A Strict Regulatory Framework for SMS Credit and Its Effectiveness in Latvia

• Author: Inga Kacevska
• Pages: 138-148

138 JURIDICA INTERNATIONAL 22/2014

Inga Kačevska

Dr. iur.

University of Latvia

A Strict Regulatory Framework

for SMS Credit and Its

Effectiveness in Latvia

1. Introduction

In Latvia, SMS creditors conquered their market share at the end of 2008 as, in response to the various

f‌i nancial crises, the banks reviewed their credit policy, setting stricter requirements. In consequence, SMS

credit became more readily accessible than bank credit and there was no necessity to secure the latter. Since

then, SMS credit has become very popular among consumers. For example, in the f‌i rst half of 2013, non-

bank creditors issued SMS credit for, in total, EUR 97 million.*1 At the time of writing, there are 54 licensed

non-bank creditors in Latvia. Of these, 20 are distance creditors (SMS creditors), 19 are creditors against

pledges (pawnshops), 16 are consumer creditors (providing payments by instalment for goods or services),

15 handle leasing, and 12 are mortgage credit providers.*2

The SMS credit industry is strictly regulated in Latvia; however, as is explained below, the creditors

create new business strategies and tactics and, therefore, are usually a few steps ahead of the legislator.

Moreover, the legislation process is long and complicated, so the problems in the industry are not solved on

the spot. Accordingly, the aim of this article is to provide an overview of the legal framework regulating SMS

credit in Latvia, to assess its effectiveness, and to analyse the relevant case law.

2. Legal and institutional overview

The Consumer Rights Protection Law

*3 sets forth Latvia’s general rules on consumer credit (in Article 8).

With this law, also Directive 2008/48/ EC*4 was implemented in Latvia; however, even though that direc-

tive excludes from its scope those credit agreements involving a total amount of credit less than EUR 200

(in Article 2, part 2 (c)), the Consumer Rights Protection Law does apply to such agreements (see Article

1 Prskats par ne-banku patrtju kreditšanas sektoru 2013. gada I. pusgad [‘Market summary for non-bank f‌i nancial

service providers, f‌i rst half of 2013’]. Consumer Rights Protection Centre. Available at http://ptac.gov.lv/upload/2013_par-

skats_par_nebanku_kredit_sekt_1_01_2013_-30_06_2013.pdf (most recently accessed on 1.3.2014) (in Latvian).

2 Ibid.

3 Patrtju Tiesbu aizsardzbas likums (Consumer Rights Protection Law). – Latvijas Vstnesis [‘Latvian Herald’] 1999,

No. 104/105; 2013, No. 193 (in Latvian). English text available at http://www.vvc.gov.lv/export/sites/default/docs/LRTA/

Likumi/Consumer_Rights_Protection_Law.doc (most recently accessed on 1.3.2014). Please note that not all translations

of Latvian legal acts are updated in line with the latest amendments.

4 Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on Credit Agreements for Consumers

and Repealing Council Directive 87/102/EEC. OJ L 133/66.

http://dx.doi.org/10.12697/JI.2014.22.11