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Questions and answers about consumer credit

  • What legislation governs the area of consumer credit?

    Consumer credit is governed by the Consumer Credit Act (the ZPotK-2; Official Gazette of the Republic of Slovenia, Nos. 77/16 and 92/21 [ZBan-3]), which entered into force on 2 March 2017. Previously credit agreements with consumers had been governed by the ZPotK-1 (Official Gazette of the Republic of Slovenia, Nos. 59/10, 77/11, 30/13, 81/15 and 77/16 [ZPotK-2]) and by the ZPotK (Official Gazette of the Republic of Slovenia, Nos. 77/04 [official consolidated version], 111/07 and 59/10 [ZPotK-1]).

  • Where is lending to business entities regulated?

    In contrast to consumer credit, lending to business entities, i.e. entities who pursue professional or profit-making activities (mostly sole traders and corporations) is not regulated by a separate law. The general rules of contract law apply to credit agreements.

    In the pursuit of lending activities, it is also necessary to assess the way in which the funding used by the lending entity has been obtained. According to the circumstances of the individual case (particularly in cases when the lenders are natural persons), there can arise a situation where the borrowers are de facto taking deposits or other repayable funds from uninformed investors, which in accordance with the first paragraph of Article 112 of the Banking Act (ZBan-3) only banks and savings banks are allowed to do in Slovenia.

  • Authorisations for consumer credit: who does not need one, and which authority grants the authorisations?

    Before beginning to provide consumer credit services, creditors are required to obtain an authorisation to provide consumer credit services (hereinafter: authorisation) for each business unit where they will provide these services.

    A separate authorisation for consumer credit is not required by:

    1. credit institutions (banks and savings banks) that have obtained an authorisation to provide banking and financial services under the act governing banking (these authorisations are granted by the European Central Bank);
    2. credit institutions established in another Member State that provide consumer credit services in Slovenia via a branch and have obtained an authorisation to provide banking and financial services in their home Member State;
    3. employers in the case of credit agreements via which credit is granted to their employees interest-free or at average effective interest rates that are lower than those applied to consumer credit by credit institutions;
    4. non-profit organisations that provide credit exclusively for social and educational purposes, when done via a credit agreement to which the ZPotK-2 does not apply (1. finance lease agreements (leasing, tenancy), where these or other agreements stipulate that ownership does not pass to the lessee (tenant), 2. credit agreements in the form of an overdraft facility in a consumer’s payment account, where the credit has to be repaid within one month; 3. credit agreements that specify repayment in instalments or a one-off amount without the payment of interest and other charges, with the exception of those directly linked to collateral for credit for real estate, 4. credit agreements that specify repayment of the credit within three months, with total charges not exceeding 0.1% of the total amount of the credit, or the sum of EUR 10, 5. credit agreements where the credit is granted by an employer to its employees outside of its main business activity interest-free or at average effective interest rates that are lower than those applied to consumer credit by credit institutions, unless the employer is a bank or other financial institution for which the granting of credits is an economically important part of its business, 6. credit agreements concluded with an investment firm or a credit institution for the purposes of allowing an investor to execute a transaction relating to one or more instruments, where the investment firm or credit institution granting the credit is involved in the transaction, 7. credit agreements that relate to a free-of-charge moratorium on the payment of an existing debt, unless secured by a lien on real estate, 8. contracts for the provision, on a continuing basis, of services or the supply of goods of the same kind, where the consumer pays for the services or goods in amounts that fall due annually or at specified shorter intervals of time (periodic claims), 9. credit agreements that relate to a loan granted to a restricted group of consumers by which the creditor meets statutory obligations in the general interest, and that is granted interest-free or at an average effective interest rate that is lower than those applied to consumer credit by credit institutions);
    5. legal persons of public law in the case of credit agreements referred to in the previous point.

    Authorisations are granted to legal persons that are not credit institutions (banks or savings banks) by the Ministry of Economic Development and Technology (MEDT), with the exception of authorisations to provide finance leasing services for real estate or to provide advisory services in connection with credit of this type, which are the responsibility of Banka Slovenije.

  • How do banks decide whether to approve credit?

    Banks approve credit in accordance with the applicable regulations, their own risk assessment, and their own business policy. The type of credit offered to consumers on the market also depends on each bank’s individual business policy. Entering into a credit relationship is therefore a business decision on the part of the bank as to whether to do business with the customer in question.

  • Is there a deadline stipulated by law by which a bank must approve or reject an application for credit?

