Good news for creditors and collection agencies

Consumers in default with the payment of their loans often enter into new instalment payment agreements with creditors, usually through companies engaged in debt collection. While the major part of consumer credit regulations, including the requirement to hold a permit issued by the Czech National Bank, does not apply to  “free-of-charge postponements of the existing debt payment”, the interpretation of circumstances in which the postponement is free of charge has so far been unclear. At the same time, exactly defined criteria for the application of consumer credit regulations are absolutely essential for creditors and collection agencies, as, apart from banks and similar institutions, only entities holding a Czech National Bank licence are allowed to grant consumer credits in the Czech Republic.

The Court of Justice considered the provisions of Directive 2008/48/EC, on credit agreements for consumers, which are reflected in the Czech Act on Consumer Credits. The court decided that an agreement on instalment payments relating to an existing debt is not free of charge in the meaning of the directive only if the consumer agrees to pay expenses that were not determined in the original credit agreement. The court thus did not agree with Advocate General Eleanor Sharpston, according to whom an instalment payment agreement is free of charge (gratuitous) only if the consumer does not have to repay anything but the principal itself; such an interpretation, however, would de facto result in the inability to enter into an instalment payment agreement between the consumer and any entity not holding the above Czech National Bank licence. The court, however, was of the opinion that the payment of interest or other expenses associated with the original credit agreement is to be viewed as the repayment of the original debt; thus, according to the court, the instalment payment agreement in which the consumer agrees to pay such interest and other expenses is still free of charge. This means, among other things, that creditors and collection agencies entering into instalment payment agreements do not have to have the CNB licence in this respect.

The Court of Justice of the EU’s approach will definitely make creditors and collection agencies happy. When concluding instalment payment agreements, they may, under the above described conditions, actually avoid a considerable part of strict regulations applicable to the provision of consumer credits. Ultimately, the decision may also be beneficial for consumers: when they have repayment problems, they may be offered to conclude an instalment schedule agreement, thus avoiding pending enforcement proceedings or insolvency.