Consumer credit and quick loans in Estonia

When is a loan consumer credit?

A consumer credit agreement is an agreement by which a creditor acting in its economic or professional activity grants or undertakes to grant credit or a loan to a consumer (VÕS § 402 lg 1) [1]. According to the Supreme Court, when a person acting in economic or professional activity lends to a natural person, a consumer credit agreement is presumed, and the lender must prove otherwise (RK 2-21-20479/30) [6]. The law excludes some agreements from these rules, for example a loan an employer grants to an employee as an ancillary activity free of interest or at an annual percentage rate below the market average and does not offer to third parties, and a loan for which the consumer is liable only up to the value of a pledged item held by the creditor (VÕS § 403 lg 3) [7].

The consumer's declaration to enter into the agreement must be in a form that can be reproduced in writing, and the consumer must be given the contract document or a copy on a durable medium without delay (VÕS § 404 lg 1) [8]. If the form requirement is breached or mandatory particulars are missing, the agreement is void (VÕS § 408 lg 1) [9], but where particulars are missing it becomes valid once the consumer receives the loan or starts using the credit (VÕS § 408 lg 2) [9]. If in that case the particulars of the interest rate, the annual percentage rate of charge or the total amount payable are missing, the interest rate is the rate set out in VÕS § 94, unless it is higher than the agreed rate, and the consumer does not owe undisclosed costs (VÕS § 408 lg 4) [9].

What must the creditor do before lending?

A reasonable time before the agreement is concluded, the creditor must give the consumer, on a durable medium, the Standard European Consumer Credit Information form, which states among other things the interest rate, the annual percentage rate of charge, the rate of late interest, the right of withdrawal and the right of early repayment (VÕS § 403¹ lg 1) [10].

The creditor must follow the principle of responsible lending: obtain information and assess whether the consumer can repay the credit on the agreed terms (VÕS § 403⁴ lg 1) [2]. This takes into account, among other things, the consumer's financial situation, regular income, other financial obligations and how earlier payment obligations were met (VÕS § 403⁴ lg 2) [2]. The consumer must provide correct and complete information (VÕS § 403⁴ lg 3) [2]. From 01.03.2029, to obtain the information needed to assess creditworthiness, the person named in § 10(1) point 1 of the Credit Information Sharing Act (krediiditeabe jagamise seadus, KJS) checks the credit information on the consumer in the credit information register, except at a time when, for reasons not attributable to the register keeper, the register service cannot be provided (VÕS § 403⁴ lg 3¹) [11]. That point names, among others, credit institutions and creditors referred to in § 5 of the Creditors and Credit Intermediaries Act (KJS § 10 lg 1 p 1) [12].

If the creditor concluded the agreement without being satisfied of the consumer's creditworthiness, the interest rate is the rate set out in VÕS § 94, unless it is higher than the agreed rate, and the consumer owes no other charges; this does not apply if the consumer intentionally withheld information or falsified it (VÕS § 403⁴ lg 7) [2]. In a dispute, the creditor must prove that it met these obligations (VÕS § 403⁴ lg 13) [2].

How expensive can a loan be?

The annual percentage rate of charge is the total cost of credit to the consumer, expressed as an annual percentage of the credit drawn down or the credit limit (VÕS § 406 lg 1) [13]. The total cost includes all costs, including interest, contract fees, taxes and other charges, that the consumer must pay in connection with the agreement and that are known or should be known to the creditor; notary fees are not included (VÕS § 403¹ lg 3) [10].

The agreement is void if, at the time the credit is granted, its annual percentage rate of charge exceeds more than three times the average rate of charge of consumer loans granted by credit institutions to private persons over the last six months, as last published by the Bank of Estonia (VÕS § 406² lg 1) [3]. The consumer then repays what was received by the date set in the agreement and pays interest for the period of use at the rate set out in VÕS § 94 lg 1 (VÕS § 406² lg 3) [3]. According to the Supreme Court, the court must check this and compliance with responsible lending even if the consumer raises no objection, the creditor must prove both, and if it does not, the claim can be granted at most for the loan amount and late interest that has fallen due (RK 2-21-13098/50) [14].

Can I withdraw from the loan or repay it early?

A consumer may withdraw from a consumer credit agreement without giving reasons within 14 days, and from an agreement relating to residential immovable property within seven days (VÕS § 409 lg 1) [4]. The period starts on the day the agreement is concluded, or on the later day when the consumer received the contract terms and information (VÕS § 409 lg 2) [4]. The principal and the agreed interest for the period of use must be repaid without delay and no later than 30 days after the notice of withdrawal (VÕS § 409 lg 3) [4]; if not, the consumer is deemed not to have withdrawn (VÕS § 409 lg 3¹) [4].

