Regulations on the Assessment of Consumer Creditworthiness and on Responsible Lending

Consolidated version from 26-01-2017
Resolution published in: Official Gazette, 2013, No 30-1519 , ID code 113505ANUTA00003-62 Recast with effect from 01-02-2016:
No
03-12
, 28-01-2016, published in the RLA, 29-01-2016, ID code 2016-01774 (Translation of the version as amended by Resolution No 03-21 of the Board of the Bank of Lithuania of 24 January 2017) BOARD OF THE BANK OF LITHUANIA RESOLUTION ON THE APPROVAL OF THE Regulations ON the assessment of Consumer creditworthiness and ON responsible lending 19 March 2013 No 03-62 Vilnius Acting in observance of Article 42(3)(1) of the Law of the Republic of Lithuania on the Bank of Lithuania and Article 8(5) of the Law of the Republic of Lithuania on Consumer Credit, the Board of the Bank of Lithuania has resolved:

1. To approve the Regulations on the Assessment of Consumer Creditworthiness and on Responsible Lending (attached).
2. To establish that the Regulations on the Assessment of Consumer Creditworthiness and on Responsible Lending approved by this Resolution shall apply to all consumer credits granted from the date of entry into force of these Regulations, irrespective of the time of the conclusion of the credit agreement, except for the restructured consumer credits.
   DEPUTY CHAIRMAN OF THE BOARD
   DEPUTISING FOR THE CHAIRMAN OF THE BOARD Darius Petrauskas APPROVED by Resolution No 03-62 of the Board of the Bank of Lithuania of 19 March 2013 (As amended by Resolution No 03-12 of the Board of the Bank of Lithuania of 28 January 2016) Regulations ON the assessment of Consumer creditworthiness and ON responsible lending

CHAPTER i
GENERAL PROVISIONS

1. The purpose of the Regulations on the Assessment of Consumer Creditworthiness and on Responsible Lending (hereinafter – the Regulations) is to promote responsible lending practices of creditors and peer-to-peer lending platform operators, define the consumer creditworthiness assessment requirements, establish the main provisions, criteria and requirements to be observed by creditors and peer-to-peer lending platform operators when approving regulations on the assessment of consumer creditworthiness and on responsible lending and when assessing the consumer creditworthiness.
2. The requirements set out in the Regulations shall apply to creditors and peer-to-peer lending platform operators who act in accordance with the Law of the Republic of Lithuania on Consumer Credit.
3. The terms used in the Regulations shall have the meanings assigned to them in the Law on Consumer Credit.

Repealed with effect from 26-01-2017
Repeal of the paragraph:
No
03-21
, 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406
5. Acting in compliance with these Regulations, creditors and peer-to-peer lending platform operators shall approve the rules aimed at ensuring the proper assessment of consumer creditworthiness and the compliance with the responsible lending principle and shall pursue their credit granting or peer-to-peer lending platform operator’s activities in observance of such rules.
CHAPTER II
RESPONSIBLE LENDING
6. Responsible lending means lending activities pursued by creditors or peer-to-peer lending platform operators whereby consumer credits are granted in observance of certain provisions facilitating the proper assessment of the consumer’s creditworthiness and preventing the consumer from assuming an excessive burden of financial obligations.
7. Responsible lending shall be based on the following requirements:
7.1. prior to deciding to grant a consumer credit to a consumer or to significantly increase the existing total amount of credit, the creditor or peer-to-peer lending platform operator shall assess the consumer creditworthiness on the basis of sufficient information and evidence;
7.2. the consumer creditworthiness assessment purpose shall be to assess the consumer’s possibilities to assume the particular financial obligation which the consumer would be able to fulfil together with their already existing financial obligations;
7.3. the creditor or peer-to-peer lending platform operator must assess all objectively expected material factors having regard to the information provided by the consumer, obtained from registers and information systems used for the assessment of creditworthiness and other information available to the creditor or peer-to-peer lending platform operator that might affect the consumer’s creditworthiness, in particular such factors as sustainable income, credit history and potential changes (increase and decrease) of income of the consumer;
7.4. lending shall be based (taking into account the historical data, cyclical nature of economy) on limiting the debt service-to-income ratio of all obligations of the consumer under the credit agreements and other agreements concluded with financial institutions.
Amendments to the paragraph
No
03-21
, 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406
7.5. the consumer creditworthiness assessment according to the available information must be based on the assumption that the consumer will be able to fulfil the assumed financial obligations during the entire period of validity of the credit agreement;
7.6. where the consumer creditworthiness assessment according to the available information shows that the consumer is incapable of fulfilling the financial obligations during the entire period of validity of the credit agreement, the credit may not be granted to the consumer.
8. Encouraging irresponsible lending shall be prohibited.
CHAPTER III
AVERAGE DEBT SERVICE-TO-INCOME RATIO
9. The creditor shall be deemed to comply with the responsible lending principle when, at the time of conclusion of the credit agreement, the average monthly amount of credit payment of the consumer under all obligations to financial institutions does not exceed 40% of sustainable income of the consumer, excluding the case specified in paragraph 9
1 of the Regulations.
Amendments to the paragraph
:
No 27-05-2016 No
AB-11476-3-66-3-00056-2015-7
, 27-05-2016, published in the RLA, 06-06-2016, ID code 2016-14866 No 03-80 , 08-06-2016, published in the RLA, 09-06-2016, ID code 2016-15946 No 03-21 , 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406

