The Consumer Credit Act strengthens consumer protection and enforcement

The Croatian government has taken significant steps toward enhancing consumer protection and strengthening regulatory oversight in the credit sector through the introduction of a new law on consumer credits. This legislative move marks a pivotal moment in the country’s financial policy, aiming to align domestic regulations with European Union standards while addressing long-standing concerns about irresponsible lending practices and lack of transparency.

The final draft of the proposed law was submitted to the parliament as part of the government's procedural process. The bill seeks to consolidate existing laws governing consumer and housing credit into a single legal framework. This consolidation aims to simplify the regulatory environment and ensure more consistent application of rules across different types of credit products. Minister of Finance Tomislav Ćorić emphasized that the primary goals of the law include reinforcing consumer protections, promoting responsible lending, and increasing market transparency. These objectives reflect broader efforts to stabilize the financial system and prevent excessive debt accumulation among citizens.

One of the most notable aspects of the new law is its expanded scope of application. It now covers credit products that could potentially harm consumers, including agreements allowing overdrafts and interest-free loans. Under this revised framework, telecom providers offering devices on installment plans will be required to obtain licenses as lenders and must conduct creditworthiness assessments before approving such services. Additionally, the law introduces stricter requirements for the disclosure of credit terms and marketing practices, ensuring that consumers receive clear and standardized information prior to entering into credit agreements.

A key innovation within the law is the provision for proportional reduction of total credit costs when early repayment occurs. Consumers who repay their loans ahead of schedule will have the right to a fair adjustment of their overall expenses based on the remaining term of the agreement. This includes not only interest but also fees incurred during the approval process. However, certain exceptions apply, particularly in cases where the loan is structured under variable interest rates or secured by insurance arrangements, which limit the lender's liability for potential additional costs.

The law also addresses the issue of unauthorized overdrafts by introducing a mechanism known as "silent overdraw." This regulation ensures that the maximum allowed silent overdraw amount does not exceed the average monthly income deposited into the consumer's account. A significant overdraw is defined as reaching half of this maximum threshold, thereby preventing excessive borrowing without explicit consent.

In addition to these provisions, the law grants the Croatian National Bank (HNB) enhanced supervisory powers. A centralized licensing and oversight system will be established, requiring all credit providers—excluding entities regulated by other authorities such as insurance companies and pension funds—to obtain authorization from the HNB and remain under its continuous supervision. The HNB will also be obligated to immediately notify the State Prosecutor's Office if it discovers individuals providing credit services without proper authorization.

These measures represent a comprehensive overhaul of the credit landscape in Croatia, aimed at safeguarding consumers against predatory lending practices and ensuring greater accountability within the financial sector. As the law moves forward through the parliamentary process, it signals a commitment to aligning national policies with international best practices and fostering a more stable and equitable financial environment for all citizens.