Consumer Loan Agreements Regulation Entered into Force
The Consumer Loan Agreements Regulation (“Regulation”) that was prepared to regulate various issues set forth by the Law on Consumer Protection numbered 6502, and which will determine the principles and procedures regarding consumer loan agreements, was published in the Official Gazette dated May 22, 2015 and numbered 29363.
The Regulation abolished the Regulation on the Principles and Procedures on Early Payment Discounts in Consumer Loans and Calculation of the Annual Cost of Loan Ratios, and will enter into force six months following its publication.
Scope and Application
Art. 31/4 of the Law on Consumer Protection and numbered 6502 stipulated that the principles and procedures regarding pre-consumer loan agreement information, mandatory contents of the agreement, out-of-scope agreements, rights and obligations of the consumer and the lender, right of withdrawal, early payment, calculation of the effective annual interest rate, the mandatory content of advertisements of consumer loans, enjoyment of the rights of termination, default, assignment of loans, tied loans, and other issues shall be governed by a regulation. The Regulation sets forth these issues in detail.
The Regulation defines consumer loan agreements as agreements through which lenders loan or undertake to extend credit to consumers by way of financing methods, such as postponement of payments or loans, etc. in return for benefits, such as interest or fees.
The scope of the Regulation comprises of all kinds of consumer loan agreements concluded between lenders and consumers, as well as credit card agreements that grant the option to postpone payment for more than three months, or similiar payment methods, in return for interest or similiar benefits.
On the other hand, the Regulation does not apply to housing finance agreements and overdraft account agreements in which the loan is paid back in thirty days, and non-cash loan agreements, such as cheques and letters of guarantee.
The Second Part of the Regulation concerns Prior Information Obligations. Accordingly, it is mandatory that the prior information forms are prepared in at least twelve fonts, using an understandable language, clear, simple and legible, and are provided to the consumer either in hard copy, or in a permanent data form. Furthermore, in agreements for definite or indefinite periods, lenders or (if any) loan agents, are obliged to inform the consumer in detail about the terms of the agreement within a reasonable time prior to the conclusion of loan agreements with definite periods. For example, this information shall specifically include the type of the loan, the address, and communication information of thes lender and their agents, if any, the period of the loan agreements, the total amounts of the loans, and the fees to be charged from the consumers, the interest rates, the detailed payment plans, whether the parties will assume costs that arise, the legal consequences of defaults, the rights of withdrawal, the early payments, and other issues set forth under the Regulation.
The Third Party regulates the Form and the Mandatory Content of the Agreements. In accordance with Art. 10 of the Regulation, except for distance agreements, consumer loan agreements shall not be valid unless concluded in writing. Lenders who do not conclude a valid agreement shall not claim the invalidity of the agreements afterwards, to the detriment of the consumer. Moreover, it is mandatory that consumer loan agreements be prepared in at least twelve fonts, using understandable language, clear, simple and legible, and a copy be given to the consumer, either in hard copy, or in permanent data storage form.
Art. 11 and Art. 12 of the Regulation both explain the terms that are included in the Mandatory Content of the Agreements. Art. 13 sets forth Amendment of the Agreements. Accordingly, the terms of the definite agreements shall not be amended to the detriment of the consumers. In indefinite agreements, in the event that the contractual interest rate is amended, it is obligatory that the consumers are informed of such amendments thirty days prior to entry into force, in hard copy, or in permanent data storage form. This notification shall comprise the amount to be paid after entry into force of the amended interest rate, the number of payments, and the details in relation thereto. If the interest rate is increased, the new interest rate shall not be applied retroactively. The consumer shall not be affected from the increase in the interest rate, provided that the entire debt is paid, or the loan usage ceases within sixty days after the date of such notification. If the provisions, other than those that govern the interest rate, are amended, it is mandatory that notification be given to the consumer in writing or by a permanent data storage thirty days before their entry into force. The consumer shall decline such amendment and use the termination right set forth under Art. 25.
