Linić: You have a year to reduce your overdraft to the amount of your salary

Citizens who are currently using an overdraft on their current account that is two or even three times larger than their monthly salary will have a period of one year to reduce that permitted overdraft to the level of their average monthly income.

The Ministry confirmed today that it is working on amendments to the Consumer Credit Act and the Credit Institutions Act, stating that these two laws are being amended in parallel and are currently in the phase of consultation with the relevant state administration bodies.

According to the announcement published on the Ministry’s website, the most important news regarding the amendments to the Consumer Credit Act relates to consumer protection when contracting variable interest rates, especially for housing loans, as well as limiting the amount of permitted overdraft on current accounts.

It is planned to introduce a limit on the amount of permitted overdraft on current accounts, which should not exceed the amount of the average monthly inflow to that account over the past six months.

This amendment ‘prevents excessive indebtedness of citizens based on approved overdrafts on current accounts, especially considering that the interest charged by banks on overdrafts is generally only slightly lower than the legally permitted maximum limit,’ explains the Ministry of Finance.

Citizens will, the Ministry announces, have a one-year transitional period from the date of the law’s entry into force to bring their overdrafts on current accounts within the permitted limits, i.e., to the level of average monthly inflows.

The amendments and supplements to the Consumer Credit Act, aimed at further protecting consumers in credit relationships with creditors when contracting variable interest rates, introduce the possibility for the Minister of Finance to more closely regulate the definition of clear and known parameters, possible cause-and-effect relationships of parameter movements and the level of variable interest rates, as well as the periods in which the decision to correct the interest rate will be considered.

In addition, the possibility is introduced for the Minister of Finance to prescribe by regulation the maximum permitted effective interest rate on housing loans, as well as the method of calculating interest on these loans, thereby giving them special status and providing citizens with additional protection against excessive interest rate increases.

Such amendments, emphasize the Ministry of Finance, are prompted by the difficult position of citizens, i.e., consumers in credit relationships with creditors, especially in those credit relationships that address their fundamental existential issues, such as housing needs.

The amendments to the Credit Institutions Act are being implemented for the necessary alignment with the legal acquis of the European Union before Croatia’s full membership in the EU.

These amendments, the Ministry states, encompass the remuneration policy for holders of key functions in credit institutions, which must be in accordance with appropriate and effective risk management. Thus, by-laws will determine that variable remuneration, i.e., bonuses, must not exceed one-quarter of total remuneration.

Additionally, exceptions to banking secrecy are being expanded to three new cases, the internal control system is further regulated, rules for crisis management are introduced, and rules related to the bankruptcy of credit institutions are established, along with the transfer of other requirements from EU Directives related to enhanced supervision of financial conglomerates, cooperation, and information exchange with EU supervisory bodies, etc.