KLAIPEDA - Are you feeling the credit crunch? Is your bank turning up its nose at your good credit history? What many have done in this situation is to simply pick up the phone and send an SMS to apply for a quick consumer loan; alternatively, one can walk to the nearest post office and fill out a quick credit application.
This easy money could soon end, however, as, nudged by the European Union worried by the seemingly lawless behavior of the credit industry, Lithuania's parliament may soon pass a law that would lead to the reining in of quick-credit companies.
For many years, granting consumer credit had been the privilege of banks and leasing institutions. However, with the banks stiffening lending policies in this economic crisis, those who need access to credit have been able to turn to these quick-credit operations, some of which skirt the rules.
In the future, desperate borrowers may find these alternate funding sources are out of reach as well.
The recent restrictive bank lending practices have led to quick credit companies sprouting up all over. Some estimate that there are at least fifty such companies working in Lithuania. Many are said to be illegal or semi-legal, advertising their services in national newspapers, some run as single-owner businesses out of an apartment.
To reputable banks and leasing companies, these operations, dubbed 'money market hooligans,' tend to skip client background checks and grant quick credits, even imposing on them three digit annual interest rates.
Financial scrutiny avoidance cannot be said to be an advantage for the borrower, either, since many desperate people, dazzled by the quick cash, often pay a heavy price if they fail to meet their financial commitments, including property forfeiture.
Orderliness in the wild world of quick credit may be on the way, as the Lithuanian government has endorsed a draft of the Consumption Credit bill, which would enable the State Consumer Rights Protection Authority to force a listing of all credit companies onto a special register.
"It [the law] will help to put the whole credit system in order. It will help to grant more consumer credits at lower rates, to increase the effectiveness of banks and leasing companies, to build up more trust for financial institutions," said the Minister of Justice Remigijus Simasius, reports news wire Delfi. He says that, on average, the typical quick credit loan is approximately 7,000 litas (2,030 euros) in Lithuania.
The draft sets up the possibility for a so-called 'two week window' during which a credit customer would be able to change his or her mind regarding the credit, and would be allowed to repay only the money taken out, along with the accrued interest, but would avoid a penalty fee.
The draft imposes the requirement for credit companies to do a credit applicant background check, something not required as of now. The proposed law would allow only registered companies to offer credits.
Simasius admits that due to stiffened quick credit granting requirements, interest rates may go up; the minister says that this is unavoidable, but a less painful result compared to the consequences of a bad credit.
The National Consumer Credit Association, which took part in shaping the draft law, is pleased with its progress. "Our association has always stood for responsibly granted financial services and regulation of the credit market, something we were lacking. Having passed the law, quick credit granting conditions will become tougher; nevertheless, consumers' interests will finally be taken into the state's consideration and be under protection. Shady, unreliable credit companies will have to change their work methods, ethics, and comply with the regulations or leave the market," said the Association's Director Pranciskus Gerulis to The Baltic Times.
He adds that "In my estimation, until now only a quarter of the quick credit companies have been working legally, however, no one can [force] responsibility from the shady ones as no agency supervises them."
General Financing, the French-based financial institution which runs quick credit company Kreditas123, with its over 800 branch offices including those in post offices, is one of the major consumer credit firms in Lithuania. The company says it has recently granted its 100,000th credit.
Company chief Konstantin Balakin praises the draft, calling it "vitally necessary." He hopes that with the law passed, due to stricter control in the consumer credit market, only the companies which are capable of meeting the law's requirements will be left in the market.
"Unfortunately, today there are a lot of companies in the market that seek profit by any means, have no self-imposed control, do not evaluate a customer's financial capabilities, and do not comply with the strict laws ensuring personal data, or with consumer rights protection. Thereby, they undermine the professional players of the market," said Balakin.
