In order to implement the requirements of Directive (EU) 2023/2225 on consumer credit agreements, a draft of a completely new Consumer Credit Act (the "Draft") has been prepared and published on the Public Consultation Portal.

The Draft emphasizes the need to update the current legal framework in line with the new economic, technological, and social realities. The measures envisaged aim to increase transparency in the provision of consumer credits, limit misleading advertising messages, and unfair commercial practices. The draft regulates the requirements for granting consumer credit, the conditions and procedure for registering credit intermediaries and creditors providing consumer credit, as well as the control over them. Below you can find a summary of some of the main new provisions in the Draft compared to the current Consumer Credit Act:

1. Significant expansion of the scope of application

One of the most significant differences from the current Consumer Credit Act (CCA) is the expansion of both the subject matter and personal scope of the law.

The scope of consumer credit agreements is expanded to include new credit products within the scope of the law.

According to the Draft:

 ● the upper limit of credits falling within its scope is increased to EUR 100,000 (compared to approximately EUR 75,000 under the current regime);

 ● new credit products that were previously partially or completely unregulated are included – short-term loans, interest-free or low-cost loans, as well as “buy now, pay later” models;

 ● it covers deferred payment agreements offered by suppliers of goods and services, including in an online environment, where the payment period exceeds certain thresholds.

2. Stricter rules on advertising and commercial communications

The Draft introduces significantly more detailed requirements for the advertising of consumer credit. Misleading messages are prohibited, including those that:

 ● present credit as a means of improving financial circumstances;

 ● overemphasize the ease or speed of obtaining credit;

 ● downplay the costs or impact on the consumer's credit history.

Advertisements must contain clear, visible and comparable indicators, including the APR, the total amount owed by the consumer and a significant warning: “Warning! Taking out a loan costs money” or another similar phrase in meaning.

3. Enhanced requirements for pre-contractual information and explanations

The Draft builds on existing rules and obligations for providing pre-contractual information by:

 ● expanding its scope and content;

 ● introducing stricter standards for clarity, legibility, and comprehensibility;

 ● requiring the creditor to provide additional explanations when using automated decisions or profiling, including elements of artificial intelligence.

The aim is to enable consumers to actually compare offers and make an informed decision, rather than formally receiving information that remains incomprehensible in practice.

4. Prohibition of unfair practices and unsolicited credit

The Draft introduces explicit prohibitions on:

 ● the use of pre-ticked boxes, for example when concluding a credit agreement or providing additional services;

 ● the unsolicited provision of credit, including the sending of pre-approved credit cards;

 ● unilateral increases in credit limits without the consumer's explicit consent.

These provisions represent a significant tightening of the current regime and aim to prevent aggressive and manipulative commercial practices.

5. Stricter and more responsible creditworthiness assessment

The new law also introduces higher standards for assessing the creditworthiness of consumers, such as:

 ● credit may only be granted if the assessment is positive;

 ● the use of special categories of personal data in the assessment is expressly prohibited.

6. Measures to prevent over-indebtedness

The Draft further develops concepts already familiar from the current Consumer Credit Act, relating to the existence of an upper limit on interest rates, the annual cost of credit, and the total cost of credit.

7. Other

Some of the many differences with the current CCA are related to:

(i) the introduction of requirements for creditors and credit intermediaries to act ethically, while ensuring that their employees have the appropriate knowledge and competence;

(ii) a ban on tying practices, such as the sale of compulsory credit protection insurance;

(iii) a prohibition on concluding agreements with consumers for the purchase of additional services through default options, pre-ticked boxes, inaction, or tacit consent of the consumer;

(iv) expanding the information that must be included in a consumer credit agreement;

(v) requiring creditors to provide debt restructuring measures in the event of late payments.

8. Personal scope

The so-called “personal scope” of the CCA is supplemented with regard to the regime of all entities providing consumer credit.

More specifically, the Draft introduces a requirement for authorization and registration of all credit intermediaries providing consumer credit. A requirement is also introduced for authorization and registration of persons providing consumer credit where the activity of granting credit is not essential to their business. This requirement will also apply to suppliers of goods and services that are not micro, small or medium-sized enterprises (micro, SMEs), acting as creditors in an ancillary capacity, when they grant credit in the form of deferred payment for the purchase of the goods and services they offer, as well as to micro, SMEs that grant credit in the form of deferred payment for the purchase of the goods and services they offer against interest.

 ● Register of consumer credit intermediaries, for which an application will be submitted to the CPC. In order to carry out this activity, certain legal conditions will have to be met, including appropriate knowledge, professional experience, and good reputation. This will be the first such register in Bulgaria, as currently only credit intermediaries for real estate loans are subject to registration under the Consumer Real Estate Loans Act.

 ● Register of creditors providing consumer credit, in which all creditors providing consumer credit will be subject to registration, with the exception of banks, certain financial and payment institutions, as well as suppliers of goods and services (micro, small, and medium-sized enterprises) that provide interest-free credit in the form of deferred payment with limited late fees.

To be entered in the register of creditors providing consumer credit, an application must be submitted to the CPC. In order to operate as a consumer credit lender, certain requirements set out in the draft law will have to be met, such as possessing appropriate knowledge and competence in the field of lending, professional experience, good reputation, etc.

The concept behind the new CCA, which aims to transpose the European legal framework, is to take a step towards strengthening market security and confidence. The expected result of the update is the creation of a favourable regulatory framework to ensure a high level of consumer protection in the context of accelerated technological development and the emergence of new forms of consumer credit. It remains to be seen what the final amendments to the new law will be, affecting the entire financial sector in Bulgaria, as well as a wide range of citizens and organizations.

This material has been prepared for and is part of a legal information bulletin prepared by the law firm Penkov, Markov & Partners. The publications in it do not constitute legal advice and are not binding. Penkov, Markov & Partners reserves all rights to this material, and any distribution thereof is subject to the prior written consent of the law firm.