The Government prepares an order to increase the protection of customers against 'revolving' cards

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The Ministry of Economy has begun to take action on the issue of so-called revolving cards, that is, fast credit cards primarily intended to finance consumer payments in exchange for interest rates that move between 20% and 30%, compared to 7% -11% of the average interest established by the Bank of Spain for loans of these characteristics.

The rise of its hiring in recent years has led the Ministry led by Nadia Calviño to launch a proposal to amend the Order 2899/2011 of transparency and protection of the client of banking services in public hearing with the objective of strengthening the protection of Users of this type of credit. The change seeks to increase the transparency and information that entities must provide to these users, reducing the chances of over- indebtedness .

Specifically, the draft Order reinforces the information that the borrower receives from the entity, "which will allow him to have a specific and clear knowledge of the content and effects of the service he is going to hire, as well as to know precisely the debt he maintains periodically with the entity ", as stated in the note sent by the Ministry.

In this sense, new transparency obligations are included that include more detailed pre-contractual information , which reflects, among other things, a representative example of revolving credit with two quota options . Likewise, the entity must send quarterly information to the client in which the evolution and situation of specific aspects of the credit are specified, such as the amount of the loan, estimated date of completion of the payment of the credit if there are no changes in the contract and various scenarios depending on the variation of the monthly fee.

In any case, the borrower will be able to request information about his loan at any time, as well as the repayment schedule or the amounts paid and outstanding. Finally, the entity's obligation to inform the borrower of each extension of the credit limit not requested by the client, including the new installment and the accumulated debt, is established.

The modification of the norm also aims to reduce a possible excessive extension of credit and increase the final debt burden beyond the reasonable expectations of the person hiring this product. For this purpose, the order incorporates specific guidelines aimed at financial institutions in relation to the solvency assessment for this type of products, so that a more prudent estimate is made to ensure sufficient customer payment capacity and avoid over-indebtedness.

Thousands of complaints

The proliferation of these types of cards has resulted in thousands of claims against financial institutions by consumers who claim they have not received the correct information about the contracted product and, therefore, claim to feel cheated.

Normally, the revolving mode offers two ways to return the credit: by percentage - the customer chooses what percentage of the outstanding balance he wants to return each month, always within a minimum and maximum level - or by fixed payment - the client pays a fixed fee -. In this case, if the quota chosen does not cover the interest generated, "the return can be delayed causing the debt to grow in such a way that it cannot be satisfied with this form of payment", as the Bank of Spain warns in its simulator of loans.

In this way, the entire loan can never be repaid and the client is trapped in a kind of credit mouse wheel.

In the case of the entities, they are accused of not carrying out sufficiently thorough solvency studies on the clients to whom they end up granting the loan. In many cases, they are not required any documentation, hence the initiative of the Executive intends to reinforce this step of the process.

Thus, thousands of cards of this type have been marketed in recent years through campaigns that highlighted the possibility of accessing fast credits with hardly any paperwork. What did not highlight those same campaigns were the interests that end up charging customers, which in many cases exceeded 25% APR .

Behind are entities specialized in consumer loans and retail establishments that offer it as additional services, and that includes from large and traditional banks to other smaller companies.

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