As of the new calendar year, lending institutions will be subject to Financial Supervision Authority (KNF) institutional oversight, and the respective legislative changes stem from the Anti-usury Act[1]. On one hand, the Anti-usury Act imposes a range of new obligations on lending institutions, while on the other it gives the KNF tough oversight powers that extend far beyond the current power to keep a register of lending institutions and formally examine eligibility for registration. This article will focus on the major amendments to the Consumer Credit Act[2] (UKK) that will soon affect or already affect the Polish lending sector, taking into consideration as well the recently adopted new EU Consumer Credit Directive[3] (CCD2).
New corporate and share capital requirements for lending institutions
The Anti-usury Act introduced crucial changes with implications for lending institutions’ business activities, in particular the permitted organizational and legal forms and the value of share capital.
Under the laws, lending institutions may only operate in the form of a joint-stock company or limited liability company but the new development is that a supervisory board is now compulsory in the case of the latter. There were indications while the legislative work was in progress that the form of a capital company was to be the optimal solution for business activity of lending institutions. This conclusion was reached in view of the managing bodies existing within it, the distinctly separate management and monitoring roles allocated to these bodies, and the adopted corporate responsibility mechanism. There are some concerns in this regard however, considering that lawmakers did not include the form of a simple joint-stock company on the list of permitted forms of lending activity.
Under the new rules, even in the case of a limited liability company, management board and supervisory board members and commercial proxies of a lending institution cannot be persons with legally binding convictions for offences relating to forgery of a document, asset theft, economic crime, money and securities trading, and fiscal offences. The KNF will monitor compliance with this requirement during the registration process. Thus the applicant will be required to submit a certificate issued by the National Criminal Register stating that the individuals concerned have no prior convictions. It is important to note that there is no rule under the UKK that the requirement of no prior convictions also applies to shareholders in a lending institution.
Meanwhile, the minimum share capital required for a lending institution has been increased from PLN 200 000 to PLN 1 m. For the lenders existing on the market, this new rule might mean conducting the procedure to increase share capital.
As lending institutions will now be subject to KNF oversight, in addition they have to conduct an analysis of compliance with further requirements, not provided for explicitly in the UKK, applicable to firms subject to KNF public law oversight. This concerns matters such as requirements under the KNF Corporate Governance Rules (ZŁK) issued in July 2014, laying down rules on organization, internal monitoring, crucial systems and internal functions, and also the statutory bodies and collaboration between them, that entities subject to regulation must follow.
Reporting obligations
KNF oversight will also mean obligations such as filing quarterly and annual reports on consumer loan activities with the KNF (art. 59dg UKK). The information required in these reports includes:
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- numbers with regard to granted consumer credit, including credit with deferred repayment,
- the value of the credit,
- structure in terms of time line and currency,
- instances of payment default.
The reports will also have to contain information about concluded consumer credit agreements, and specifically the quantity, type, and status of those agreements, and lending institutions will be required to disclose to the KNF the number of customers granted consumer credit. This reporting obligation will also apply to the combined revenue generated by granted consumer credit, with a breakdown into revenue from credit-related costs other than interest and balance-sheet information. There will also be a requirement to identify sources of financing for consumer credit activities. In addition, information listing persons on the management and supervisory board, and commercial proxies of the lending institution, and confirmation that they meet the requirement of no criminal record, will have to be provided in the reports.
The KNF has the following powers if it finds that a lending institution fails to comply with the reporting obligation or does not properly comply:
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- to impose an administrative fine on the lending institution’s management board member directly responsible for the determined wrongdoing of up to PLN 150 000;
- to impose an administrative fine on the lending institution of up to PLN 15 000 000;
- to request that the competent body of the lending institution recall the management board member responsible for the determined wrongdoing, or suspend that person until the request for them to be recalled has been reviewed;
- to strike the firm from the lending institution register, and from the register of credit intermediaries, as applicable.
A management board member or lending institution can also be fined as described above subsequent to the term as management board member, providing that the wrongdoing occurred during that term, and equally a firm can be fined once struck from the register. At the same time, the KNF will be able to announce the imposed sanctions on its website. In such a case, the information will be available for five years from the day of release, and details of first names and surnames of a person fined will be made public for only one year.
If a lending institution fails to comply with the disclosure obligation with regard to the combined revenue generated by consumer credit activities, the lending institution will also have to pay a fine to the KNF of the PLN equivalent of EUR 5 000. In these cases, the KNF will have the power to require the institution to pay the fine within thirty days, and promptly comply with the obligation.
