Deception of consumer loans and credit cards charges, stricter rules for digital financial services, mandatory intervention of creditors before a borrower is led to over-charge, but also "right to oblivion" for cancer patients provides for the Ministry of Development bill put into public consultation.

As Business Stories had revealed as early as last March, the draft law incorporates the new European Directives on consumer credit and financial services provided remotely, greatly expanding consumer protection to a time when more and more transactions are carried out through applications and digital platforms.

The bill is not limited to traditional bank loans. It introduces rules for Buy Now – Pay Later, microcredits, credit provided by traders, digital financial services contracts, and includes provisions to address greenwashing and strengthen the right to repair products.

Who is the new framework?

First major change is the significant expansion of the scope of legislation. The new framework no longer covers classic consumer loans and credit cards, but almost every form of consumer credit provided without collateral.

The provisions of the bill include credit cards, consumer loans, microcredits even less than 200 euros, credit provided directly by merchants, "I buy now – pay later" (Buy Now – Pay Later), lease-free leasing contracts, and repair or renovation loans.

At the same time, the application ceiling is increased to EUR 100,000, while a special exemption is provided for unrealised housing renovation loans, even when they exceed that amount. Thus, the new scheme now covers from a small market through application to a large-scale renovation of residence.

Ceiling on charges and final repayment amount

The most important intervention in the bill may concern the total cost of borrowing, as for the first time certain limits are set not only on charges but also on the final amount that a borrower may be called back.

According to the draft law, the Ministry of Development will be able to set ceilings in the Annual Real Interest Rate (GDP), while also introducing a ceiling on the total amount paid by the consumer in relation to the initial capital of the loan.

In particular, the information note accompanying the consultation provides that – with the exception of credit cards – the total repayment amount may not exceed:

- 60% of initial capital for loans up to 4 years,

- 70% for loans from 4 to 8 years,

- 75% for loans over 8 years.

In practice, if a consumer receives a 10,000 euro loan with a duration of three years, the total amount to be returned will not exceed 16,000 euros. Accordingly, for a six-year loan, the maximum repayment amount will be EUR 17,000, while for longer periods at EUR 17,500.

In this way, it attempts to limit cases of excessive burden on consumers from interest, commissions and other charges, particularly in forms of credit where real costs are not always easy to understand from the borrower.

This intervention is one of the most important changes introduced by the new framework, as it transfers the burden from the nominal interest rate to the actual amount that the consumer is eventually invited to pay, regardless of how individual charges are distributed.

End to 'fine letters' and misleading advertising

Strengthening transparency is the second key pillar of the bill. The new arrangements provide for stricter information rules before a credit agreement is concluded so that the consumer is clearly aware of the actual costs, duration and obligations he undertakes.

To this end standard information forms shall be established, and any advertisement containing information on the cost of credit should clearly, concise and distinctly present the basic information needed to compare different offers.

In practice, if a bank or other provider advertises a consumer loan at an attractive rate or a low monthly installment, it should clearly present the total cost of credit, its duration and the basic charges so that the consumer can compare different offers without having to seek critical information in the ‘fine letters’ of the contract.

At the same time, the bill prohibits practices that may prompt the consumer to receive credit without adequate information or without clear display of will. This includes a ban on the granting of credit, i.e. the granting of a loan or credit limit without prior request and explicit consent of the consumer.

The new framework links transparency and credit rating, as credit institutions are required to carry out a meaningful and documented check before granting a loan, assessing whether the consumer is indeed able to serve the funding it requests.

In this way, the Ministry seeks to limit both the effects of misleading promotion of credit products and the risk of over-indebted households as early as the credit granting stage.

Intervention before the borrower is at a dead end

Another major change concerns the way in which consumer cases are to be dealt with which they begin to have difficulties in meeting their obligations.

The bill abandons the logic of intervention when the problem has now swelled and introduces the obligation to take measures at an earlier stage. A specific chapter provides that credit institutions must examine regulatory solutions prior to the initiation of enforcement proceedings in the event of consumer delay.

In practice, this means that when a borrower begins to have difficulty meeting his obligations, creditors should seek solutions such as debt restructuring, lengthening of repayment duration or other forms of convenience, before the case is led to more aggressive recovery procedures.

For example, if a consumer starts systematically delaying the instalments of a loan or showing repeated difficulties in serving his obligations, the creditor should consider settlement solutions before forced recovery procedures are initiated or other adverse measures are taken.

The Ministry considers that early intervention can limit both over-charge and accumulation of new dues, enabling the consumer to return to a sustainable repayment path.

At the same time, provision is made for the development of financial education and information actions for citizens, with the aim of better understanding of the risks and obligations of taking credit.

Free debt advice

Particular attention is also given to the support of consumers in financial difficulties.

To this end, independent debt advisory services are envisaged, through competent bodies that can provide free guidance to citizens on the available options for managing their debts.

Thus, a consumer who is unable to serve its installments will not only be limited to communicating with the creditor, but will be able to seek independent information and advice before making critical decisions on debt management.

This provision is one of the least-proposed but most substantial interventions in the bill, as it carries the burden from simply collecting debts to the prevention and timely support of borrowers.

Loans with a click and cancellation with a click

Particular emphasis is placed on the financial services provided remotely, as more and more consumers are making loans, opening credit lines or gaining access to financial products without ever visiting a natural store.

The bill incorporates the new European legislation on financial services contracts from a distance and provides for stricter information obligations, enhanced consumer protection and new rules on digital interfaces through which such services are offered.

In practice, if a consumer applies for a loan through the application of a bank or enter into an Internet financing contract, it should receive in advance all the basic information in a clear, legible and adapted way to the digital environment so that it can understand the product it chooses and the obligations it undertakes.

At the same time, additional protection is provided for practices which could unfairly affect decision-making through digital platforms, as the new European approach places particular emphasis on controlling so-called 'dark patterns', i.e. design options that induce the user to decisions that might not take under different circumstances.