Bad credit record does not always mean inability to pay. The customer’s bad credit record alone does not give other lenders the right to close financial taps or to cancel a credit which has been managed in a businesslike manner.
As a result of the EU Directive on Payment Services a new Act regarding payment services is being processed. The Consumer Agency has been taking part in preparations for the Act in the Ministry of Justice working group.
The Payment Services Act will also touch the consumers' financial difficulties and a company's right to close down a customer's payment instrument. According to the proposed bill a company could, for instance, close a customer’s credit card, if the risk of customer’s inability to pay has notably increased.
Bad credit record has been regarded as a sign of the consumer's bad budgeting. According to the Consumer Protection Act a bad credit record obtained from somewhere else is not a sufficient reason to cancel other credits if the customer has been managing them impeccably. A bad credit record indicates that a customer was in financial difficulties at the time when the record was made – which is not necessarily the current situation. On the other hand, when applying for new credit, a bad credit will usually influence the lender’s decision.
The most common reasons for financial crisis are sudden life changes. For instance, as a consequence of a divorce or unemployment the consumer’s budget can momentarily become so burdened that he/she is unable to pay all bills on time. This is where credit can help in balancing sudden expenses and it can compensate for sudden decrease of income. Without credit the consumer can be caught up in even worse financial difficulties. However, the condition for obtaining credit, even in these situations, requires that the consumer has an ability to pay.
The parliamentary reading of the Act is expected in early autumn and the objective is to have the new regulations enter into force at the beginning of November.
New legislation to straighten out payment services, Current Issues in Consumer Law, 2/2009