As per Art. 14 of the Regulation, consumer loan agreements shall contain the effective annual interest rate. Article 15 governs Early Payments. In accordance with the Regulation, the consumer may pay either a single or multiple installments or pre-pay the loan debt fully, or in part. In these cases, the lender is obliged to make the necessary discount. Art. 17 of the Regulation defines Interim Payments. According to this Article, pre-payment by the consumer that covers any amount not less than a single installment amount as stated in the payment plan is called an interim payment. The same Article regulates the consequences of interim payments, as well.
The Regulation defines the Limit Excess as the state of overdraft of a deposit account limit, or the event in which the consumer collects cash that exceeds the amount available in his deposit account, and is implicitly acknowledged by the consumer. As stated in Article 21, if the opening of a deposit account allowing limit excess is concluded with the consumer, such agreement shall comprise the contractual interes rate, and the conditions regarding the application of such rate. In any case, the lendor is obliged to provide the consumer with this information, on a monthly basis, either in hard copy or in permanent data storage form. In the event of significant limit excess for periods that exceed one month, the lender shall promptly inform the consumer, either in hard copy or in permanent data storage form.
Art. 18 of the Regulation governs the events of Defaults and Late Payments. If the consumer lapses into default of installment payments, the lender may request payment of the entirety of the debt as a whole. However, the lender must reserve this right in the agreement, must fulfil his obligations, if the consumer lapses into default for at least two succesive installments. The lender must notify the consumer regarding the maturity by at least thirty days, in order to enjoy this right. Additionally, in the event of default or late payment, the lender shall not collect default interest, which is 30% higher than the contractual interest amount.
Art. 24, which is one of the most significant Articles of the Regulation, governs the Right of Withdrawal. The Regulation bestows the consumer with the right to withdraw from the consumer loan agreement, within fourteen days, without giving justification, nor paying a penalty. The right of withdrawal can be enjoyed as of the execution date of the agreement. However, in the case where the date upon which a copy of the agreement is delivered to the consumer, either in hard copy, or in permanent data storage form, on a later date than the execution date of the agreement, such right shall be used as of the delivery date of the copy of the agreement. In cases where the consumer enjoys the right of wihdrawal benefits from the loan, the consumer shall refund the principal debt and the amount of the interest accrued as of the usage of the loan until the date of refund. In the case of non-payment within this period, the consumer shall be deemed as having not withdrawn from the consumer loan.
Art. 26 of the Regulation envisages that the consumer shall not have insurance regarding the loan without the written consent of the consumer, or his consent given, through permanent data storage form. Thus, the necessity of having direct insurance for each consumer loan, and the subject matter of the insurance being within the initiative of the lender, have been abolished.
Article 28 sets forth the matter of Suretyship. Personal guarantees for the consumers to perfom, acquired within the scope of the consumer loan agreements, shall be deemed as ordinary suretyships regardless of their titles. Personal guarantees given for consumers receivables consumer shall be deemed as joint suretyships, unless other laws so regulate.
As per Art. 25 of the Regulation, if a termination notice period is not determined under the consumer loan agreement, the consumer may terminate the agreement at any time by notifying the lender, either through hard copy or in permanent data storage form. However, in the event a period for the termination notice is determined under the agreement, this period shall not exceed one month. If the right to terminate the indefinite consumer loan agreement is granted to the lender, the lender shall notify the consumer at least two months prior to such termination, either in hard copy or in permanent data storage form. Termination by the lender, without complying with the notification periods, is only possible when such right is envisaged under the agreement, and when valid grounds exist. The procedure of such information process is also governed under the Regulation.
The Consumer Loan Agreements Regulation that was prepared to regulate various issues set forth by the Law on Consumer Protection and numbered 6502, and which will determine the principles and procedures regarding consumer loan agreements, was published in the Official Gazette dated May 22, 2015 and numbered 29363, and will enter into force six months following its publication. The Regulation stipulates, in detail, the principles and procedures regarding pre-consumer loan agreement information, mandatory contents of the agreement, out-of-scope agreements, the rights and obligations of the consumer and the lender, the rights of withdrawal, early payments, calculation of the effective annual interest rates, the mandatory contents of advertisements of consumer loans, the enjoyment of rights of termination, default, assignment of the loan, tied loans, and other issues.