9
1
. A larger amount than the average monthly amount of credit payment of the consumer under all obligations to financial institutions specified in paragraph 9

of the Regulations may be applied in those cases where the creditor or peer-to-peer lending platform operator possesses valid and sufficient evidence that the application of the larger amount in the particular case does not violate responsible lending requirements. Supplemented with the paragraph :
No
03-80
, 08-06-2016, published in the RLA, 09-06-2016, ID code 2016-15946 Amendments to the paragraph :
No
03-21
, 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406 9 2 . The average monthly amount of credit payment shall be determined by calculating separately the amount of the obligation to a financial institution and dividing the obtained remaining amount of the credit payment and of the cost of the credit of the respective obligation by the residual credit maturity in months (excluding the case specified in paragraph 9 3 of the Regulations), and summing up the resulting amounts. Supplemented with the paragraph :
No
03-21
, 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406 9 3 . The amount of credit obligations for which the repayment in instalments is not provided (an open-end credit agreement, overdraft facility, other credit agreement whereby the consumer is granted the right to use the credit without exceeding the established credit limit, etc.) shall be calculated by summing up the following amounts:
9
3
.1. unused credit amount and cost of the credit divided by total credit maturity in months; however, without exceeding 36 months (including open-end credit agreements); 9 3 .2. unused credit amount and cost of the credit divided by residual credit maturity in months; however, without exceeding 36 months (including open-end credit agreements). Supplemented with the paragraph :
No
03-21
, 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406
10. The credit granting decision shall be based on the history of average sustainable income of the consumer of at least four last months and on the assessment of sufficiency of the sustainable income earned during the consumer credit repayment period fixed in the credit agreement for the fulfilment of all obligations to financial institutions. The average sustainable income of the consumer of another period may be applied when the creditor or the peer-to-peer lending platform operator possesses valid and sufficient evidence that in the particular case the consumer’s income of another period may be considered to be sustainable and the application of the respective period does not violate responsible lending requirements. Sustainable income shall be the income of the consumer which can be reasonably expected during the credit granting period. When calculating the consumer credit payment amount payable by the consumer, the creditor and the peer-to-peer lending platform operator shall assess the consumer’s expenses that are and/or might be known to the creditor and are related not only to the repayment of the credit, but also to other existing obligations of the consumer to financial institutions and shall take into account income remaining after repayment of the credit by the consumer.
Amendments to the paragraph
:
No 27-05-2016 No
AB-11476-3-66-3-00056-2015-7
, 27-05-2016, published in the RLA, 06-06-2016, ID code 2016-14866 No 03-80 , 08-06-2016, published in the RLA, 09-06-2016, ID code 2016-15946
CHAPTER IV
COLLECTION AND RETENTION OF INFORMATION, DATA AND DOCUMENTS AND INFORMING THE CONSUMER
11. The creditor and peer-to-peer lending platform operator shall inform the consumer about the duty to provide correct and complete information and evidence required by the creditor and the peer-to-peer lending platform operator for the assessment of the creditworthiness of the consumer. The creditor and peer-to-peer lending platform operator shall not be held liable for inaccurate information (forged documents or other evidence, etc.) provided by the consumer to the creditor and peer-to-peer lending platform operator which had an essential impact on the assessment of the consumer’s creditworthiness.
12.
The creditor must retain the information, data and documents collected (assessed) during the assessment of creditworthiness for 3 years after the date of fulfilment of the obligations under the credit agreement, unless other legal acts establish a longer period of retention of such information, data and documents so that the creditor, where appropriate, is able to demonstrate that they have properly assessed the consumer creditworthiness.
13. Prior to the conclusion of a credit agreement according to which a consumer credit is granted in foreign currency, the creditor or peer-to-peer lending platform operator must notify the consumer in writing about the risk related to foreign exchange rate changes and possible implications of the significant change in the foreign exchange rate on the consumer’s credit payment amounts and possibilities to repay the credit in due time.
CHAPTER V
CONSUMER CREDITWORTHINESS ASSESSMENT

