One in four consumer loan repayments is not made on time.

The Ministry of Finance should intensify efforts to create effective and discouraging obstacles, which could prevent over-borrowing from non-bank lenders due to impulsive and reckless decisions and too easy access to credit. Although the ministry acknowledges that people often face difficulties, when repaying non-bank consumer loans, the policymaking and supervision in restraining both borrowers and non-bank lenders have been relatively inadequate.

There are gaps in the supervision and consumer protection of non-bank lenders.

• The Financial Supervision Authority has various tools for supervising non-bank lenders, but they mostly use precept. Only a few misdemeanour proceedings which are more forceful have been initiated.
• The Consumer Protection and Technical Regulatory Authority (CPTRA) has not checked for years whether non-bank lenders provide the required information to loan applicants before signing the contract.
• Companies that buy debts from creditors are not subject to supervision, resulting in not being equally protected of the borrower’s interests and rights as compared to when taking out the loan.

The Ministry of Finance has encountered difficulties in leading the implementation of proposals that positively impact lending responsibility. The execution of plans proposed in the strategy documents, such as the credit information register, has been delayed since 2016. The extension of the statute of limitations for misdemeanours and the increase of penalty rates took five years. 

The interests and rights of borrowers and debtors are less protected than those of creditors and debt collectors, as decisions made by the Consumer Disputes Committee are non-binding. In expedited order-for-payment procedures, courts are not required to verify the legal basis for debt collection if no objections are raised by the debtor. Debt buying occurs without state oversight.

Improving the financial literacy of adults, especially those in financially vulnerable situations, requires targeted efforts. The Ministry of Finance has not yet analysed the extent of possible damage from over-borrowing, there is a lack of important data therefore the design of necessary measures is hindered. A behavioural science approach has not been utilised to guide consumers. Different target groups should be considered, determining the level of detail and methods to ensure that information impacts their behaviour. Debt counselling services are not widely accessible.

Although the Financial Supervision Authority supervises non-bank lenders, its impact is limited. The authority monitors the credit market's development and conducts risk-based inspections. After the detection of violations, primarily a precept is issued. The likelihood of initiating misdemeanour proceedings against lenders for their violations has been minimal. Furthermore, the fines imposed are relatively small. 

The CPTRA needs to assess the risks related to insufficient precontractual consumer information more extensively and conduct appropriate checks. As credit consumers themselves make few complaints about credit providers to the CPTRA, the latter lacked a comprehensive overview of consumer problems until the autumn of 2022, when a series of articles covering debtors' issues appeared in the media .

The supervision of the CPTRA and the Financial Supervision Authority over consumer credit advertising primarily relies on complaints. The capability to monitor online advertising is limited, and there is no digital tool for this purpose. Therefore, it is uncertain whether the advertisements displayed to consumers on social media and elsewhere on the web meet the requirements.  As financial services advertising is supervised by both the Financial Supervision Authority and the CPTRA, information exchange and extensive cooperation should be encouraged.

There were errors in the data on the volume of non-performing loans collected by the Financial Supervision Authority, and issues with data accessibility in the CPTRA's information system were noticed. The information collected by the Financial Supervision Authority until 31st March 2022, regarding the volume of non-performing loans, was inaccurate. Due to the merger of the CPTRA's document management systems, data on previous supervision procedures are unavailable.

Recommendations of the National Audit Office

The Ministry of Finance, as responsible of financial policy and the coordinator of financial literacy, should:

• Ensure that the regulatory environment and supervisors' tools prevent irresponsible lending and ensure the protection of consumers' rights and interests. In collaboration with other ministries, actions should be taken to prevent over-lending and improve the protection of consumers in vulnerable conditions.
• Include measures for adults in the strategy action plan for financial literacy to raise awareness of borrowing and debt risks, guide financial behaviour, and support the Ministry of Social Affairs and local governments in providing debt counselling services. 

The supervisory authorities, the Financial Supervision Authority and the CPTRA, should implement all procedural options available to ensure compliance with the principle of responsible lending and consumers protection. 

The Ministry of Finance and the Ministry of Justice should analyse whether the changes related to misdemeanour procedures enable effective, proportionate, and dissuasive punishments to be imposed during supervision after these changes come into force . If necessary, further work should be carried out to find a solution. 

The Ministry of Finance and the Ministry of Economic Affairs and Communications should create an opportunity to resolve disputes between consumers of credit products and creditors or debt collection companies through out-of-court proceedings, ensuring that decisions are binding. This would reduce the burden on the judicial system.