The sanction of free credit is a solution introduced by the legislator in order to protect consumers. On the other hand, it is intended to motivate lending institutions to comply with their obligations. Below, we explain what it is and when it can be used.
Table of Contents
- What is a sanction of free credit ?
- When can a sanction of free credit be applied?
- What is the purpose of a sanction of free credit ?
What is a sanction of free credit ?
Article 45 of the Consumer Credit Act of 12 May 2011 defines a free credit sanction. It is a manifestation of implementing Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements into Polish law. It protects consumers from unfair practices of creditors when providing loans or credits.
It applies to consumer credits up to 255 550 PLN or the equivalent in a currency other than the Polish złoty. It does not cover mortgage loans.
This solution’s essence is that if a creditor fails to meet specific informational obligations when concluding a contract, the consumer has the right to return only the principal without interest and other costs specified in the contract. He will still remain obliged to cover the costs of establishing credit security.
When can a sanction of free credit be applied?
If a creditor breaches conditions set by legislator for a consumer credit agreement, the consumer can invoke the free credit sanction. The requirements for creditors fall into three groups:
- As for the contract form – it must be in writing. This concerns all violations of the contract form.
- Concerning general information obligations, including:
- Consumer’s personal data and address, as well as name, address, and electronic delivery address of the credit institution or credit intermediary listed in the electronic address database.
- Type of credit,
- Agreement duration,
- Total credit amount,
- Dates and method of credit disbursement,
- The lending interest rate, the conditions for applying this rate, as well as the periods, terms and procedures for changing the interest rate, including the index or reference rate, if applicable to the original credit interest rate. If the contract provides for different interest rates, this information shall be provided for all interest rates applicable during the contract period in question.
- The actual annual interest rate and the total amount to be paid by the consumer determined on the day of concluding the credit agreement, along with all the factors used for its calculation.
- Repayment terms and method, especially the order of allocating payments to the creditor, including information about the right specified in Art. 37 of the Consumer Credit Act. If different interest rates apply to various creditor’s claims, the order of crediting instalments towards different outstanding balances with different interest rates should also be specified.
- Information about other costs the consumer must bear in connection with credit agreement. In particular fees, including fees for maintaining one or several accounts in which both payment transactions and withdrawals are recorded, along with fees for using payment instruments for both payment transactions and withdrawals, commissions, margins, and costs of additional services (especially insurance), if known to the creditor, and the conditions under which these costs may change.
- Annual interest rate on overdue debt, conditions for its change, and any other charges due to payment delays.
- Method of securing and insuring credit repayment, if provided for in the agreement.
- The deadline, method, and consequences of the consumer’s withdrawal from the agreement. The consumer’s obligation to return the credit, interests, and the amount of interest due on a daily basis.
- The consumer’s right to repay the loan ahead of schedule and indication of relevant procedure for doing so.
- Information about the creditor’s right to receive a commission for early credit repayment and the method of determining it if such right is provided in the contract.
3. As to the conditions characterizing credit agreements, i.e.:
- In the case of a tied or deferred payment credit agreement, it should also include a description of the product or service and its purchase price. The provisions apply accordingly to consumer credit agreements for acquisition of specific rights.
- In the case of a consumer credit agreement in a savings and settlements account payable upon request or within 3 months, it should contain the information specified by the Act.
- In the case of an agreement providing for a deferred payment period or a change in the method of repayment in the event the consumer is late with the repayment of the debt arising from the credit agreement, it should contain at least the basic information of the parties as specified in the Act, a description of goods or services, their purchase price.
Upon submitting a written statement to the creditor, the consumer returns the credit without interest and other costs. It must be in accordance with the timeframe and manner agreed in the contract.
If the agreement doesn’t specify repayment terms, the consumer should return credit in equal monthly instalments. These are payable from the date of the agreement. If there is no specified repayment date, the consumer should return the credit within:
- Five years for consumer credits up to 80 000 PLN,
- Ten years for consumer credits exceeding 80 000 PLN.
The consumer’s right to repay credit without interest and other costs expires after one year from the date of the conclusion of the contract.
What is the purpose of a sanction of free credit ?
The aim of introducing the free credit sanction is to protect consumers from unfair practices of credit institutions. It serves two main purposes:
- Effective sanctioning of violations of information obligation and ensuring proper credit agreement form. These are preventive actions to ensure that the entrepreneur does not take advantage of his position. They also protect consumers and help them avoid charges that they may not have been aware of.
- Pursuing the economic interest of the consumer. It preserves the obligation while reducing the impact of the entrepreneur’s actions on the consumer.
The sanction of free credit is a solution that ensures security of economic transactions. It disciplines creditors while preserving the contractual obligation. It mitigates the consequences for consumers, who are the weaker and less aware party of the contact.
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