As is well known, quick loans are one of the fastest growing industries in Latvia and elsewhere in the European Union, but despite this, many creditors are forced to repay disproportionately large amounts of debt when no underlying obligations have been paid over time.
Until 2014, fast credit issuers can collect high interest on their own penalty both for their own penalty and for interest on the initial payment for the same offense. These percentages may even violate the principal amount of the loan and may increase several times after certain deadlines, which for people who are unable to repay the loan can outgrow uncontrollable credit liabilities.
Credit Penalty Interest
It is precisely because of these cases that the Saeima announced on 14 February 2013 a draft law on changes in civil law that would prevent non-bank creditors from penalizing borrowers. This bill was approved at first reading and also on 4 April at second reading with minor changes. And at the final third reading, this bill came on June 20, when it was approved and will come into force on 1 January 2014.
This law amendment, which you can view here , states that from 2014 onwards, the penalty will be determined as a lump sum or a non-recurring value that will not be repeated and may not be repeated for the same contract . This amount may be increasing, but in total only 10% of the principal amount of the debt or the total amount of liabilities.
Furthermore, this bill stipulates that if a debtor has paid a part of his debt, this money is first used to pay off interest payments, then to repay the principal amount of the loan and only then to pay the penalty in order to prevent the debtor from paying the penalty, but the principal remains unchanged and penalty interest is still rising!
In general, this bill is directly targeted at non-bank credit issuers and will in some way limit them so that they can no longer impose disproportionately high interest payments that will give us, as borrowers, greater confidence that we will be able to repay those debts.
What is still to be known is that, from the entry into force of the law, all contracts will not be immediately covered by these rules and will only be imposed on new contracts, but the previous contracts themselves will have the right to apply or not to apply this practice over a period of 3 years, which will be a transitional period.