On early repayment the consumer does not owe interest and other costs for the period the credit is no longer used (VÕS § 411 lg 1) [5]. During a fixed-rate period the creditor may claim reasonable compensation for direct loss (VÕS § 411 lg 1¹) [5], but no more than one percent of the amount repaid early if more than one year remains until the agreement ends, and no more than 0,5 percent if that period does not exceed one year (VÕS § 411 lg 1²) [5]. No compensation may be claimed during a variable-rate period or for an overdraft (VÕS § 411 lg 1³) [5]. Credit relating to residential immovable property is an exception: the creditor may also claim a greater loss (VÕS § 411 lg 1⁴) [5] and, during a variable-rate period, the lost interest for the next three months (VÕS § 411 lg 4) [5]. No compensation may be claimed if the creditor concluded the agreement without being satisfied of the consumer's creditworthiness, unless the consumer intentionally withheld information or falsified it (VÕS § 411 lg 6) [5].

What happens if I fall behind on payments?

For late payments a consumer may not be charged late interest above the rate set out in VÕS § 113 lg 1, and an agreement on a deposit or contractual penalty for late payment is void; the creditor may still claim damages exceeding the late interest (VÕS § 415 lg 1) [15]. That rate is the interest rate under VÕS § 94 plus eight percent per year, or the contractual interest rate if that is higher (VÕS § 113 lg 1) [16].

For credit repaid in instalments, the creditor may terminate the agreement for late payment only if the consumer is in arrears with at least three consecutive instalments and has been given, without success, an additional period of at least two weeks together with a statement that the agreement will be terminated and the whole debt claimed if payment is not made within that period; the termination must be in a form that can be reproduced in writing, otherwise it is void (VÕS § 416 lg 1) [17]. At the latest when giving the additional period, the creditor must offer the possibility of negotiations (VÕS § 416 lg 2) [17]. According to the Supreme Court, the notice of termination must be unconditional and unambiguous for the consumer (RK 3-2-1-53-16) [18].

What the law says

• „Tarbijakrediidileping on krediidileping, millega oma majandus- või kutsetegevuses tegutsev krediidiandja annab või kohustub andma tarbijale krediiti või laenu.“ [1] (translation: a consumer credit agreement is a credit agreement by which a creditor acting in its economic or professional activity grants or undertakes to grant credit or a loan to a consumer; VÕS § 402 lg 1) – the definition covers quick loans from a business too.
• „Krediidiandja võib tarbijaga tarbijakrediidilepingu sõlmida üksnes juhul, kui ta on krediidivõimelisuse hindamise aluseks olevate andmete kogumis analüüsimise tulemusena veendunud, et tarbija on krediidivõimeline.“ [2] (translation: the creditor may conclude the agreement only if, having analysed the data as a whole, it is satisfied that the consumer is creditworthy; VÕS § 403⁴ lg 6).
• „Tarbija võib tarbijakrediidilepingust taganeda põhjust avaldamata 14 päeva jooksul.“ [4] (translation: the consumer may withdraw from the consumer credit agreement without giving reasons within 14 days; VÕS § 409 lg 1).
• „Tarbija võib tarbijakrediidilepingust tulenevad kohustused osaliselt või täielikult täita ennetähtaegselt.“ [5] (translation: the consumer may perform the obligations under the agreement early, in part or in full; VÕS § 411 lg 1).
• „Krediidiandja ei või keelduda ebapiisavate maksete vastuvõtmisest.“ [15] (translation: the creditor may not refuse to accept insufficient payments; VÕS § 415 lg 4) – a partial payment must also be accepted.

What to do

1. Before signing, ask for the Standard European Consumer Credit Information form and compare the annual percentage rates of charge (VÕS § 403¹ lg 1) [10].
2. Give the creditor correct and complete information about your income and obligations (VÕS § 403⁴ lg 3) [2].
3. If you want to withdraw, give notice within 14 days and repay the money no later than 30 days after the notice (VÕS § 409 lg 1 and 3) [4].
4. If you have payment difficulties, contact the creditor: before court or enforcement proceedings it must assess and, where appropriate, offer to restructure the debt (VÕS § 416¹ lg 1) [19].
5. If a debt is claimed from you, check the annual percentage rate of charge, the late interest rate and whether the termination was valid (VÕS § 406² lg 1; VÕS § 415 lg 1; VÕS § 416 lg 1) [3] [15] [17].

Frequently asked questions

Is a quick loan also consumer credit?

Yes, if a creditor acting in its economic or professional activity lends to a consumer (VÕS § 402 lg 1) [1]. The cap on the annual percentage rate of charge applies to it as well (VÕS § 406² lg 1) [3].

What if the lender did not check whether I could repay?

The interest rate is the rate set out in VÕS § 94, unless it is higher than the agreed rate, and you owe no other charges, except where you intentionally withheld information or falsified it (VÕS § 403⁴ lg 7) [2].

Do I have to give a reason for withdrawing?

No, you may withdraw without giving reasons (VÕS § 409 lg 1) [4]. A contract term tying withdrawal to a deposit or contractual penalty is void (VÕS § 409 lg 8) [4].

May the lender require a bill of exchange as security?

No. A consumer may not be required to assume a bill-of-exchange obligation or issue a cheque (VÕS § 413 lg 1) [20]; if one was accepted anyway, you may demand it back at any time (VÕS § 413 lg 2) [20].

What happens if the claim is transferred to a debt collector or debt buyer?

You may raise against the new creditor all the objections you had against the original creditor at the time of the assignment, including set-off, and an agreement excluding this right is void (VÕS § 412 lg 1) [21].