The new version of the Consumer Credit Act, which has been in force since December 2016, has reduced quite a number of unfair practices by non-bank lenders as well as by banks themselves. Most of this was reflected in consumer credit agreements, as well as the possibility to set sanctions and fines for non-payment. However, there is still no limit to the maximum amount of interest or APR that can be claimed for a loan. But that may change.
Three basic suggestions
There are currently three basic proposals under discussion to limit the maximum interest rate or the whole APRC that would be allowed to lenders. The first is based on the central interest rate set by the central bank, the second on statutory default interest and the third on average interest on the consumer credit market.
The first proposal to cover the interest rate over which no loan should go is derived from the REPO rate. Specifically, it is set as ten times the current REPO rate. Too often, the REPO rate does not change, so it would be a way of setting a maximum, which would not be an administrative burdensome calculation and changes in lending conditions. However, this is a relatively high ceiling, we would be at 20 percent.
The statutory interest on late payment, that is, the interest paid by a citizen if it is in arrears with payment for any state or state or public institution, is the basis for the second proposal. This would be double the APR established for the current statutory default interest.
The statutory default interest is set at the basic eight percent plus the current REPO rate. Given that it is now at two percent and the sum is ten percent, the maximum ceiling as twice the APR set for the current statutory default interest would also be twenty percent.
Finally, the third proposal that might be considered in the Chamber of Deputies is the German model. In Germany, the ceiling is set at twice the price of current market interest, which is currently estimated by the government to be around eight to ten percent, about half compared to the previous two proposals.
Why are the efforts to cap the maximum interest rates on bank and non-bank loans?
As can be seen from the gradual development of the loan market in the Czech Republic, compared to, for example, Germany, the Czech perception of loans is greatly distorted by the post-revolutionary Klausian laissez-faire market access, which is a completely free market with almost no regulations.
This was also reflected in the societal perception of the loan market in the sense that we tolerate loans where the APRC is set to 100% on longer-term loans, even short-term quick loans even in thousands of percent because it is only a short loan period where most The loan makes a charge for it. However, in the event of default, both facts often have a fatal impact on consumers with a weak financial or social background.