example.
- Information required before the conclusion of the contract
The lender will provide to the consumer far enough before the conclusion of the contract, in documentary form or on some other durable data medium, information about
- the lender and any intermediary of the consumer credit,
- the total amount, borrowing conditions and duration of the consumer credit,
- the borrowing interest rate, the conditions of application of this rate and any index or reference interest rate applicable as the initial interest rate, as well as the timing, conditions and procedure for changing the interest rate (where different interest rates are applied in different circumstances, such information is stated for all these interest rates),
- the total amount payable by the consumer and the annual percentage rate of charge (APRC), which must be further explained using a representative example stating all the assumptions used to calculate it, in respect of which the lender must take into account the requirements for consumer credit given by the consumer,
- the amount, number and frequency of payments to be made by the consumer,
- the fees for maintaining one or more accounts recording payment transactions and drawdown, unless the opening of an account is not mandatory,
- the fees for using payment instruments for payment transactions and drawdown,
- any other fees under the contract and the conditions under which such fees may be changed,
- the interest rate applicable to late payments or to a contractual fine if the consumer falls into arrears, and any other consequences of the consumer falling into arrears,
- any required collateral,
- the right to withdraw from the contract,
- the right to early repayment of the consumer credit and any right of the lender to reimbursement of incurred costs and the method of determining them.
- Information duty for the duration of the consumer credit
For the duration of the consumer credit, the lender must inform the consumer in documentary form or on some other durable data medium about any change in the borrowing rate reasonably in advance of it taking effect. Otherwise, this change will not take effect vis-à-vis the consumer.
This information includes the amount of repayments following the change in the borrowing rate and the frequency of those repayments.
- Advertising offer
- Consequences of a breach of the information duty
If the contract on consumer credit
- is not in written form,
- does not contain the information required by law, or
- was not provided to the consumer at least in one copy in documentary form or on some durable data medium, despite the consumer having requested it from the lender, the consumer credit is regarded as remunerated from the start at the Czech National Bank’s discount rate valid at the time of conclusion of the contract, and provisions on other payments for the consumer credit are invalid. In addition, the lender faces a risk of sanctions under public law.
- Selected rights of the consumer and duties of the lender
Offer by telephone
Where consumer credit is offered, negotiated or intermediated using voice telephone communication, text messages or multimedia messages, a telephone number for access to services with a higher-than-usual price cannot be used.
Providing an adequate explanation
The lender must provide an adequate explanation so that the consumer can evaluate whether the proposed contract on consumer credit is in line with his needs and financial situation. An adequate explanation means above all an explanation of the pre-contractual information, including the consequences of arrears, and basic information on the individual products offered and their impacts on the consumer.
Evaluating the applicant’s creditworthiness
The lender may only provide consumer credit if it is clear on the basis of an evaluation of the consumer’s creditworthiness conducted with professional care that the consumer will be able to repay the consumer credit. Otherwise, the contract on consumer credit is invalid. For this purpose, the consumer must provide the lender at his request with complete, accurate and truthful information necessary to evaluate the consumer’s ability to repay the consumer credit.
Collateralisation of consumer credit
The collateralisation of consumer credit must not be manifestly disproportionate to the value of the collateralised claim.
Withdrawal from the contract on consumer credit
The consumer may withdraw from the contract on consumer credit without stating reasons within 14 days of the conclusion of the contract. If the contract does not include all the information required by law, the time limit for withdrawal will end no earlier than 14 days after the lender provided the missing information to the consumer in documentary form or on some other durable data medium.
If the consumer has withdrawn from the contract, he must repay the principal to the lender without unnecessary delay, and at the latest within 30 days of the day when the withdrawal notice was sent. In this case the consumer must pay the lender interest equal to the amount to which the lender would have been entitled had withdrawal not occurred, for the period from the day when the consumer credit was obtained to the day when the principal is repaid. In the event of the consumer withdrawing from the contract, the lender is not entitled to request any further performance from the consumer except for reimbursement of non-refundable charges paid by the lender to public authorities or other entities entrusted with the performance of public administration.
Termination of the contract on consumer credit
The consumer is entitled to terminate a contract on consumer credit concluded for an indefinite period at any time with immediate effect, unless a notice period was agreed. The lender may not charge a termination fee. However, the agreed notice period may not exceed one month.
Early repayment of consumer credit
The consumer is entitled to repay the consumer credit early in whole or in part at any time over its duration. In such case, the consumer is entitled to a reduction of the total cost of the consumer credit equal to the amount of interest and other costs the consumer would have had to pay in the future had the consumer credit not been repaid early.
In the event of early repayment of the consumer credit, the lender is entitled to reimbursement of necessary and objectively justified costs incurred in direct connection with the early repayment. However, the reimbursement of such costs may not exceed 1% of the part of the consumer credit which was repaid early, provided that the period between the early repayment and the agreed end of the consumer credit exceeds one year. If this period is not longer than one year, the reimbursed costs may not exceed 0.5% of the part of the consumer credit which was repaid early. In certain specific cases, the lender may not require reimbursement of costs arising from early repayment at all. This pertains to cases where the repayment was part of performance under an insurance contract securing the repayment of the consumer credit, where the credit was in the form of an overdraft or where the repayment was made in a period for which no fixed interest rate had been set.
- Intermediation of consumer credit
If the conclusion of a contract on consumer credit is to be intermediated by a person other than the lender who, as part of his business activity or the independent performance of his profession, in return for remuneration offers the consumer the possibility to conclude a contract on consumer credit with the lender or assists him in the conclusion of such a contract or concludes it on behalf of the lender, this person must enter into a written contract on intermediation of consumer credit with the consumer. This contract must contain information on the consumer’s right to withdraw from this contract. Where the intermediary’s remuneration is to be paid by the consumer, the remuneration must be agreed in this contract.
In advertising and documents for the consumer, the intermediary must state the scope of his authorisation, in particular whether he performs intermediary activity exclusively for one lender, for more than one lender or for no lender.
Withdrawal from the contract on intermediation of consumer credit
The consumer may withdraw from the contract on intermediation of consumer credit without giving reasons and without facing sanctions within 14 days of the conclusion of this contract, provided that a contract on consumer credit has not been concluded on its basis in the meantime.
Further information relating to consumer credit is available under the following links: