Draft Law for the Protection of Users of Financial Services in Serbia – effects, objectives and remarks
15.03.2011 | Specht Belgrade Team
By virtue of the new Law for the protection of users of financial services, which is in the procedure of adoption before the Parliament of Serbia, the EU Directive on granting loans to consumers shall be applied, which will afford users of financial services in Serbia the protection in accordance with standards and level of protection in the European Union. In addition, some new solutions that represent a step further and match the specifics of the domestic market have been introduced. Thus, the law will apply not only to consumer loans, but to housing loans as well – it will cover all banking products and services, provided by banks, leasing companies and merchants that offer financial products as part of their business or for other commercial purposes. It follows that the new Law, along with the Law on protection of consumers already in force, will complete the system of protection of consumers in Serbia, leading to advancement of fair business practices and correct attitudes towards users of financial services, as well as to securing that these users be informed properly of the features of products they are offered.
Financial services include banking services, services of financial leasing and financial agreements (offered by merchants, especially in terms of deferred payments). Until now, the Law on Contracts and Torts, as a general statute, has been applied to these contractual relationships, in concert with some special rules, so the body of applicable law has been ''dispersed''. Practice has shown that in this way users have not been provided with sufficient protection, so there was a need to separately regulate business of providing financial services. Accordingly, the draft of this Law also introduces some basic protection principles pertaining to users of financial services - the right to an equal relationship with the service provider, the right to protection from discrimination, right to information, right to a determination or determinability of contractual obligations and the right to protect rights and interests. Bearing in mind that the providers of financial services have the position of a stronger contracting party, and that they have the possibility to impose their conditions, the Draft law, in the aim to secure equality of powers, foresees that the financial service agreement cannot contain provisions whereby the user waives the rights guaranteed to him by his Law. In this way service providers are prevented from misusing the freedom to contract for the purpose of denying any of the guaranteed rights.
The Draft law defines the mandatory elements of a contract on certain financial services, which are essential for exercise and protection of the users’ rights and interests, so that the loan agreements will have to contain all bank duties and charges, as well as the conditions under which they can be changed. Neither party may unilaterally have influence on financial contractual obligation in terms of its amount or maturity. For non-compliance, penalties are foreseen. Moreover, disputable contractual provisions should be interpreted for the benefit of the user of financial services.
Unjust contractual provisions, in connection with which many loan users have been complaining about, are defined. A contractual provision shall be considered unjust if it is contrary to principle of conscientiousness and fairness and leads to essential disproportion between contracting rights and obligations at the detriment of the loan user. Such would be contractual provisions allowing unilateral change of key elements of an agreement, right of unilateral termination of the agreement at any moment for the benefit of service provider (while the same right is not granted to the loan user), change of contractual obligation or non-compliance with it, taking into account exclusively interest of one party, etc. In order to ensure equality and legal security, the Draft law foresees the obligation of providers of financial services to obtain prior written consent of the user for any change of the mandatory elements of the contract.
On the other hand, in order to enhance the protection of users, it is foreseen that they in principle have the right to terminate an executed financial service agreement without indicating reasons for the termination.
The problem that the Law is supposed to resolve is the change of interest rates during repayment of loan. Banks will not be able to change interest rates according to their unilateral will (with the pretext of “change of business policy”), and this provision is supposed to affect all future liabilities stemming from existing loans and all new loans, executed after the Law would come into force. The Draft law defines precisely the method of determining a variable nominal interest rate, as well as the obligation of banks to inform their clients on changes of such rate before the their implementation.
The new law prescribes also fair advertising and informing users of financial services in a clear and understandable way, while advertising must not contain false information, i.e. information which can create wrong perception on conditions of using financial services. For instance, it is forbidden to indicate that a loan or lease is free of charge, if the approval thereof is conditioned upon some cost for the user, or may generate some other liability. In general, the right of the user to be informed includes an active role of the financial services providers towards individual users – they must provide information, data and instructions on an agreement or service, as requested by the user, in writing and without compensation.
Moreover, the most frequent problem users used to have was lack of knowledge of general business terms of banks (which were applied to their contractual relationships with a respective bank), which were presented to them only at the moment of execution of an agreement on financial service, i.e. inability of the users to be acquainted with the content and meaning of general business terms of a bank in a timely manner. In order to avoid such situations and enhance the position of users as a weaker side in the contractual relation, the Draft law foresees obligation of the financial service provider to enable user to be acquainted with the content of its general business terms of the bank in Serbian language at least 15 days before implementation of those general conditions as well as to provide appropriate clarifications and instructions related to their implementation.
A particular benefit for the users would be obligation of banks to proclaim suspension of the obligation of loan repayment upon a user’s request, if a user gets into a difficult financial position due to circumstances that occur during the validity of her contractual relationship with the bank and that are not attributable to user’s fault.
A possibility to file a complaint against a provider of financial service (apart from judiciary protection) is also introduced, as well as the possibility to solve disputes occurring between a user and a financial institution in the procedure of mediation. In order to provide for efficient protection, supervision of implementation of this Law shall be performed by National Bank of Serbia and the ministry competent for protection of consumers. The National Bank shall be authorized to charge pecuniary penalties, and to publicize information on providers for which it is established that that they did not act in accordance with this Law, which should have a preventive impact on other providers of same category of services.
In response to this Draft, the banks emphasize that although it is intended to benefit consumers, its enactment would inevitably result in increase of average interest rate. Representatives of the banks claim that this Draft law would force users and banks to enter into contracts without the clause enabling interest rate adjustment to movements of global benchmark interest rates. The banks shall in that case be forced to calculate additional risk, which would lead to substantial increase in interest rates.
March 2011, Specht Belgrade Team
