BackOn the occasion of complaints lodged with him, the Ombudsman has observed problems relating to the normative basis and the activity of the banks, and has made recommendations to the Minister for Finance Simeon Diankov and the Governor of the Bulgarian National Bank Ivan Iskrov. According to the Ombudsman, the rights of the citizens as consumers do not enjoy adequate protection and are often violated by the credit institutions.
The basic issue is the unilateral change of the interest rate on the part of the banks and the insertion of unfair clauses into their general terms. In Art. 58, para. 1, p. 2 of the Credit Institutions Act, the criterion of “objectivity” in cases of a change of the interest rate has not been implemented. “The provision enables the banks to lay down the terms under which the interest accumulated on credits may be changed, without consideration to any particular criteria. That regime excludes the possibility for the Bulgarian National Bank to exercise control, as far as the terms laid down by the bank for changing the interest rate are either objective and justified or serve as a mechanism for unjustified shift of certain risks from the credit institution to the borrowers” – the Ombudsman claims. He also refers to Art. 144, para. 2 of the Consumers’ Protection Act which rules that “the provider of financial services shall enjoy the right, provided that a well-founded reason exists, to change, without prior notification, the interest rate due by the borrower or to the borrower...”.
The absence of criteria for the terms under which the interest rate may be changed, as well as the incoherence of the legal basis, prompt different types of interpretation of the obligations of the credit institutions and create pre-conditions for the violation of the consumers’ rights. “Practically, it appears that the law empowers banks to change the interest rates unilaterally, without any criteria for the terms of such a change and without supervision” – the Ombudsman says. This is legally permitted also by the Consumers’ Credit Act. The fundamental problem lies in the definition of “reference interest rate” – the interest rate that the creditor uses as a basic rate for the calculation of the interest rate accrued on the credit. According to the law, it is either a market index or an index calculated by the creditor according to a methodology chosen by him. In his letter, Konstantin Penchev insists that the said definition even more empowers banks to change the interest rate unilaterally, as they may choose the option where the reference interest rate is an index calculated according to a methodology chosen by the bank, which is not subject to control and there are no legally fixed requirements for the indicators included in it. “The acting regime does not comply with Art. 19, para. 2 of the Constitution which provides that the law should create and guarantee to all citizens and legal entities equal legal conditions for economic activity and should prevent the abuse of monopoly, unfair competition and should protect the consumer. “The right to modify credit contracts unilaterally, without applying any objective criteria for the terms of such modifications, raises suspicion as to its constitutionality”, Penchev explains.
Source: Bulgarian Ombudsman
