With a view to observe the deadline for the transposition of Directive 2008/48/EC on credit agreements for consumers and repealing Council Directive 87/102/EC, the Romanian Government has issued the Emergency Ordinance no. 50/2010 (GEO 50/2010) regarding credit agreements for consumers, which entered into force on June 21 2010.
Besides the main scope of approximating the provisions of the Directive into the national legislation, the new enactment represented an opportunity for its originators, the Consumers' Protection Authority and the Competition Council, to cure some well-known defects in the Romanian credit legislation, by bringing improved protection to consumers and hence increasing competition between creditors. This goal was reached via the implementation of additional rules and the extension of the scope of the GEO 50/2010 beyond that of the Directive.
The scope of GEO 50/2010 is broader than the one of the Directive from two perspectives: (i) categories of credit agreements covered and (ii) effects on the credit agreements already concluded and in force. This broadening of scope is based on Recital 9 in the Directive's preamble, which allows member states to introduce stricter national provisions.
GEO 50/2010 covers several types of contracts which are however excluded from the scope of the Directive, among which the most important are: (i) credit agreements secured by a mortgage or secured by a right related to immovable property; (ii) credit agreements designed to acquire or retain property rights in real estate and (iii) credit agreements involving a total amount of credit less than 200 ($246) and more than 75,000.
Additionally, the effects of GEO 50/2010 are extended to the credit agreements already in force on June 21 2010. This means that, on its entry into force, millions of consumers will benefit from the more favourable effects of GEO 50/2010 and that millions of credit agreements will have to be amended to reflect these changes. GEO 50/2010 establishes a 90-day deadline (from the date of its entry into force) for the creditors to amend all credit agreements currently in force and to bring them in line with the provisions of GEO 50/2010.
Concerning the changes brought by GEO 50/2010, the most important, with financial effects on both creditors and consumers, is the severe limitation of the use of early repayment compensation. The early repayment fees previously imposed by credit institutions in Romania were sometimes up to 4-4.5% of the repaid amount. In a recent report, the Romanian Competition Council underlined that this fee, which is ultimately restricting the customers' mobility from one creditor to another, is not economically justified in cases where credit agreements bear variable interest. After the approval of GEO 50/2010, such fee will only be possible in cases where credit agreements bear fixed interest. Moreover, this fee will not exceed: (i) 1% of the amount of the early-repaid credit, if the period of time between the early repayment and the maturity of the credit agreement exceeds one year, respectively, (ii) 0.5% of the amount of the early-repaid credit, if the maturity of the credit agreement does not exceed one year.
Another innovation is the consumer's withdrawal right. In line with the Directive, the consumer shall have a period of 14 calendar days to withdraw from the credit agreement without giving any reason.
GEO 50/2010 also brings new transparent computation rules and formula for the interest rate, and limits or eliminates many of the fees, commissions and penalties that were previously required by banks. Additionally, GEO 50/2010 provides new rules regarding topics such as: (i) the standard information to be included in any advertising concerning credit products; (ii) the pre-contractual information to be provided to the consumers; (iii) the information to be included in the contract or (iv) the creditor's obligation to assess the credit worthiness of the consumer.
The broader scope of GEO 50/2010 was the subject of intensive debate and criticised by credit institutions. Yet, from the consumers' perspective, the measures are welcomed and will hopefully contribute to the re-launching of the Romanian retail crediting market.
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