Probably the biggest evil on the loan market was the unregulated micro-loans up to USD 5,000, which could be provided by virtually anyone to anyone without the slightest hassle. Whoever represents, for example, social groups such as single mothers for parents, pensioners, students, but also unemployed. Simply all those who would otherwise be insolvent by standard credit standards.
The original concept of micro-loans has been known since the beginning of the 19th century. At that time, the term microcredit was first used by a lawyer and abolitionist Alexandra Booner in his professional work. In particular, Booner reported on the possibility of using a small loan for the business of the poor as one of the few ways to escape poverty. Officially, microcredit has been provided since the 1970s. Recently, and especially in our country, however, the practice in this context has reached very thin ice and the benefits of micro-loans have been completely obscured by the unethical approach of many credit providers.
Necessary assessment of consumer obligations and ability to repay
The amendment to the Consumer Credit Act most specifically regulates micro-loans up to USD 5,000. Once the new law comes into effect, the non-bank micro-loan provider will always have to verify the client’s solvency and ability to repay the loan. However, in order not to be one-sided, the client is obliged to give all the information truthfully and at the most accurate, otherwise he could commit credit fraud. In general, consumer protection could be improved. This is because you will no longer receive a microloan or other consumer credit just as it has done so far. The consumer will have to prove its solvency and ability to repay the loan.
The amendment to the Consumer Credit Act for non-banking providers requires a proper assessment of the consumer’s obligations to repay the loan. The provider of the non-bank loan should then be able to consult the register. If the assessment is not carried out thoroughly enough, the contract may be completely null and void. In such a case, the consumer could then pay only the principal and not the interest and other charges. “Thanks to the new measures, the current practice of deceiving and abusing consumers, which is happening with non-bank providers, should no longer occur,” summarizes the positives of the amendment to the former Minister of Finance, Adrianne Pavis.
Conditions for granting microloans
The conditions for providers of non-bank micro-loans – even up to USD 5,000 – are identical to those for providers of larger consumer loans.
- minimum capital of 20 million Czech dollars
- Authorization to provide non-bank loans (Cream Bank license)
- secondary education completed by school-leaving examination
- proficiency test
These four criteria are crucial for many providers so limited that during the first three months of the effective date of the new Act no. 257/2016 Coll., On consumer credit, it was Cream Bank recorded only 109 applications for authorization of non-bank providers of consumer credit and 346 applications for authorization to operate as an independent consumer credit intermediary. Already these first data so clearly show how much the credit market will change.
As for the Cream Bank license, we can help you with that. Do not hesitate to arrange a free consultation, request access for free e-learning or visit one of our trainings to prepare you for Cream Bank certification. You can then also pass the exams with us – we are an accredited Cream Bank examiner in connection with the amendment to the Consumer Credit Act.