Slovakia: new limits on penalties for consumer loan defaults
From 1 July 2010, the sanctions that can be imposed on consumers defaulting on their loan repayments may not now exceed the total amount borrowed.
Sanctions include default interest, contractual penalties and any other sum due from the consumer as a result of defaulting on the repayment of his finances.
The legislation is being introduced by the Minister of Justice as a result of the recent upsurge in demand for consumer borrowing due to the current financial and economic crisis, to prevent consumers in financial distress from exploitation of their weak bargaining position.
The total sanctions may not exceed either of two figures published by special regulation:
- the latest average APR figure published by the National Bank of Slovakia, currently 60.23%), and
- three times the published annual default interest rate (currently 9%)
The change, which was introduced by executive decree amending the Civil Code, was necessitated by the increasing prevalence and sophistication of the forms of usury involving significant increases in the amount receivable by means other than default interest. Strict measures such as this are permitted under EU consumer protection law.
Once the sanctions reach the total amount of borrowings, any subsequent sanctions for default cannot exceed the default interest rate (currently 9%).
Law: Act No.129/2010 on Consumer Credits and Other Credits and Loans for Consumers; Article 8 of EC Directive No. 93/13/EC
