Source: LIGA ZAKON
In 2021, the National Bank of Ukraine (the ‘NBU’) approved the Regulation on Additional Requirements to Non-Banking Financial Institutions' Loan Contracts (Consumer, Financial Loans) (‘Regulation No. 113’), which aims to protect the rights and interests of consumers of financial services, their equal opportunities for access to markets for such services, as well as control over transparency and openness.
Regulation No. 113 establishes certain requirements to contracts on the provision of financial services, including the individual part of adhesion contracts on the provision of financial services, which are not defined by the laws of Ukraine, between consumers of financial services and non-banking financial institutions, namely:
- the obligation to comply with technical requirements for contracts, in particular, font size, color, and line spacing;
- the need to provide an original hard copy document rather than an electronic copy, if a contract was concluded in the form of a hard copy document;
- the impossibility of setting out the conditions that are substantively related to one section, in other sections of a contract;
- requirements for the content of a contract, in particular, the list of services to be provided, the date of their provision, the defined monetary obligations, the interest rate and conditions for its amendment, etc.;
- indicating the number of the consumer's personal electronic payment instrument in the event of provision of a non-cash loan;
- specifying conditions for writing-off funds from the consumer's bank account;
- the impossibility to establish conditions that restrict the consumer's rights for early repayment of the loan and judicial protection;
- a ban on the use of ambiguous concepts and terms that may mislead a consumer;
- the impossibility of including: additional conditions for unilateral amendments to the terms of the contract without proper notice to a consumer; imposition of fees for early repayment of the loan by a consumer; and some other unfair conditions for consumers.
Separate requirements are defined for contracts concluded in the form of an electronic document. The service provider is required to:
- affix a qualified electronic signature of an authorized employee of a lender with a qualified electronic time stamp and/or a qualified electronic seal of a lender with a qualified electronic time stamp affixed by an authorized employee of a lender;
- comply with the technical requirements for electronic documents, in particular, electronic signatures of the parties, date and time of conclusion, address of a provider's website, provision of a contract in a form that can be displayed on the screens of various telecommunication equipment while maintaining integrity and readability, etc.;
- send a copy of a contract after signing, but before the start of providing financial services.
Thus, the NBU established a number of requirements that must be followed when providing financial services to consumers in order to ensure the rights and interests of market participants.
Proposed additional requirements
Despite a significant number of additional requirements, cases of violations of rights during provision of financial services (primarily related to unlawful use of consumers' personal data and suspected fraud) are widely spread. In response to such cases, the NBU revised additional requirements for contracts on provision of financial services to improve the quality of such services, which resulted in the development of draft amendments to Regulation No. 113 (the "Draft Amendments").
The Draft Amendments introduce amendments to the additional requirements, namely:
- changing the means of communication for obtaining a one-time identifier for electronic signature by a consumer which determines that communication channels owned or administered by a financial service provider cannot be appropriate in this case. This amendment is aimed at preventing a financial service provider from affixing the consumer's electronic signature through its own information and telecommunication system without the consumer’s consent through unlawful actions;
- amendment to the requirements for the type of electronic signature, which prohibits the use of a qualified electronic seal and establishes requirements for affixing (i) the consumer's electronic signature, and (ii) a qualified electronic signature of an authorized employee of a provider with a qualified electronic time stamp;
- establishing the need for consumers to provide information about their identification document and account number in the form of IBAN in addition to or instead of the number of an electronic payment instrument (card) in order to identify consumers more quickly and prevent abuse and fraud;
- providing an opportunity to transfer funds not only to the consumer's bank account, but also to other accounts prescribed by law;
- establishing certain events of writing-off funds for the service rendered, even if timing of certain payments is not specified in the contract.
Although these amendments tighten the requirements for consumer lending, they also enhance the protection of the rights and interests of market participants and promote fair market behavior to reduce cases of abuse and fraud during the provision of such services.
Currently, the Draft Amendments have passed the stage of public discussion and are expected to be discussed with market participants.
In addition, amendments to the Law of Ukraine "On Consumer Lending" are currently being discussed to set interest rate caps and requirements for financial companies to properly verify borrowers' creditworthiness in order to strengthen consumer protection in micro consumer lending. At the same time, such draft amendments are currently under development, so there are no final proposals for legislative changes in this area.
The proposed amendments are aimed at strengthening supervision over the observance of the rights of all participants in the consumer lending market. At the same time, it is extremely important to maintain a balance between supervision and freedom of contractual relations in order to avoid negative consequences for the market.
Vladyslav Fisun, Associate, Legal Services, KPMG in Ukraine
Bogdan Shyshkovskyi, Counsel, Legal Services, KPMG in Ukraine