Ukraine: law on consumer lending adopted

On 15 November 2016, the Ukrainian Parliament adopted a Consumer Lending Law (the “Law”). It is aimed at the introduction of ground-breaking changes to the consumer lending market in the Ukraine.

The Law elaborates extensively on the requirements for advertising consumer loans and prohibits certain bad faith advertisement techniques which are common to the Ukrainian consumer loan market (e.g., that loan can be provided “without review of borrower’s financial standing” or with a “0% rate”).

The Law sets out strict requirements for the calculation of the effective annual interest rate on consumer loans and details information that a lender is obliged to communicate to a borrower prior to entering into a consumer loan agreement.

The Law obliges a lender to perform an assessment of a prospective borrower’s creditworthiness before entering into a loan agreement. It also obliges a lender to furnish a borrower with written information on the latter’s debt position, including the loan’s balance, the amounts that have already been repaid and/or remain outstanding, the agreed upon timeline of payments, etc.

Additionally, the Law establishes requirements for consumer loan agreements and sets out the grounds for invalidation of certain imbalanced conditions of the loan agreement as a means of protection for borrowers against unfair practices often employed by lenders. Such imbalanced conditions include, inter alia, the requirement for the borrower to enter into arrangements for the provision of supplementary services (except where required by law), rules for the adjustment of interest rates that are “discriminatory against the borrower”, the right of unilateral modifications of terms and conditions of the loan agreement by the lender, etc.

Adoption of the law is a significant step towards making the consumer lending market more transparent and competitive with increased standards for good market practices and consumer protection.

In order for the Law to come into effect it has to be promulgated by the President.

Source: Text of the draft Law of Ukraine “On Consumer Lending” No. 2455 as submitted for the second reading in the Parliament.