How to enter into a consumer credit agreement

Before entering into a consumer credit agreement, bank customers should evaluate the impact of the monthly instalment on the family budget and compare different credit options.

It is important for bank customers to provide true and complete information to the financial institution and to clearly state the purpose of the credit they intend to borrow. The different types of consumer credit have different characteristics and associated costs.

 

Pre-contractual information

Before entering into a consumer credit agreement, bank customers have the right to receive clear and complete information about all credit conditions so that they can properly compare the different offers and make an informed decision. Interest rates and charges for different proposals should be compared on the basis of the annual percentage rate of charge.

This information should be included in the standardised information sheet (SIS) for consumer credit.

The SIS is drawn up by credit institutions and has to be made available to customers even if a credit intermediary is involved (for example, the point of sale where the consumer purchases the financed goods). In these cases, it may be the credit intermediary that delivers the SIS of the credit institution to the customer.

There are four SIS models, depending on the type of credit and the manner it is entered into (Instruction No. 12/2013):

  • Standardised information sheet – general: applicable, for example, to personal loan, car loan, credit lines and credit card agreements;

  • Standardised information sheet for agreements entered into at a distance – general: applicable, for example, to personal loan, car loan, credit line and credit card agreements, provided that the formation and conclusion of these agreements is carried out exclusively through means of distance communication;

  • Standardised information sheet for agreements in the form of an overdraft facility and debt conversion agreements: applicable to agreements in the form of an overdraft facility with an obligation to repay on demand or within three months and debt conversion agreements;

  • Standardised information sheet for agreements in the form of an overdraft facility and debt conversion agreements entered into at a distance: applicable provided that the formation and conclusion of these agreements are carried out exclusively through means of distance communication.

The SIS are composed of four parts:

  • Identification elements – reference to the credit institution responsible for the credit conditions presented in the SIS, indicating its name, address and contacts;

  • Main features of the credit – presentation of the characteristics of the credit, indicating:

    • The type of credit (personal loan, car loan, credit card, credit line, overdraft facility or other);

    • Total credit amount;

    • Conditions for its use (for example, the need to open a current account, if applicable);

    • Duration of the agreement;

    • Credit repayment modality (scheme, amount and frequency of instalments);

    • Guarantees required;

    • How to proceed with the early repayment of the credit (in particular the conditions for exercising it and the amount of the fee to be paid);

  • Cost of the credit – indication of the costs associated with the credit, inter alia:

    • The annual nominal interest rate, with its characteristics and components;

    • The annual percentage rate of charge;

    • Fees included in the annual percentage rate of charge;

    • Notary expenses;

    • Costs in case of non-payment;

  • Other aspects – fixing the validity period of the conditions for granting the credit by the institution included in the SIS, as well as the description of other rights of the customer, namely to withdraw the credit within 14 days and to obtain a copy of the agreement, among others.

In addition, where the credit agreement to be entered into has a definite repayment period and repayment plan, in which the instalment system is not constant, the institutions must provide customers with the financial plan of the agreement attached to the SIS.

 

Cross-selling

The credit institution may not make the granting or renegotiation of a loan conditional on the contracting of other products or services (i.e. tying is prohibited in Portugal).

The credit institution may, however, propose the optional purchase of other financial products or services as a counterpart to reduce the costs of the credit agreement (i.e. in Portugal, bundling are allowed).

In the case of the optional purchase of other financial products or services together with the credit, the standardised information sheet (SIS) provided by the credit institution to the bank customer should:

  • Mention the basket of marketed products that are linked to the credit;

  • Explain the benefits of such joint contracting;

  • Identify the impact of any changes to the composition of the basket, namely on interest rates, spread, fees, expenses and other costs, as well as the conditions of application, maintenance and revision of the product.

By choosing to purchase other financial products or services to benefit, for example, from a lower spread, if customers give up any of these products or services, the credit institution may increase the spread of the loan, under the terms provided in the credit agreement.

 

Conclusion of the agreement

The consumer credit agreement must be written on paper or on another durable medium. A copy of the duly signed agreement must be delivered to the bank customer and guarantors (if applicable).

The credit agreement shall specify, in a clear and concise manner, some of the data contained in its standardized information sheet on consumer credit (SIS) and other elements.

The credit agreement should specify some of the data contained in the standardised information sheet (SIS), namely:

  • Type, duration, total amount and conditions of use of the credit;

  • Annual nominal interest rate, annual percentage rate of charge and total amount to be reimbursed.

It should also specify other elements, including:

  • In the case of a fixed-term credit agreement, the right of customers to receive, free of charge, at their request and at any time during the term of the agreement, a copy of the amortisation table, indicating the instalments due, broken down into amortisation of principal, interest and other charges, as well as the respective payment dates;

  • The charges:

    • Relating to the maintenance of one or more accounts, which must be opened in order to record both the credit payment and utilisation operations;

    • Relating to the use of a means to enable credit payment and utilisation operations to be carried out (for example, credit card);

    • Arising from the credit agreement and the conditions under which those charges may be changed;

  • The applicable interest rate for late payment and the consequences of non-payment;

  • The guarantees and insurance required;

  • The existence of the right of free revocation;

  • Information regarding the rights arising from the existence of a linked credit agreement;

  • The right to early repayment, including procedure, method and form of calculation of the reduction of the total cost of credit and the early repayment fee;

  • The procedure to be adopted for the termination of the credit agreement;

  • The existence or non-existence of extrajudicial complaints procedures;

  • The name and address of the competent supervisory authority.

Bank customers can withdraw from the agreement without having to justify their decision to the credit institution.

Customers have 14 calendar days from the date of signature of the agreement or the receipt of a copy of it, to exercise their right of free revocation.

Once the right of revocation is exercised, customers must pay the institution, within 30 days, the principal and interest due from the date of use of the credit up to the date of repayment of the principal, calculated based on the nominal rate of the agreement.

They may also be required to pay any expenses incurred by the institution before public authorities (for example, taxes).

Term of the agreement

During the term of the agreement, credit institutions should periodically provide their customers with a detailed statement of loan developments.

The information to be provided in the statements depends on the type of credit:

In the case of credit cards, credit lines and bank credit accounts (revolving credit), the statements should include the following information, in particular:

  • Credit limit;

  • Balance due on the date of the previous statement;

  • Annual nominal interest rate applicable, with identification of the respective components (reference rate and spread);

  • Description of the movements made by the bank customer with the credit card or of the credit utilisations, in the case of credit lines and bank credit accounts;

  • Identification of the amount of interest, fees and any expenses levied on the customer in the period to which the statement refers;

  • Payments made by the bank customer in the period to which the statement refers, with a breakdown of the components related to principal and interest and, if applicable, fees and expenses;

  • Balance due at the date of the current statement;

  • Defined payment option, amount payable and payment deadline;

  • Form of payment agreed and other forms of payment available.

With regard to personal credit and car loan agreements, the statements must provide bank customers with the following information:

  • The amount of principal outstanding on the date of issue of the statement;

  • The number, maturity date, amount (principal and interest) and nominal annual interest rate, with identification of the respective components, of the next instalment;

  • Fees and expenses payable by the customer in the next instalment.

In the case of credit agreements in the form of an overdraft facility, customers must be informed monthly, through an account statement, of the following elements:

  • The period to which the account statement refers;

  • The amounts used and the date of use;

  • The balance of the previous statement and its date;

  • The new balance;

  • The date and amount of payments made;

  • The nominal rate applied;

  • Charges debited;

  • The minimum amount to be paid, if applicable.

The information, in paper or other durable medium, should contain changes to the nominal rate or any charges payable before their entry into force.

As a rule, the statement should be sent monthly, except in some situations where, for example, the customer does not use the credit card or the instalments are collected at a different frequency from monthly instalments. In these situations, the statement must be sent when there are movements associated with the card or at intervals equivalent to that fixed for the payment of the instalments, and in any case, at least one annual statement must be sent.

The information must be provided on paper or other durable medium. Customers always have the right to information on paper provided they expressly request it.

In addition to this information, institutions must provide specific information, either in the statement or in an autonomous document, in cases of non-compliance, regularisation of situations of non-compliance or early repayment of the credit agreement.