Changes to the consumer protection legislation

The legislation on consumer protection has been significantly amended (e.g. the Civil Code, the Act on Enforcement, the Act on Consumer Protection) to tackle soaring costs related to consumer credit which are often disproportionate to the sum borrowed.

In response to the practice of companies using unfair terms in the consumer contracts and employing unfair commercial practices, the legislator introduced a new legal term in the Civil Code – usury (in Slovak úžera). Under the new legislation, a legal action performed by a natural person who is not an entrepreneur is invalid, if such legal action results from someone’s taking advantage of other person’s (i) distress, (ii) lack of experience, (iii) mental incompetence, (iv) emotionally upset state of mind, (v) credulity, (vi) recklessness, (vii) financial dependence, or (viii) incapacity to fulfill legal obligations, with the intention to make that person agree to provide a consideration that is grossly disproportionate to the mutual rights and obligations. The legislator has thus broadened the range of circumstances under which a legal action is invalid.

Moreover, a new general legal rule has been introduced according to which consideration for loans (and credits) cannot exceed the rate determined as acceptable to the consumer. The rate will be determined in an implementing regulation. The consideration includes interest, initial fees, regular fees and all costs related to the mandatory insurance of the loan (or credit).

All the above mentioned changes will become binding as of 1 June 2014 but will also apply to legal relationships entered into before 1 June 2014. However, the existence of such relationships and resulting obligations will be governed by the regulation applicable until 31 May 2014.

The Act on Enforcement has also been amended in connection with the changed legislation on consumer protection. A new restrictive measure is introduced with the objective to avoid that creditors use enforceable judgments as securities. Creditors used to deliberately postpone the enforcement of the judgments to accumulate interests to the detriment of debtors and used to apply for the enforcement just before the expiration of the prescription period. According to this new measure, if the period between the moment when a judgment becomes enforceable and the moment when a motion to enforce it is filed exceeds three years, it will not be possible to claim accessories to the financial obligation (e.g. interests). The only exception is when the creditor proves that in the three years period he/she has entered with the debtor into an agreement on postponed performance of the debt.

Short-term flat leases

New legislation on short-term flat leases has been adopted in order to favor development of private residential leases. The objective of this new legislation is to provide a more flexible legal framework in comparison to the protected lease under the Civil Code.

The new legislation requires a written form of the lease contract and the lease term must not exceed two years. Nevertheless, the parties may renew the contract twice, each time by two years maximum. After this period, the parties can continue the lease relationship provided that they conclude a new contract and revise the terms and conditions of the lease.

The new act also allows the parties to agree on a collateral, specify the amount payments, the payment method and the method of calculation of the services related to the use of the flat and its facilities (referred to as the “services”). Further, the law specifies the circumstances under which the landlord may unilaterally increase the rent and payments for the services. The landlord is mainly entitled to do so when a change of prices for the supplied services occurs. However, the increase of the rent and the services must not exceed the services price increase and the inflation. The financial collateral cannot be higher than the three months rent and payment for the services.

The new legislation becomes binding on 1 May 2014. Lease contracts entered into before 1 May 2014 will be governed by the regulation applicable until 30 April 2014.