    Current legislation does not set out a timeframe within which a bank is required to approve credit. Insofar as a creditor rejects an application for a credit agreement with a consumer on the grounds of the creditworthiness assessment, it must immediately inform the consumer of the rejection free of charge in accordance with the sixth paragraph of Article 10 of the ZPotK-2, and whether the rejection was based on automated data processing, if data processing of this type was used. Where a creditor rejects an application for a credit agreement on the basis of an enquiry in a database of personal data, it must inform the consumer immediately and free of charge, on paper or another durable data medium, of the result of this enquiry and of the database of personal data in which the enquiry was conducted, unless provided otherwise by a separate law.

  • When is credit considered to be in foreign currency?

    Credit in foreign currency is a credit agreement where the credit is accounted in a foreign currency that:

    • when creditworthiness is assessed, is not the currency in which the consumer receives the income or holds the assets from which the credit will be repaid, or
    • is not the currency of the Member State in which the consumer has permanent residence when the credit agreement is concluded.

    In relation to a credit agreement for real estate where the credit is accounted in a foreign currency, the consumer has the right to convert the credit from the foreign currency into the domestic currency when the total amount of the credit payable by the consumer that remains outstanding or of the regular instalments varies by more than 10% from what it would have been had the exchange rate between the foreign currency and domestic currency agreed at the time of the conclusion of the credit agreement for real estate been applied.

  • What is the total cost of credit?

    The total cost of credit comprises:

    • all costs including interest, commissions, taxes and other fees that the consumer must pay in connection with the credit agreement and that are known to the creditor;
    • costs in connection with ancillary services relating to the credit agreement, in particular insurance premiums, membership fees, taxes and the costs of other contracts concluded with the creditor or another undertaking as defined by the act governing consumer protection, if the conclusion of an additional service contract is mandatory in order to obtain the credit itself or if so stipulated by the general terms and conditions under which the creditor markets the credit;
    • costs of real estate valuation, when a valuation is required to obtain the credit.

    Notarial costs do not form part of the total cost of credit, nor do insurance premiums for insuring goods whose purchase is being financed by the credit, costs and fees for entering real estate in the land registry, and costs paid by the consumer for the non-performance of obligations set out in the credit agreement.

  • Can banks charge costs that are not stipulated in the credit agreement?

    Consumers are not required to pay costs that are not stated or are stated incompletely in the credit agreement.

  • Does the approach to charging interest have to be stipulated in the credit agreement?

    A credit agreement must also contain information about the borrowing rate, the conditions governing its application and, where available, any index or benchmark interest rate applicable to the initial borrowing rate, the periods, conditions and procedures for repricing the borrowing rate, the dates when the borrowing rate is adjusted to the benchmark interest rate, and the dates when the credit annuity is adjusted to the borrowing rate. When different borrowing rates apply in different circumstances, the information is provided in respect of each of them (point 7 of the second paragraph of Article 12 of the ZPotK-2).

  • Where is the statutory default interest rate stated, and when is an interest rate deemed usurious?

    The default interest rate has since 1 January 2007 been set by the Statutory Default Interest Rate Act (ZPOMZO-1), which stipulates that the statutory default interest rate is equal to the leading interest rate plus 8 percentage points (ZPOMZO-1A), and applies for a six-month period beginning on 1 January or 1 July. The rate is published in the Official Gazette of the Republic of Slovenia by the minister responsible for finance (for the period of 1 January to 30 June 2022 it was published in Official Gazette of the Republic of Slovenia No. 5/22 and amounts to 8.00%). Banks calculate the statutory default interest rate having regard for the aforementioned law. In addition to the market situation, the default interest rate also takes account of the punitive nature of default interest, and therefore the actual arrears in making payments. More information can be found on our website: Base interest rate and interest rate for late payment (bsi.si).

    Usurious contracts are regulated by Article 119 of the Code of Obligations, which stipulates that if anyone exploits another’s distress, the severity of the other’s pecuniary situation, or the other’s inexperience, recklessness or dependence, and reserves for themselves or for a third party benefits that are in clear disproportion to what they have provided or done, or have undertaken to provide or do, the contract is null and void. For a contract to be usurious, there must therefore be an objective element (disproportion between the benefit and the opposing benefit) and also a subjective element (the lender exploits the borrower’s unfavourable position), and the existence of both is assessed by the court in each specific case. In a usurious contract, this disproportion is expressed by usurious interest, which is regulated by Article 377 of the Code of Obligations. The first paragraph of the aforementioned article stipulates that if the agreed interest rate for default or contractual interest is more than 50% higher than the prescribed default interest rate, the agreement is deemed a usurious contract, unless the creditor proves that it has not exploited the debtor’s distress, the severity of the debtor’s pecuniary situation, or the debtor’s inexperience, recklessness or dependence, or that the benefits reserved for the creditor or for a third party are not in clear disproportion to what the creditor has provided, or has undertaken to provide or do.

