Newsroom / News / Media / Info Magazine LGP NEWS 01/2022 / Consumer protection in financial services

Consumer protection in financial services

Consumer protection in financial services

The financial sector in North Macedonia is developing a modern institutional setup, aligned with the EU acquis, with a moderate progress in recent years. The current legal framework is mostly based on the Law on Consumer Protection in Case of Consumer Loan Agreements. 

This law applies to all lenders, including banks, in the case of loan agreements with a total amount in denar equivalent of 200 up to 75,000 euros. Excluded of this law are secured credit arrangements, financial leasing agreements, overdrafts, credit arrangements arising from an employment relation, loan agreements for securities services, credit agreements as a result of settlements, re-financing of existing credit arrangements and special credit arrangements for a specific group of citizens. Contractual parties to a consumer loan contract are the “consumer” and the “creditor” (or “lender”). The law defines the “consumer” as a natural person who enters into a consumer loan agreement, for purposes which are outside her or his trade, business or profession and the “creditor” as a bank, other trade company or sole proprietor who grants or promises to grant credit in the course of their registered activity. 

The consumer credit contract means an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a loan, overdraft, deferred payment of goods and services, financial lease or other similar financial services. Exceptions are agreements for the provision, on a continuing basis, of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision or supply by means of instalments. 

Pre-contractual information requirements are an important aspect of this law. Before a consumer is bound by any offer or consumer loan agreement, the creditor must, on the basis of the credit terms and conditions offered, provide, on paper or another durable medium, by means of a special form, all relevant information regarding the loan. This information must specify all elements stipulated in the Law on CPCCLA in order to provide the consumer with the information needed to compare different offers in order to make an informed decision on whether to enter a credit agreement. 

The obligatory elements of a consumer credit contract are prescribed in the Law on CPCCLA. The contract itself must be prepared on paper or on another durable medium and all the contracting parties must receive a copy of the credit agreement. 

Important elements of a consumer credit agreement are: 

  • the total amount of credit and the conditions governing the drawdown 
  • the borrowing rate, the conditions governing the application of that rate and, where available, any index or reference rate applicable to the initial borrowing rate, as well as the periods, conditions and procedures for changing the borrowing rate and, if different borrowing rates apply in different periods, the relevant information in respect of all the applicable rates 
  • the APR (see below) and the total amount payable by the consumer, calculated at the time the credit agreement is entered into 
  • all the assumptions used in order to calculate that rate shall be mentioned 
  • the amount, number of instalments to be paid by the consumer and, where appropriate, the order in which payments will be allocated and others. 

The annual percentage rate of charge is calculated by a methodology set out by the Council of the National Bank of the Republic of North Macedonia. For that purpose, the total cost of the credit to a consumer is determined, with the exception of any charges payable by the consumer for non-compliance with any of the commitments laid down in the credit agreement and charges other than the purchase price of goods or services they are obliged to pay whether the transaction is carried out in cash or on credit. 

Advertising consumer credit contracts is regulated with a list of compulsory information for any advertisement concerning consumer loan agreements which indicates an interest rate or any data relating to the cost: the borrowing rate, fixed or variable, or both, together with particulars of any charges included in the total cost of the consumer loan; the total amount of credit; the APR; the duration of the credit agreement; the cash price and the amount of any advance payment; and if applicable, the total amount payable by the consumer and the amount of the instalments. 

Early repayment of credit under the law on CPCCLA entitles consumers to discharge fully or partially their obligations under a credit agreement at any time, without being charged with additional charges under the credit agreement. In such cases, they shall be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the credit agreement. 

Control and monitoring are divided among different institutions, depending on the issuing of the license of the creditor. Banks are regulated by the banking law and control and monitoring is done by the National Bank of the Republic of North Macedonia. Financial companies are licensed and under supervision of the Ministry of Finance and thus the competence for supervision is within this ministry and for creditors licensed by the Ministry of Economy, the surveillance of the enforcement of Law on CPCCLA and the regulations derived therefrom is carried out by the Ministry of Economy. 

Conclusion: Despite the steadily growing financial sector, the country has not yet been able to achieve any significant development. The European Commission noted in the 2021 Progress Report that in the area of financial services, North Macedonia remains only moderately prepared. At the same time, the Commission underlines that from now on, the country should effectively improve consumer protection against unfair banking practices. Further improvements would certainly give new impetus to the entire sector and strengthen the safety and reliability of the entire sector in a sustainable way. 


Arlind Zeqiri, M.A., Managing Partner and Senior Expert Council at LGP

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