| "The Wealth of Nations" Session A2 Country report: Malta |
Conference on responsible credit - April 28 & 29, 2006 – Brussels
Responsible credit – the position in Malta
Paul Edgar Micallef
Malta Consumer Affairs Council1
Until the enactment of the Consumer Credit Regulations in March 2005 there were no express norms regulating the provision of credit to consumers. Credit to consumers was a matter regulated by the general norms on loans and the payment of interest thereon as provided for under the Civil Code. It is therefore relevant in the first instance to briefly consider the applicable provisions of the Civil Code.
The provisions regulating loans under the Civil Code
The Civil Code unlike the Consumer Credit Regulations does not distinguish whether a person taking a loan or credit is a consumer or not. Under the Code the rights and obligations relating to payment of interest when a loan is taken apply to all persons.
Article 1852 of the Civil Code states that the rate of interest cannot exceed eight per cent per annum. Any higher interest that may be agreed upon must be reduced to the rate of eight per cent. If a higher interest has been paid, the excess must be deducted from the capital. A person has the right to rescind a contract entered into which is in breach of this article2. Where the borrower has undertaken to pay interest without however fixing the rate, then the rate of five per cent per annum is applicable3.
The Code makes exception in relation to loans made by issue of bonds, debentures or other securities. In such instances the Minister for Finance may approve an interest rate higher than eight per cent4. The Code furthermore provides that the provisions under article 1852 do not apply where there is an obligation to pay interest at a higher rate under the law of any other country other than Malta provided the amount is denominated and payable in a foreign currency5.
Prohibition of usury under the Criminal Code
In 2002 the Criminal Code was amended with the purpose of curbing the crime of usury.
Under article 298C of the Criminal Code any person who receives or obtains from another person a promise to give to himself or to others in consideration of a loan, interests or any other gain under any other form in excess what is allowed at law, is liable on conviction to a term of imprisonment of up to eighteen months and to the imposition of a fine of up to fifteen thousand Maltese Liri6. The same punishment applies to a person who intervenes to procure for another person a sum of money or other benefit by having a person give or promise to give to him or to others a “grossly disproportionate compensation”7. In determining if the interests or compensation is grossly disproportionate account is to be taken of the average rates usually applicable in similar transactions.
In the course of any criminal proceedings taken under article 298C, if it proved before the Court that the accused received from another person interest in excess of what is allowed by law, the Court is required to order the accused to pay any such amount as the Court considers as being the excess received by the accused. Such an order is without prejudice to any other remedies at law that the aggrieved person may have to enable him to recover any greater amount due to him.
The Consumer Credit Regulations
The Consumer Credit Regulations were enacted only after considerable discussion and extensive consultation with all stakeholders including notably financial institutions and the retail sector. The Regulations were published on the 24th March 2005 and came fully into force on the 1st October 20058.
The scope of the Regulations is in part to transpose the applicable European Council Directive as amended on consumer credit9 and in part to address a long outstanding lacuna under Maltese law. The main difference from the Directive is that the Regulations also deal with aspects of credit relating to home loan agreements, which latter measure was strongly opposed by some business stakeholders. Indeed the coming into force of the provision of the Regulations dealing with home loan was delayed by some months.
The focus of the Regulations is to regulate what are described as credit agreements namely agreements where a creditor grants or promises to grant to a consumer, credit in the form of a deferred payment, loan or other or other similar financial accommodation10. A ‘creditor’ under the Regulations is defined as being a trader who grants credit in the course of his business, trade, craft or profession or a group of traders in connection with the supply of goods or services to consumers, or in connection with home loan agreements11.
A credit agreement must in all instances be in writing and must be signed by both the creditor and the consumer. The creditor is required to provide the consumer with a copy of the agreement within ten working days from when it is signed. The agreement must include the annual percentage rate of charge (APR) and the conditions under which it may be amended and a statement of the amount, number and frequency or dates of the payments the consumer must make, the payments for interests or other charges and the total amount of such payments. In addition the Regulations list other information that must be included in the agreement which information varies depending on whether the credit agreement relates to the financing of the supply of goods or services, or is operated by credit cards or by a running account not covered by the Regulations.
Repossession of goods by a creditor can only take place if explicitly agreed to by the consumer. However notwithstanding anything in the credit agreement, a request can be made to the courts to prohibit any repossession by the creditor if consumer has already paid seventy per cent of the total amount of credit payable or if such repossession would give rise to unjustified enrichment12.
The consumer is entitled to make an early repayment of the credit before the time established under the agreement, in which case he is also entitled to a proportional reduction of the total cost of credit. However if the costs directly arising from the credit agreement were stated in the agreement and the costs are fair and reasonable, the creditor may then recover the costs from the consumer13.
