New legislation on consumer lending
New law on consumer lending take effect today, 1st of November. The legislation stipulates increased disclosure of information by financial undertakings to borrowers. The new legislation also place increased responsibilities on borrowers to provide detailed information about their financial situation when applying for credit.
The law is based in part on the EU directive which is intended to ensure a consistent regulatory environment in the European Economic Area, promote increased disclosure of information and facilitate consumer comparisons on credit terms.
Highlights of the Act include:
- Borrowers need to pass a financial evaluation based on their financial standing and information regarding financial defaults if the loan is granted under ISK 2 million for individuals but ISK 4 million for couples in a registered relationship.
- If the loan amount is higher than the abovementioned amounts customers are required to pass a credit rating based on detailed information about the financial position.
- Borrower has the right to prepay the loan in part or in whole.
- Financial institutions provide standardized information that is meant to help borrowers compare different loan offers.
- Financial institutions need to submit an annual percentage rate of cost of borrowing to ease borrower’s comparison of different loan offers.
- Financial institutions may not require prepayment charge higher than 1 % of the amount paid up.