As far as reporting obligations are concerned, it is important to note that lending institutions must file any reports with the KNF in electronic form. The specific scope of information and filing deadlines, and the forms to be used for reporting, are stated in the secondary regulation issued with respect to the act. The proposal for this regulation is undergoing review by the Government Legislation Centre, as an element of work of the Legal Committee [4].
Oversight cost
With regard to a separate matter, when lending institutions are subject to KNF oversight, annual fees have to be paid to cover the cost of oversight. This fee is no more than 0.5% of the revenue generated by consumer credit activities for the previous financial year, while this fee can also not be lower than the PLN equivalent of EUR 5 000. In a similar way to the quarterly and annual reports, the filing made by the lending institution regarding the fee payable may only be made in electronic form.
For lending institutions trading prior to 1 January 2024, the deadline and procedure for paying the fee for the cost of oversight will be specified in a regulation issued by the Prime Minister.
Interim provisions
The provisions in the Anti-usury Act apply in full, except the provisions on oversight of lending institutions, and this means that firms that intend to take up lending activities have to comply right now with the newly introduced legal form, share capital, and other requirements. Notwithstanding this, interim provisions have been enacted for lenders on the market at the moment. Under these laws, firms registered as lending institutions prior to the day on which the amendments take effect may continue to operate according to the present rules, until 31 December 2023.
Meanwhile, registered lending institutions that have not yet complied with the new regulations must notify the KNF of the measures taken to comply with the new requirements by 30 November 2023.
Lending institutions that have not complied as at 1 January 2024 will be struck off from the KNF register automatically.
The new Consumer Credit Directive (CCD2) and Polish laws
CCD2 has recently been published in the Official Journal of the European Union. CCD2 enacts regulations addressing market challenges arising due to advances in technology, concerning issues such as consumer crowdfunding and Buy Now Pay Later – BNPL schemes in which payment for purchases can be deferred.
CCD2 also addresses the issue of licensing firms that provide consumer credit, requiring member states to ensure that lenders are subject to the appropriate licensing procedures, for example in the form of a permit or registration, and appropriate oversight by the national regulators. This procedure is intended to ensure stability on the EU consumer credit market and uniformity across the EU.
Under CCD2, the requirement for regulation of operations of consumer credit firms does not apply to lenders that are credit institutions, payment institutions, or electronic money institutions. In addition, member states will have the power to decide not to enforce those requirements in the case of providers of goods or services that are micro, small, and medium-sized enterprises for which providing credit is solely an ancillary service.
Member states are required to transpose CCD2 into national law, by enacting the national legislation, by 20 November 2025, and the national provisions are to take effect by no later than 20 November 2026.
When CCD2 is considered in terms of the Anti-usuary Act, the recent amendments to the UKK in some way anticipated the premises in CCD2 with regard to licensing requirements and rules on lending institution oversight. Also, CCD2 provides for further obligations concerning conducting business by lenders and requirements applicable to the personnel they hire. For example, lenders must guarantee that personnel have up-to-date knowledge and appropriate competences to draw up, offer, and conclude consumer credit agreements.
Summary
KNF oversight of lending institutions from 1 January 2024 will entail a range of obligations. The amendments to the UKK will mean that those lenders now on the market, and firms applying to be registered, will have to align their operations with the new laws. If the existing market players have not completed the related measures, they need to take the necessary measures promptly. Time is short, and any consequences of not doing so could be truly severe.
The new laws due to amendment of the Anti-usuary Act are not the only forthcoming event affecting the loan market. Further changes to the law can be expected soon due to transposition of CCD2. The extent of the changes and implications for the market will not become clear until the first proposal for an act transposing the directive is published.
Author: Michał Synowiec, PhD, Attorney-at-law and Hubert Łączkowski
Footnotes
[1] Act of 6 October 2022 amending the Anti-usury Act (Journal of Laws of 2022, item 2339).
[2] Consumer Credit Act of 12 May 2011 (Journal of Laws of 2023, item 1028 as amended).
[3] Directive (EU) 2023/2225 of the European Parliament and of the Council of 18 October 2023 on credit agreements for consumers and repealing Directive 2008/48/EC.
[4] https://legislacja.rcl.gov.pl/projekt/12375450/katalog/12996739#12996739 [accessed: 09.11.2023].