"The Wealth of Nations" Session A3 Country report: Slovenia by Boštjan Krisper, ICORI 1. ICORI International Consumer Research Institute - ICORI was founded in 1993 by the Slovene Consumers’ Association (ZPS) and the British consumer organization Consumer Association and is seated in Ljubljana. ICORI is a research organization, which deals with consumer policy, consumer research, comparative testing of quality of consumer products and services and other activities to support representing, counseling, informing and educating of consumers. In cooperation with ZPS, ICORI has published a series of educational consumer brochures. The Institute is the publisher of the only consumer magazine in Slovenia, VIP. ICORI also deals with researches in the field of healthcare, housing, tourism, nutrition, environmental protection, public utilities and financial services from the perspective of consumer protection. ICORI’s activities are not only focused on Slovenia, but also on the new (Eastern and Central) EU member states and SE Europe to where it forwards its experience and the experience of its partners concerning the establishment of consumer protection and strengthening of non-governmental consumer protection organizations. 2. CONSUMER CREDIT (i) DEVELOPMENT OF THE CREDIT MARKET AND INDEBTEDNESS OF THE POPULATION The crediting of population in Slovenia since the independence has developed according to the general level of consumption on the market and was influenced considerably by the main developments on the markets. The first surge of consumer credit has taken place in the period between 1993 and 1995 after the end of the recesion connected with the loss of Yugoslav markets, radical change in the orientation of the Slovene economy and uncertainty about the future. The increase in total credit to the population has repeated in 1999 before the introduction of value-added tax; after a period of stagnation, credit is presently increasing again due to the decline in interest rates, repayment of credits from the last cycle and the end of the first round of national morgage savings programme. The net indebtedness of the population (relation of loans and deposits) has doubled to 0,30 between 1993 and 2003, while the relation between loans and income has increased from 0,42 in 1993 up to 3,50 in 2005, when the aggregated credit to population has grown by a fourth. No precise data exists on how many citizens are actually indebted and what the purposes and conditions of indebtment are. Neither of the responsible state agencies or universities has adequatedly dealt with this problem. Using bank data, there were at least 400.000 credits to population in 2004, as well as 500.000 overdrafts on current accounts, which can be seen as the most expensive form of credit. With these numbers, we can estimate that around 50% of Slovene population is indebted. Because access to credit is improving constantly due to new financial products, research and measures to deal with this problem are urgently needed. The population's preferences concerning consumer credit are mostly to maximize the amount of cash paid out from the credit and the period of repayment. Especially when consumable goods are in question, longterm indebtment has few positive effects while it presents a heavy burden on the households. Besides this, most common anomalies when deciding for a loan are absent planning of incomes and expenses, absent comparison of gains from consumption with the risks of indebtment, as well as defficient knowledge of important features of a loan. Some banks report that up to 30% of the loans is used for repayment of previous loans. Data from 2004 estimate that black market lending amounts to about 20% of the aggregate lending, mostly involving individuals too indebted to obtain a loan from the banks. No data exists in Slovenia on the motive of borrowing (consumption or financially critical situations). However, the Slovene Association of Debt Collectors reports that 60% of individuals verdicted for seizure of property (where banks are the most frequent creditor) live in grave social conditions. (ii) REGULATION The Slovene law on consumer credit from 2004 installed a higher level of consumer protection in this area by ensuring adequate infromation for the consumer and defining the rights and obligations of all contract parties with the objective of the equality of rights. Among other provisions, interest rate ceiling was set for non-bank lenders, as well as prohibition of insurance with securitites, obligatory contents of a loan contract, the right to withdraw from the contract and the right of early repayment. Because of frequent affairs with usurious credits in the area of loans with mortgage insurance, the legislator has included these loans into the new law and specified the obligatory procedure of entering into such contracts. There is no special legislation on overindebtedness in consumer credit in Slovenia. 3. ICORI AND ZPS ACTIVITIES IN THE AREA OF CONSUMER CREDIT Although financial services have not been a priority area of the ZPS and ICORI activities, the first campaign which attracted media attention and ended in an important victory for consumer rights dealt with mortgage credit. Because of numerous complaints of mortgage loans borrowers of the specialized SKB bank due to unfair contract conditions, ZPS has started a campaign »expensive mortgage loans« in 1991, which ended considerable lowering of interest rates and founding of the National Mortgage Fund. The second large campaign took place in 1997 because of incorrect settling of credit repayment by the banks in times of high inflation. As a result, the credit supply has become more transparent and comparable. During the implementation of the first directive on consumer credit, ZPS and ICORI have lobbied intensively in order to achieve that all the provisions which are central for consumer protection in this area were included into the legislation on consumer credit, including usurious mortgage loans and interest rate ceilings. Parallely, we have produced information material with the objective of informing the consumers about their rights in this area and about what has to be taken into account when deciding for a loan. In 2004, we have also published a comparison of short and long term loans on the Slovene credit market in our monthly consumer magazine. In the near future, ZPS and ICORI are planning further actions for improving the consumers awareness of their rights in the area of consumer credit, as well as helping them to choose the best offers on the market. In 2006 and 2007, we will distribute 10.000 factsheets to Slovene households informing them on their rights and how to choose consumer credit, accompanied by TV spots with the same topic. In this year, we will also launch a TV series Watchdog, which will also deal with violations of consumer rights in the area of consumer credit, and radio emissions presenting the European context of consumer protection including consumer credit. ID: 37202 Author(s): iff Publication date: 28/04/06

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