14. Prior to the conclusion of a credit agreement, the creditor or peer-to-peer lending platform operator must, acting in compliance with the principle of responsible lending, carry out the full assessment of the consumer creditworthiness on the basis of sufficient information received from the consumer and supporting this information with:
    14.1. data obtained after consulting databases and information systems used for creditworthiness assessment purposes;
    14.2. other evidence.

15. The creditor’s consumer credit granting policy and the peer-to-peer lending platform operator’s activities must be based on the assumption that the consumer credit is repaid from cash flows (income) generated by the consumer’s earnings, rather than through forced recovery based on pledges made by the creditor or peer-to-peer lending platform operator.

16. The creditor and peer-to-peer lending platform operator must clearly specify to the consumer the particular information to be submitted to the creditor and peer-to-peer lending platform operator and the objective evidence necessary for the consumer creditworthiness assessment.

17. For the purpose of assessing the consumer’s creditworthiness the creditor and peer-to-peer lending platform operator must collect and assess the following information and evidence about:
    17.1. the consumer’s income (sources of income, their diversity, sustainability, possible changes in the future, etc.);
    17.2. the consumer’s obligations to financial institutions (credits related to real estate, other consumer credits, financial lease, repayments under the credit card limit schedules, loans, etc.);
    17.3. the consumer’s credit history of at least 6 last months and information on whether the consumer defaults or had defaulted on his financial obligations to financial institutions, as well as information about the consumer’s debts to financial institutions;
    17.4. the impact of circumstances notified by the consumer or known to the creditor or peer-to-peer lending platform operator regarding the economic and financial position of the consumer and the consumer’s possibilities to properly fulfil their financial obligations;
    17.5. other significant circumstances connected with the consumer’s financial position and/or possibilities to properly fulfil their financial obligations.

18. For the consumer creditworthiness assessment the creditor or peer-to-peer lending platform operator shall assess both the current and future income.

19. Consumers, whose income (e.g. income from dividends, stocks, real estate, investment activities or real estate sales) might change considerably, who engage in seasonal jobs, receive irregular income or the sustainability of whose income is doubtful, shall be subject to a more conservative assessment and credits granted to them shall be subject to the average debt service-to-income ratio which is more stringent than that established under paragraph 9 of the Regulations.