  • How are costs charged in the event of early repayment of credit?

    A consumer is entitled to discharge their obligations under a credit agreement in full or in part at any time. In this event they are entitled to a reduction of the total cost of the credit, in the part consisting of the interest and the charges for the remaining duration of the agreement, such that the present (revalued) value of the contractual interest, including any charges that would accrue from the day of early repayment to the day that payment falls due under the agreement, if the contractual interest and the charges for this period have already been calculated and included in the payments that the consumer has made, is subtracted from the present (discounted) value of the early credit repayment obligation.

    The creditor is required to present the reduction of interest and of other charges that would arise with the full or partial early repayment of the credit to the consumer, understandably and free of charge, on paper or on another durable data medium. The agreed provisions on the interest rate may not be modified to the detriment of the consumer (first paragraph of Article 22 of the ZPotK-2). The creditor is entitled to fair compensation for potential costs directly attributable to early repayment of the credit, if the early repayment is undertaken during a period for which a fixed borrowing rate was set. When a fixed borrowing rate has been agreed in the credit agreement, this compensation may not exceed 1% of the amount of principal repaid early if the consumer is repaying the credit more than one year before the final maturity of the credit agreement. If there is one year or less remaining until the final maturity of the credit agreement, the compensation may not exceed 0.5% of the amount of principal repaid early. The creditor may claim compensation on condition that the amount of the early repayments exceeds EUR 10,000 over a 12-month period (second, third and fourth paragraphs of Article 22 of the ZPotK-2).

    For credit agreements concluded before 7 August 2010, the fee charged for early repayment of the credit may not exceed half of the fee charged for approval of the credit.

  • In the final repayment of credit, can the amount of interest differ from that stated in the amortisation schedule?

    In general the actual number of days according to the calendar, taking into account the actual number of days in the year (K, 365/366), is used for the calculation of interest. The approach taken to counting days must be precisely defined in the contract. The consequences of choosing any other approach to counting days must be disclosed to the customer by the bank. In cases of budgeting, a difference can arise in the final repayment between the actual interest charged and the amortisation schedule. The customer must be warned in advance of a different approach to counting time, and it must be explained what this entails in practice. More can be found on this (in Slovene) in the Recommendations on methods for calculating interest for retail transactions on the following link: LetakObresti_2008.pdf (zbs-giz.si).

  • Can banks charge custody fees on a customer’s balance?

    The introduction of custody fees on a customer’s balance is not prescribed, but is a business decision on the part of the bank, which decides independently above what amount and at what rate they will be charged. Banks usually publish this information in their general terms and conditions and in their price list, which can be found on their websites or at branches. These are a new type of fee, and not all of the related issues have been settled yet.

  • To whom can banks assign or sell claims from credit agreements?

    In accordance with the third paragraph of Article 23 of the ZPotK-2, creditors may only assign claims to an assignee that is a creditor and meets all the requirements under the aforementioned law. The assignee may accept the claims if it is a creditor and meets all the requirements under the aforementioned law. Notwithstanding the above, in accordance with the fourth paragraph of the same article, creditors who have obtained an authorisation to provide banking and financial services on the basis of the act governing banking may assign claims to an assignee who is:

    • an insurance corporation, for the purpose of repayment of the creditor for outstanding past-due credit obligations using the insurance payout;
    • special purpose vehicles during securitisation;
    • the Bank Assets Management Company; or
    • any other asset management company that acts as a bad bank.

    This means that an assignee may accept claims from consumer credit agreements of types for which it has been granted an authorisation to provide credit, where only the following may be a creditor for real estate:

    • credit institutions that have obtained an authorisation to provide banking and financial services in accordance with the law governing banking;
    • credit institutions established in another Member State that provide consumer credit services for real estate in Slovenia via a branch and have obtained an authorisation to provide banking and financial services in their home Member State;
    • legal and natural persons that are employers in the case of credit agreements via which credit is granted to their employees interest-free or at average effective interest rates that are lower than those applied to consumer credit by credit institutions, and legal persons of public law for credit agreements referred to in Article 3 of the aforementioned law;
    • financial institutions whose sole or principal line of business is the provision of finance leasing services in accordance with the law governing banking and in which a bank or a Member State bank holds at least 20% of the voting rights or a participating interest of at least 20%, or whose total assets amounted to at least EUR 50,000,000 at the end of the previous calendar year, and that have obtained an authorisation to provide finance leasing services for real estate.
  • Does the ZPotK-2 also apply to credit agreements concluded before its entry into force?

    The ZPotK-2 does not apply to credit agreements concluded before 2 March 2017. The previous laws applying to consumer credit (ZPotK-1, ZPotK) apply to credit agreements concluded before that date.