The consumer loan agreement, commonly known as a “quick loan”, is a type of cash loan contract, under which the lender grants the borrower a certain amount of money (the principal), which must be paid back according to agreed terms and deadlines.
The defining feature of a consumer credit agreement is rooted in the borrower’s capacity as a physical person and consumer. Since the consumer is the more vulnerable party in the legal relationship, the law provides them with special legal protection. Therefore, the clauses of a “quick loan” agreement must strictly comply with the provisions of the Consumer protection act and the Consumer loans act.
In general, contract terms should ensure a fair balance in the relationship between the parties, without violating the principle of good faith by unreasonably burdening the consumer or placing them at a disadvantage. This article will examine the most common types of clauses and conditions included in consumer credit agreements that typically conflict with legal requirements, based on a wide range of out-of-court and judicial practice regarding “quick loan” cases.
Total cost on the consumer loan.
The law requires every consumer loan agreement to accurately state the total amount the consumer is expected to return. This final amount is referred to as the “total cost on the consumer loan” and must include both the principal under the agreement and all additional payments related to the loan, including interest, fees, penalties and commissions, even if they are not yet due at the time the agreement is signed.
The total cost on the consumer loan shall be stated not only as a numerical value but must also include the method of its calculation and all individual components that form it. This guarantees the consumer’s right to be informed, enabling them to evaluate the real cost of the loan and make a reasoned decision before signing the contract.
It is common practice for this legal obligation to be neglected – the lender states a total cost on the consumer loan that fails to incorporate all expenses the consumer will face throughout the contract’s duration. These may include various types of “hidden payments”, such as excessive penalties, “review fees” or “express review fees” for documents and/or fees for a guarantor pre-selected by the lender.
Unequal clauses in consumer loan agreements.
One of the primary prohibitions established by law regarding “quick loan” agreements is the inclusion of so-called “unequal clauses”. These provisions act to the consumer’s disadvantage, violating the principle of good faith and resulting in a substantial imbalance between the rights and duties of the lender and the consumer.
A typical example of an unequal clause in a consumer loan agreement is the imposition of an obligation on the consumer to provide security to the loan (most commonly a guarantor or a bank guarantee) within an extremely short period, usually up to three days. Such a requirement is practically impossible to fulfill, and missing the deadline is usually secured by an excessively high penalty – often exceeding the initial amount of the loan, which is then restructured and paid by the consumer alongside their monthly payments.
Another type of unlawful condition frequently found in “quick loan” agreements is the “review fee” or “expedited review fee” for documents. It should be noted that the law explicitly prohibits the collection of additional fees for actions that are part of the standard operations of any financial institution and do not constitute a separate service. Therefore, such a term in the agreement is considered an unequal clause.
What are the consequences of finding unlawful/unequal clauses in a consumer loan agreement?
The law provides for extremely severe consequences for violating the rules of good faith when concluding consumer loan agreements.
Some of the requirements regarding the content of the agreement, such as the correct indication of the total cost on the consumer loan, are so essential that any case of non-compliance leads to the invalidity of the entire consumer loan contract.
It is important to note that when a consumer credit agreement is declared as void in its entirety, the consumer returns only the clear value (the principal) of the credit and owes no interest or other additional charges.
In other cases, involving an unlawful condition that does not affect the other parts of the contract, the law provides for the invalidity of only the specific unequal clauses.
When a specific clause is declared void – for instance, a clause regarding an excessive penalty for failing to provide security, the consumer is released from the obligation to pay that penalty, but remains liable for the remaining obligations under the loan agreement.
What actions can the consumer take if the agreement has already been concluded?
There are several courses of action available to the consumer upon identifying unequal and/or unlawful clauses in a “quick loan” agreement they have already concluded.
If a consumer pays their monthly installments regularly only to find they are unreasonably high, the loan contract may likely be invalid, either fully or partially. Under these circumstances, the consumer is entitled to file a lawsuit to have this invalidity legally recognized.
If a borrower falls behind on paying their installments and the “quick loan” company files a lawsuit against them, the consumer could defend themselves within those proceedings. Typically, the debtor will be served with a court-issued order for payment. It is crucial to seek legal assistance as soon as the order is received, as the deadline for filing an objection starts the day the order is served.
The overview above presents only a part of the practical cases of unlawful and unequal clauses in consumer loan agreements. Should you have any doubts regarding the presence of such clauses in a “quick loan” contract you have signed, or if you receive any court papers, you may contact Dilyan Kolev, attorney-at-law, for reviewing your specific case and providing you full legal support on it.