Gabriela Kocurek and Marta Nagajska for prawo.pl: “The new law will make it harder to use the free credit sanction”
The proposed provisions concerning the free credit sanction significantly limit consumers’ ability to make full use of their rights, while at the same time forcing both borrowers and lenders to engage in court disputes. The proposed solutions raise concerns due to numerous ambiguities and vague concepts. Senior Associate Gabriela Kocurek and Associate Marta Nagajska write about the controversial changes on the prawo.pl portal. Read the article in Polish here!
What is the free credit sanction and how does it currently work?
The free credit sanction (SKD) is a consumer protection mechanism provided for in the current Consumer Credit Act. When a lender violates certain provisions protecting the consumer – for example, fails to maintain the written form of the contract, omits mandatory contractual elements, or breaches the provisions on maximum credit costs – the consumer may submit a written declaration and repay only the loan principal, without interest and other costs. The current regulation is simple and accessible to the average consumer, who does not need a lawyer to make use of it. It is enough to show that a violation provided for in the act occurred, regardless of whether it actually affected the consumer’s situation. This “automatic” nature of the sanction is the main source of criticism from the lending industry, which points to the disproportionality of the SKD – even a minor irregularity may deprive the lender of all income.
What changes does the new bill introduce?
The draft of the new Consumer Credit Act, developed by the Office of Competition and Consumer Protection (UOKiK) to implement the CCD II Directive, introduces a division of the sanction into three categories instead of one universal one. The first is the classic SKD (exemption from interest and credit costs), provided for the most serious violations. The second, milder sanction, consists in releasing the consumer from the obligation to pay only half of the interest and remaining costs – it concerns less significant irregularities which are currently covered by the full SKD. Moreover, this sanction may be adjusted by the court, which will take into account the circumstances of the violation and the legitimate interests of the parties. The third, most severe sanction, releases the consumer from the obligation to repay not only the interest and costs, but also the loan principal itself – it applies when the contract is concluded without the consumer’s request or consent.
Problems with the proposed regulation
The KWKR experts draw attention to numerous doubts concerning the new provisions. The draft uses vague concepts that create room for abuse and interpretation. For example, the provisions concerning the assessment of creditworthiness are to be implemented “in the interest of the consumer” and take into account, “in an appropriate manner,” relevant factors – such terms cannot be clearly defined. Similarly, the requirement to deliver the contract to the consumer “without delay” is unclear. Such wording means that both consumers and lenders will find themselves in a more difficult situation – consumers will have to use more complex arguments and rely more often on legal assistance, while lenders will bear higher legal costs in handling loan processes.
Consequences for consumers and lenders
The proposed changes, despite the apparent intention to respond to the lending industry’s postulates regarding the proportionality of sanctions, may in practice prove disadvantageous for both parties. Consumers lose access to simple and clear protection – instead of an automatic sanction, they will often have to engage in court disputes and use complex arguments. Lenders, on the other hand, although gaining the possibility of moderating some sanctions, face an expanded catalogue of violations and the risk of abuse resulting from vaguely worded provisions. The proposed regulation, instead of increasing consumer protection or taking into account the industry’s postulates, leads to a “blurring” of a previously clear legal institution and to increased costs and conflicts for all interested parties.
How does the free credit sanction currently work and what are its main benefits for consumers? What changes to the free credit sanction are envisaged in the draft of the new Consumer Credit Act? Why do the proposed provisions raise concerns among both consumers and lenders?
These and many other questions are answered by Gabriela Kocurek and Marta Nagajska in their article published on the prawo.pl portal.
