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As a consumer, do You understand what You are signing?

Mortgage, consumer loan, credit card, hire purchase... Everyone has surely come across these terms. In most cases, we act as consumers in the contractual relationship. But what does the term "consumer" mean? A consumer is always a natural person - a non-entrepreneur who concludes a consumer contract and does not act within the scope of his/her trade or other business activity. We will show this with a simple example

Suppose we are buying goods, ordering a service, or borrowing money. In the contract, we act as the buyer or debtor and indicate ID number/VAT number. These data are assigned to legal entities and sole traders (self-employed persons). If a sole trader buys production materials or printer toner in his office, he is not acting as a consumer. However, if the same sole trader as a private person buys toothbrushes for himself or a mobile phone for his son, he is acting as a consumer, therefore he does not buy under his ID number or VAT number and does not put the purchased items in the company's expenses, because they are not related to his business. If he puts the mobile phone for his son in the expenses of his business, he is both acting against the trade and tax regulations (it may even be a criminal offence) and at the same time he is unwisely shortening the warranty period from 2 years to 1 year.

Consumer contracts include all contracts where on the one hand there is a consumer, a customer, and on the other hand there is a supplier, a person or company acting in the course of their business. In everyday life, we encounter, for example, the following consumer contracts: credit or loan agreements, insurance contracts, contracts for the supply of services (telecommunications services, energy supply, Internet, etc.), sale and purchase agreements, leasing agreements, and contracts for work. The basic regulation of consumer contracts can be found in the Civil Code, in the provisions of Sections 52 to 54a, but there are a large number of other legal provisions, regulating in detail the protection of the consumer, whether in general cases or specifically, for example, in the case of Internet sales, door-to-door or telephone sales, in the case of bank credits or other consumer credits and loans. A consumer contract does not have a statutory form, which means that the law allows for a written, oral form, but also for the conclusion of a contract by a specific act - for example, borrowing money by taking it from hand to hand, but there are also consumer contracts that must be concluded in writing by law (e.g. a consumer credit agreement). The contract must not contain the tso-called unacceptable terms which cause a significant imbalance in rights and obligations to the detriment of the consumer.. In certain cases, they may render the entire contract void. As the list of unacceptable terms is extensive, each contract needs to be assessed individually. Below are selected examples of unacceptable conditions:
  • The consumer has to comply with something that he/she did not have the opportunity to know before signing the contract
  • The consumer has to fulfil all his/her obligations even if the supplier/creditor has not fulfilled the obligations that have arisen (e.g. goods or services have not been delivered).
  • Disproportionately high penalties, the supplier's possibility to unilaterally change the terms of the contract without an agreed reason, taking away the consumer's right to complain about the goods.
  • Font size in a consumer contract. Important information must be written in a font size of at least 1.9 millimetres (lowercase height). The subject-matter of the contract and the price must not be written in a smaller font size than the rest of the contract (except for headings). If the subject-matter of the contract (or the price) is written in a smaller font size than the basic provisions but meets the 1.9 millimetre size, this is also contrary to the law.
Consumer disadvantage and the assessment of unacceptable terms are closely intertwined. When signing a contract, we must also take into account the means of security, which can weaken the consumer's position to a large extent. . The most common security institutes include:
  • Contractual penalty for non-fulfilment of contractual obligations. It is assessed whether the amount is proportionate to the obligation being secured and whether it is clear what obligation it secures.
  • Payroll deduction agreement In case of default, the consumer gives the creditor the right to deduct the amount due from his/her wages. The legality and reasonableness of the deductions is assessed.
  • Extension of the limitation period. It is a risky arrangement and often an unfair practice, as the supplier/creditor can change the statutory limitation period to a longer or shorter one. It is assessed whether the limitation period has been determined to the detriment of the consumer.
  • Arbitration clause. If consumer contract disputes are to be adjudicated by arbitration tribunals instead of the standard state courts, these can only be those licensed to adjudicate consumer disputes - their activities are governed by a specific law.
  • Bill of exchange. There may be doubts about its acceptability - it is not a matter well known to consumers. However, a blank bill of exchange (without the prior specification of the amount due or the maturity date) is definitely unacceptable.
  • Lien. It is not per se unacceptable in consumer contracts, but it is necessary to assess whether the value of the pledged property is proportionate to the amount secured by it.
The inadequacy of the security shall be assessed on a case-by-case basis. The consumer is considered to be the less experienced (weaker) party to the contract. . In the event of doubt as to the content of a consumer contract or if the terms of the contract are unclear, whichever is more favourable to the consumer shall prevail.

Consumer credit and loan agreements . are a special type of consumer contract. They are regulated by a specific law, which determines what is and is not a consumer credit (loan), what conditions must be met before signing the contract (the scope of the information provided, the method of provision and the method of verifying the applicant's creditworthiness). It determines the conditions for the repayment of the entire loan at once and the conditions for the licensing of firms that grant such loans. Failure to comply with the conditions will result in the contract being null and void or the loan being considered interest-free and gratuitous (i.e. the borrower will only be obliged to repay the amount borrowed). Providers are supervised by the National Bank of Slovakia, Financial Consumer Protection Department. . One group of loans is not regulated by the NBS: peer-to-peer lending via websites and mobile applications, where a loan can be obtained with a few clicks, but subsequent protection of the borrower is precarious to impossible, as the operator of the application only pretends to be the person connecting the borrower and the lender, not the provider of the loan. Often, the loan provider treats it legally in such a way that it is difficult to apply the definition of a consumer loan to it, or the provider is realistically difficult to reach by our consumer protection authorities (e.g. it is abroad outside the EU). Before you click, come to our free debt advice centre for advice.

The entity to which the consumer can turn (especially in the case of non-financial obligations) is the Slovak Trade Inspection - the state consumer protection authority. There are many consumer protection associations that help consumers defend their rights. However, the reputation of dozens of honest associations is tarnished by those that prey on and benefit from the issue of consumer protection, even though they do not provide a service to the consumer.

Tomáš Pánis, MSc., Debt Advisor