Bank of Lithuania tightens up consumer lending guidelines

The Bank of Lithuania recently announced that it would begin applying responsible lending requirements to consumer credit providers in order to protect consumers from “carelessly assumed financial burden” and “painful social consequences.”

“We feel that one of the major problems in the consumer credit market is offhand assessment of customer solvency,” Vitas Vasiliauskas, the chairman of the bank’s board, said. “Therefore we will impose on all providers of consumer credits a strict obligation to observe the Responsible Lending Regulations—the credit share payable by the consumer, interest and other liabilities are not to be in excess of 40 percent of his/her sustainable income.”

Vasiliauskas said that because credit providers will be bound by the requirements, they will be forced to responsibly and thoroughly assess consumer income.

The bank, which has assumed supervision of the consumer credit market from the State Consumer Rights Protection Authority, conducted a study that revealed only one out of 10 fast credit providers adheres to responsible lending regulations. Additionally, one-fifth of consumer credit providers do not assess the customer’s income or apply the income-to-liabilities-ratio rule.

“Easily accessible money becomes bait which can easily draw one into a vicious circle of debts when one borrows to be able to repay old debts,” Vasiliauskas said. “There is no doubt that aggressive advertising, which sometimes is reminiscent of the temptations of drug traffickers, has a significant influence on that. To curb such likely encouragement of addiction, we are tightening the legal acts regulating advertising.”

The bank will supplement financial service advertising guidelines with a provision that prohibits the encouragement of irresponsible consumer borrowing in advertisements and propose the elimination of irresponsible lending encouragement in advertising consumer loans.

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