The Future of Consumer Credit in Lithuania: Quo vadis, Consumer Credit?

Author:Danguole Bubliene
Pages:149-167
 
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149
JURIDICA INTERNATIONAL 22/2014
Danguol Bublien
Dr., Lecturer
Vilnius University
The Future of Consumer
Credit in Lithuania: Quo vadis,
Consumer Credit?
1. Introduction
The recent nancial crisis raised a number of issues related to whether the Lithuanian state did everything it
could to avoid dire nancial consequences not only for individuals but also for society as a whole. The ques-
tion was asked—and is still being raised—at both national and EU level of the steps that should be taken to
ensure that avoidance of such crisis or mitigation of its consequences.
Consumer credit is one of the nancial services provided not only by the banks but also by other parties:
both credit institutions and legal persons that are not credit institutions. In consequence of the nancial
crisis, banks have tightened their conditions for the provision of consumer credit; therefore, the establish-
ment of new companies providing consumer credit has been affected, as has the expansion of the consumer-
credit market beyond the banks. Today‘s statistics, as will be shown below, clearly substantiate the fact that
consumer loans are granted in a reckless manner, regardless of whether or not the consumer will be able to
repay the loan.
In recent years, consumer credit (especially in the form of ‘quick loans’) has been intensively and aggres-
sively marketed on television, in magazines, and via the Internet. Usually, attractive slogans are used to pro-
mote consumers’ activeness in the consumer-credit market. The marketing advertisements for consumer
credit create the impression that consumer credit is the cure for all diseases and the easiest solution, a way
to balance the consumer’s nances, while also highlighting the speed of granting a loan and the around-the-
clock nature of the service, along with the fact that the consumer credit can be applied for via text messages
or Web sites. Furthermore, the client may be attracted by the allure of the rst consumer credit being free
of charge etc.
The situation in Lithuania with respect to the consumer-credit market clearly reveals that the market
is rapidly developing and some statistical data are thought-provoking here with respect to the question of
whether the state should take any measures (via tighter regulatory measures or other actions). The 2012
overview of the consumer-credit market, along with the presentation on this topic*1, announced by the
Bank of Lithuania (hereinafter ‘the supervisory institution’) in July of 2013 revealed some important facts,
which served as the basis for the supervisory institution’s proposal of some amendments to the consumer-
credit regulations. According to the supervisory institution’s comparisons with 2011, in 2012 i) there were
1 See Vartojimo kredito rinkos apžvalga, 2012 [‘The overview of the 2012 consumer-credit market’] and the presentation on
this topic, available at https://www.lb.lt/vartojimo_kredito_rinkos_apzvalga_2012_m and https://www.lb.lt/n21596/
skaidres.pdf (most recently accessed on 30 April, 2014) (in Lithuanian).
http://dx.doi.org/10.12697/JI.2014.22.12
Danguol Bublien
The Future of Consumer Credit in Lithuania: Quo vadis, Consumer Credit?
150 JURIDICA INTERNATIONAL 22/2014
70% more consumer-credit agreements signed, in an increase from 366,000 to 621,000 agreements; ii) the
total amount of consumer credit granted was 32% greater, rising from 653.97 million litai (~189.56 million
euros) to 862.31 million litai (~244.97 million euros); and iii) a 2.5 times increase was seen in the portfolio
of small-sum consumer credit: from 83.18 million litai (~24.11 million euros) to 206.91 million litai (~59.97
million euros). At the end of 2012, payment was overdue by more than 60 days for about 20% of consumer
credit (with 29% of the cases involving small-sum consumer credit), 40.7% of the outstanding amount of
consumer credit was accounted for by small-sum consumer credit wherein the repayment period had been
extended after the borrower paid an extension fee, 35% of the clients for small-sum consumer credit were
below age 25, and the average annual percentage rate of charge (APR) for small-sum consumer credit was
177%. However, only 44 consumer complaints had been made in 2012 to the supervisory institution regard-
