In the case of higher expenses, it has become quite common to use debt financing. Debt financing can be understood as a loan, lease, instalment or the use of a credit card. These are many types of consumer credit, which are subject to the same legislation.
Borrowing
Loan agreements are divided into:
- loan agreements secured by mortgage (the loan is secured by pledged property);
- small loans secured either by surety and/or by a proven income;
- overdraft, i.e. different credit and postpaid cards, including payment and credit cards offered by different stores;
- SMS and other quick loans that can be applied for unsecured.
Before concluding a loan agreement, you must receive a detailed information sheet from the lender. The obligation to provide an information sheet applies to all loans. It must be in writing (or reproducible in writing) so as to provide evidence in case problems arise. The information sheet must be given to you before concluding the loan agreement so that you can read what has been written in advance.
The information sheet must contain the following information:
- loan amount
- annual interest rate
- annual percentage rate (APR)
- in the case of a schedule of payments, the amount of the monthly installment
- interest on arrears
- any other fees added in conjunction with arrears.
It is not necessary to provide an information sheet in the following cases:
- in the case of loans granted by the employer to its employee below market interest rates;
- a loan from a credit institution or an investment company for the performance of a securities transaction;
- loans secured by possessory pledge (pawn shops).
Consumer obligations
Although the lender has a much more extensive obligation to assess the solvency of the borrowers and inform them of the risks involved, you have the obligation to:
- adequately assess your solvency, taking into account all your monthly expenses and informing the lender thereof;
- read the terms and conditions of the contract and request clarifications if anything is unclear;
- understand what the consequences will be if the loan can no longer be repaid;
- in case of payment difficulties, communicate with the lender (bank, loan association, private person, etc.) to agree on a loan payment holiday or a realistic payment schedule;
- consult a debt counsellor if necessary.
You can withdraw from consumer credit agreements (except for mortgage-backed consumer credit agreements) without giving a reason within 14 days of concluding the agreement.
If you have a problem or complaint, contact your financial service provider beforehand. If your financial service provider does not resolve the complaint to your satisfaction, you can also turn to the Consumer Disputes Committee.
Insurance
An insurance contract specifies the terms and conditions of the insurance cover:
- what is insured, i.e. what is the insured object (for example, a person’s life or health, car, house, personal liability);
- what is an insured event, i.e. as a result of which event the insurer must pay indemnity;
- the amount of compensation for damage or the amount of indemnity;
- when and where the insured event occurred, i.e. in what period and where the insurance is valid;
- what are the obligations of the policy holder;
- what is the policy holder’s insurance deductible.
Forms of insurance
People take up voluntary insurance when they wish to manage their risks and have an interest in doing so, i.e. the obligation to enter into an insurance contract does not arise from law. The most common voluntary insurances are vehicle insurance, i.e. casco insurance, home insurance, travel insurance and life insurance.
In the case of obligatory insurance, the law obliges a person to enter into an insurance contract in certain cases. At the same time, it is possible to choose which insurer to enter into the contract with. The most common compulsory insurance is motor third-party liability insurance, which is made compulsory by the Motor Insurance Act.
In the case of compulsory insurance, a person has a statutory obligation to pay an insurance premium. The obligation to compensate is imposed on the state or a specific person. Compulsory insurance is, for example, compulsory health insurance financed by social tax or also unemployment insurance. The difference between obligatory and compulsory insurance is primarily that the policy holder can choose the insurer of obligatory insurance, whereas this is not possible in the case of compulsory insurance.
An insured event is a previously agreed event, in the event of which the insurer must comply with the performance obligation arising from the contract. The policy holder must immediately notify the insurer of the occurrence of the insured event.
Insurance service providers are insurance companies, branches of insurance companies and insurance intermediaries (incl. insurance brokers and insurance agents), which are subject to the supervision of the Financial Supervision Authority.
Settlement of insurance disputes
Insurance dispute conciliators act through conciliation bodies. A conciliator is an impartial expert in their field who does not represent either party in a dispute and does not make a binding decision or dispense justice. The aim is to find a negotiated solution to the dispute in the presence of a third party.
Motor third-party liability insurance disputes are resolved by the motor insurance conciliation body of the Motor Insurance Bureau.
Disputes related to other insurance services and insurance mediation services shall be resolved by the insurance conciliation body of the Insurance Association.
In addition, it is also possible to turn to the Consumer Disputes Committee of the Consumer Protection and Technical Regulatory Authority.
Payment difficulties
If you have payment difficulties, you must act and look for solutions immediately. The first step is to contact the creditor to change the payment schedule, take a payment holiday, consolidate smaller liabilities into one loan with a lower interest rate, or find another suitable solution. You can also ask a debt counsellor for advice on how to proceed.
If you are already in a situation where interest on arrears, interest and other fees have become too high, you can apply to the court for a reduction of unreasonable accessory obligations. The creditor must justify the amount of the claim against you in court. You will have the opportunity to explain and prove why it is difficult for you to pay such high interest on arrears, interest and other fees. You can also ask the court to review the limitation period.
Through the court, you have the right to file:
- an objection of limitation of the claim;
- a claim for reduction in interest on arrears, interest and other fees;
- an assertion of invalidity of the claim. For example, if you were not able to read all the terms of the contract or if the contract contained terms that were unreasonably prejudicial to you;
- a claim for a reduction in procedural expenses or legal costs.
The most extreme solution for payment difficulties is the bankruptcy of a private individual.
Collection
Debt collection is carried out by judicial and extrajudicial debt collection agencies.
If, when receiving a debt claim from a collection, there is reason to believe that the claim is unfounded or has expired, it is definitely worth contacting the collection company beforehand.
To contest an unfounded debt claim:
- do not ignore the debt claim, address it immediately;
- remember that contesting is only effective if you have not intentionally circumvented the payment of the debt and if the company has not previously submitted claims to you within a reasonable time;
- keep in mind that, in the case of ordinary contracts, claims expire within three years, but the law also allows for a longer term of up to ten years;
- the agreement on the limitation period of the claim must be stated in the contract;
- read the contract signed with the company before disputing and make sure you have grounds to assert that the claim is time-barred (if you can’t find your copy of the contract, ask the company for a copy of the contract);
- send a written objection to the company (if the claim came through collection, then to the collection company). Upon receipt of the opposition, the undertaking is required to prove the existence of the debt and also that they have previously notified you of the debt within a reasonable time.
A time-barred claim is an incomplete obligation, i.e. an obligation which the debtor may perform and which the creditor may claim, but it is not possible to require the performance of the obligation. The law does not prohibit the payment of debt after expiration and the claim does not become extinct after expiration. The court shall take into account the expiration of the claim only at the request of the obligated person. Therefore, if you consider a claim to be time-barred, you must refer the case to the Court to determine whether the claim has expired.
The collection company has the right to maintain the outstanding debt in the payment default register for up to 15 years from the time the debt becomes collectible, and the collection company has the right to keep the already paid debt in the payment default register for another 5 years from the payment of the debt.
If you have a dispute with a debt collection company that cannot be resolved through negotiations, you can turn to the Consumer Disputes Committee of the Consumer Protection and Technical Regulatory Agency or Court. Applying to the Consumer Disputes Committee is free of charge for the consumer, a state fee must be paid when applying to a court, and in the event of a decision made against you, the other party’s legal costs (legal aid costs) must also be paid.
More information on financial services (loans, credit cards, insurance and collection) can be found on the website of the Consumer Protection and Technical Regulatory Authority.
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