On 28 January 2021, the Senate of the Republic of Latvia, Department of Administrative Affairs (the “Senate”) has reached a decision in case SKA-68/2021.
The decision affects not only those Latvian peer-to-peer marketplace platforms, which use the assignment of claim arising from consumer lenders’ agreements with their clients (consumers) to the investors, but also other credit institutions and possibly debt collection companies.
The Senate assessed whether the district court had correctly acknowledged that the Consumer Rights Protection Center (“Center”) had included in the special permit (license) for the provision of consumer credit services in the Republic of Latvia a restrictive condition to cease assigning claims arising from credit agreements to the marketplace lending platform.
The Senate has supported the Center interpretation of the idea, that although investors (assignees) have not concluded credit agreements and not issued funds directly to consumers, by applying Section 8, paragraph one of the Consumer Rights Protection Law (“CRPL”) in essence and meaning, it can be concluded the investor has provided lending specific services through the consumer lender.
Therefore, if the investor has legally acquired rights of claim against the consumer, the Senate recognizes the investor should be considered as the consumer lender itself and accordingly to Section 8, paragraph 11 of the CRPL, consumer lending services may be provided only by a licensed capital company. As the loan originator’s claim against the consumer could be acquired on the platform by any person, including a natural person and a legal person without a corresponding license, the Senate supports the district courts conclusion, in such a way the law restricting consumer crediting is being bypassed.
The Senate refers to the aim of Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers and repealing Directive 87/102/EEC (the “Consumer Credit Directive”), and the importance for the market to offer sufficient consumer protection to be able to ensure consumer trust. Thus, it should be possible for the free movement of credit offers to take place under optimum conditions for both those who offer credit and those who require it. By allowing consumers to be credited by third parties under the assignment agreements without the relevant license and due to that the amount of credits granted to consumers increases, it is difficult or even impossible for the Center to monitor and enforce consumer protection rules.
The Senate has acknowledged that the assignment of the rights of consumer creditors are allowed only between licensed capital companies because it may affect the rights of consumers and put the consumer at a disadvantage if the claims are acquired by persons who do not comply with regulatory enactments.
Taking into consideration all the above, it would be welcomed to provide a clear meaning of the provisions of credit services and review substance of the actual operations of the investor and if it can be recognized as consumer lender within them. If deeper look at the terms and conditions of assignment and the arrangement of credit agreement to be serviced by the original consumer lender, it could highlight the rights and obligations of each party, including the potential risks and remedies.
The Senate’s conclusion on consumers to be credited by the third parties under the assignment agreements without the relevant license and therefore boosting financial recourses for consumer lenders, highlights inability of administrative law instances to assess risks, examine instrument of assignment of rights of claim provided for in the Civil Law and the restrictions provided for therein, as well as focus on facts, for example, if by substance consumer rights are at risk, if according to law parties agree not to inform consumer about assignment of claim and its initial creditor continues to administer its credit agreement, and what are practical Center’s difficulties to monitor and enforce consumer rights in the said situation. With the same logic, the question arises if the debt collection companies credit consumers under the assignment of non-performing portfolio of consumer lenders.
Thus, by way of protecting consumer rights, it has not been evaluated if consumer rights have been at risk at all and what are the impact of the Senate’s decision on other areas of businesses where assignment of consumer loans is used.
Nevertheless, the European Parliament has adopted Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 (“Regulation”) and Directive (EU) 2019/1937 Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020 amending Directive 2014/65/EU on markets in financial instruments, already in force, applicable from 10 November 2021 and binding in its entirety across the EU, will provide new set up for crowdfunding platforms to operate under.