ing consumer credit. The supervisory institution announced this March its overview of the consumer credit
market for 2013*2. According to the supervisory institution’s comparison with 2012, in 2013 i) there were
17.19% more consumer-credit agreements signed (722,000 agreements); ii) the total amount of consumer
credit granted was 16.67% higher, at 1,002.71 million litai (~290.64 million euros); iii) and there had been a
2.5 times increase in the portfolio of small-sum consumer credit, from 83.18 million to 206.91 million litai
(~24.11 million euros to ~59.97 million euros). At the end of 2013, 23.6% of the consumer credit had its
payment overdue by more than 60 days (32.7% of the associated credit being small-sum consumer credit),
36.81% of the outstanding amount of consumer credit came from small-sum consumer credit for which
the repayment period had been extended after the borrower paid an extension fee, 39.21% of the clients
for small-sum consumer credit were under 25, and the average APR for small-sum consumer credit was
164% (the APR has fallen by more than 10%). Despite the fact that the number of consumers ling com-
plaints about consumer credit with the supervisory institution rose from 2012 to 2013, rising from 44 to
63, it seems—and the supervisory institution has arrived at the same conclusion—that this number is still
relatively small. The conclusion of the supervisory institution in its evaluation of the 2013 consumer-credit
market was that the consumer-credit market is growing further.
Therefore, it would be meaningful to mention that the number of lenders clearly shows as well that the
consumer-credit market is very much growing in Lithuania. The number of lenders (at least those that are
included in the of cial lists of lenders) rose in the span of six months (from 31 December 2012 to the start
of July 2013) to almost 300%: the number of lenders rose from 56 to 146. Despite the fact that at the time
of this writing (30 April 2014), the number of lenders remains at a similar level (147 lenders are on the list
of consumer-credit lenders), there is no reason to believe that the consumer-credit market has not created
even more issues for society.
The main aim of the present article is to show how the legal norms of Lithuania regulating consumer
credit are dealing with the issue of easy access to non-secured consumer loans, especially via electronic
means. The article also presents the proposals of the Bank of Lithuania pertaining to measures for improve-
ment of the consumer-credit market situation with the aim of precluding ill-considered conduct and incau-
tious decisions of consumers, along with additional measures for control of the consumer-credit market.
However, it should be noted that neither the 2012 overview of the consumer-credit market and presen-
tation on this topic nor the statistics on consumer credit in 2013*3 released by the supervisory institution
pay particular attention to the non-secured consumer credit that lenders provide via electronic means.
However, as has been mentioned above, the supervisory institution in March released its overview of the
2013 consumer-credit market*4, in which it indicated that, just as in the previous year (2012), most of the
small-sum credit was provided by distance means (by phone or over the Internet). The supervisory insti-
tution indicated that 87.22% of the cases of small-sum credit were handled by distance means. However,
the supervisory institution has not provided any information on whether and how the lenders follow the
requirements of the laws on provision of information to consumers or other legal requirements, let alone
examination of the factual situation.
This article addresses several aspects of the consumer-credit landscape: it i) provides a general over-
view of the regulation of consumer credit in Lithuania; ii) examines the particular elds of regulation of
2 See Vartojimo kredito rinkos apžvalga, 2013 [‘The overview of the 2013 consumer-credit market’], available at https://www.
lb.lt/n20287/vartojimo_kredito_rinkos_apzvalga_2013.pdf (most recently accessed on 30 April, 2014) (in Lithuanian).
3 See https://www.lb.lt/vartojimo_kredito_rinkos_apzvalga_2012_m. (see Note 1) and https://www.lb.lt/n20287/varto-
jimo_kredito_rinkos_apzvalga_2013.pdf (see Note 2).
4 See https://www.lb.lt/n20287/vartojimo_kredito_rinkos_apzvalga_2013.pdf (see Note 2).

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