20. Where after the conclusion of a credit agreement its parties agree to change the total amount of credit, each time when it is intended to significantly increase the total amount of credit, the creditor or peer-to-peer lending platform operator must update the available information about the consumer and assess once again their creditworthiness on the basis of the updated information and calculate the average debt service-to-income ratio of the consumer in accordance with the procedure set out in Chapter III of the Regulations.
    20
    1
    . Where the consumer is married, in order to make proper assessment of their possibilities to assume a particular financial obligation, the creditor and peer-to-peer lending platform operator, when assessing the consumer’s creditworthiness, must additionally collect information and evidence about the consumer spouse’s income, expenses and obligations to financial institutions and assess them together with the information and evidence about the consumer’s income, expenses and obligations to financial institutions, excluding the cases specified in paragraph 20 2 of the Regulations. The collection and assessment of information and evidence about income, expenses and obligations of the consumer’s spouse to financial institutions shall be subject to requirements of the Regulations governing the collection and assessment of the information and evidence about the consumer’s income, expenses and obligations to financial institutions. Supplemented with the paragraph :
    No
    03-21
    , 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406 20 2 . Information and evidence about the consumer spouse’s income, expenses and obligations to financial institutions may not be collected and assessed by the creditor and peer-to-peer lending platform operator, where:
    20
    2
    .1. the consumer seeks to conclude an agreement or concludes a credit agreement for personal needs and all of the following conditions exist:
    20
    2
    .1.1. the credit agreement clearly specifies that the consumer credit is intended for personal needs of the consumer; 20 2 .1.2. when concluding the credit agreement, the consumer’s average monthly payment amount under all obligations of the consumer and joint family obligations identified when collecting and examining the information about the consumer (hereinafter – joint obligations) regarding consumer credits is not in excess of 20% of sustainable income of the consumer; 20 2 .1.3. when concluding the credit agreement, the consumer’s average monthly payment amount under all obligations of the consumer and joint obligations to financial institutions is not in excess of 40% of sustainable income of the consumer. 20 2 .2. The creditor or peer-to-peer lending platform operator possesses evidence that for the proper assessment of creditworthiness the information only about the consumer is sufficient (a respective court order, pre-nuptial or post-nuptial contract according to which all property and obligations of spouses are personal and spouses are liable for their obligations only to the extent of their personal property, etc.). Supplemented with the paragraph :
    No
    03-21
    , 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406 20 3 . Where there are two or more consumers (co-borrowers), their income, expenses and obligations to financial institutions may be assessed jointly. If a co-borrower is married, the assessment of their creditworthiness, inter alia , shall be subject to requirements of paragraphs 20 1 and 20 2 of the Regulations. Supplemented with the paragraph :
    No
    03-21
    , 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406

21. The creditor and peer-to-peer lending platform operator must continuously evaluate the adequacy and effectiveness of the applicable consumer creditworthiness assessment process and, where appropriate, adjust the process. For the purpose of evaluating the adequacy and effectiveness of the consumer creditworthiness assessment process, the attention,
    inter alia
    , should be paid to the quality of the portfolio of granted credits: the cases of overdue payments, the number of impaired and written-off credits.
    CHAPTER VI
    FINAL PROVISIONS

22. The creditor and peer-to-peer lending platform operator shall be deemed to have failed to assess the creditworthiness of the consumer when the creditor and the peer-to-peer lending platform operator does not assess the sufficient information and evidence concerning the consumer’s possibility to properly fulfil the assumed financial obligations, or assesses only the consumer’s possibilities to properly perform the credit agreement, without taking account of already existing financial obligations of the consumer.

23. The creditor and peer-to-peer lending platform operator defaulting on the requirements set out in the Regulations may be subject to liability in accordance with the procedure set in the Law on Consumer Credit.

---

Amendments:
1.
Bank of Lithuania, Resolution
No
03-12
, 28-01-2016, published in the RLA, 29-01-2016, ID code 2016-01774 Amending Resolution No 03-62 of the Board of the Bank of Lithuania of 19 March 2013 on the approval of the regulations on the assessment of consumer solvency and on responsible lending 2. Supreme Administrative Court of Lithuania, Decision No 27-05-2016 No AB-11476-3-66-3-00056-2015-7 , 27-05-2016, published in the RLA, 06-06-2016, ID code 2016-14866 Depersonalised decision, 27-05-2016, No AB-11476-3-66-3-00056-2015-7 3. Bank of Lithuania, Resolution No 03-80 , 08-06-2016, published in the RLA, 09-06-2016, ID code 2016-15946 Amending Resolution No 03-62 of the Board of the Bank of Lithuania of 19 March 2013 on the approval of the regulations on the assessment of consumer creditworthiness and on responsible lending 4. Bank of Lithuania, Resolution No 03-21 , 24-01-2017, published in the RLA, 25-01-2017, ID code 2017-01406 Amending Resolution No 03-62 of the Board of the Bank of Lithuania of 19 March 2013 on the approval of the regulations on the assessment of consumer creditworthiness and on responsible lending