Any advertisements of credit indicating a rate of interest or any figures relating to the cost of credit must also include a clear statement of the APR charge at least by giving a representative example if no other means is practicable14. Furthermore the soliciting or marketing of credit agreements in relation to persons under the age of sixteen is expressly prohibited15. The rights that a consumer has at law against a trader where the goods purchased are not in conformity with the contract of sale cannot be prejudiced by any credit agreement entered into by the consumer. The consumer may take action against the grantor of credit for the fulfillment of his claim in certain specified instances such as when the goods covered by the credit agreement are not supplied or where having pursued his remedies against the supplier (being a different person from the grantor) the consumer fails to obtain the remedy to which he is entitled to16.
“Home loan agreements” are under the Regulations defined as credit agreements whereby a consumer may purchase, reconstruct, alter or improve immovable property used for residential purposes and which is secured by a hypothec or similar right or charge. Rights specific to such agreements require the creditor to provide to the consumer prior to the conclusion of a home loan agreement, with general pre-contractual information both about the creditor and the home loan17 and with a duly completed “personalised standard information sheet”18.
The Director of Consumer Affairs is required to undertake the necessary measures to ensure compliance with the Regulations and to monitor the granting of credit to consumers in connection with the supply of goods and services. He also has a legal obligation to investigate complaints made by consumers in relation to credit agreements. Any person who acts in breach of the Regulations is on conviction liable to fine not exceeding one thousand Maltese liri, or in the case of a second or subsequent conviction to a fine not exceeding two thousand Maltese liri. The Court may in case of repeated convictions order the publication in the media of any judgement passed on the offender the expenses of which are to be borne by the said offender19.
The Regulations prevail notwithstanding anything contained to the contrary in any credit agreement and any waiver by the consumer of any of his rights under the Regulation is null and void20.
The prohibition of unfair terms
The Consumer Credit Regulations do not include any norms prohibiting the use of unfair terms in credit agreements. Consumers therefore have to rely on the provisions of articles 44 to 47 of the Consumer Affairs Act which prohibit the use of unfair terms in consumer-trader transactions. These provisions include both an indicative list of terms considered to be unfair, and significantly a definition of what constitutes an unfair term and the criteria to be taken into account in assessing the unfairness of a term.
Room for improvement
The present regulatory framework while certainly an improvement on the situation as it was until a few months ago, is still not satisfactory. The legislator when enacting the Consumer Credit Regulations other than from including certain information requirements about home loan agreements, was content to implement only the minimum requirements of the European Council Directive.
The maximum fines that can be imposed for any infringements of the Consumer Credit Regulations are too low especially when one considers the negative impact that repetitive infringements can have on consumers. Furthermore the possibility of introducing the imposition of administrative fines as distinct from criminal fines should be considered. This incidentally is a measure which should be considered with regard to consumer legislation in general where the main principal means of ensuring compliance remains that of initiating criminal proceedings. On the positive side it is pertinent to note that the Court in dealing with any criminal proceedings instituted as a result of a breach of the regulations, can also order that any excess interest be refunded to the consumer. This measure can avoid the need for the consumer to institute separate civil proceedings.
Another point of some concern is whether the Director of Consumer Affairs has the required expertise to effectively monitor and ensure compliance with the Consumer Credit Regulations. It is suggested that the Malta Financial Services Authority (MFSA) is much better resourced to ensure compliance with the Consumer Credit Regulations, given its regulatory role in the banking and financial credit sectors. It is pertinent to note in this regard that the MFSA is at law responsible for the supervision of credit institutions and has the responsibility of promoting the general interests and legitimate expectations of consumers of financial services and of monitoring the working and enforcement of laws that directly or indirectly affect consumers of financial services21. Though technically the MFSA is not does not have a remit to intervene directly in consumer credit issues, the fact that the MFSA is responsible for monitoring and licensing banks and other credit institutions does give the MFSA an effective tool in regulating the conduct of such entities in relation to consumer credit issues.
Finally one issue that should be addressed is whether the ordinary courts are the appropriate adjudicative forum to deal with consumer credit issues given the complexities that disputes concerning credit may give rise to. One alternative quasi-judicial forum is the Financial Services Tribunal which tribunal is composed of a lawyer of at least twelve years experience as a lawyer and two other members with experience in the business or regulation of financial services or finance. Possibly one of the lay members for cases relating to consumer credit could specifically be substituted with a person with expertise in consumer credit issues. |
| ID: |
36931 |
| Author(s): |
iff |
| Publication date: |
28/04/06 |
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Created: 28/02/06. Last changed: 20/04/06.
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