Individual Prevails Over Lender in Snowballing Debt Case
Tartu County Court ruled in favor of an individual who had been sued by a bank for over 5,000 euros. The court said Bigbank had violated the principle of responsible lending in the Credit Institutions Act.
The individual in question received over 3,000 euros of consumer credit under three credit agreements and related understandings in 2006–2009, and made repayments totaling 4,800 euros.
The problem lay in the related understandings, according to the court. Three of the five agreements concerned repayment, and the recipient did not receive any additional credit. The bank added contract fees, late interest and ordinary interest to the debts, which made the repayable amounts increase.
The court said the bank had increased the debt burden by using the tactic of signing new agreements to offset previous amounts owed.
The bank was aware of the borrower's liquidity problems but it used its position to essentially refinance the previous loan at a rate that was costlier for the borrower, the court said.
The bank's claims ended up being larger than the credit – over 10,000 euros compared to 3,128 euros.
According to the principle of responsible lending, a credit institution must know its customer, which means it has to assess the consumer's ability to repay a loan before lending to that consumer. It also must brief the customer on risks that could be entailed by borrowing.