ZAGREB, 8 Sept, 2021 - Finance Minister Zdravko Marić said on Wednesday a solution to current account overdrafts was expected in the days or weeks ahead and that it remained to be seen if the law would need to be amended.
He was speaking to the press after Prime Minister Andrej Plenković's meeting with representatives of banks' management boards, which was also attended by central bank (HNB) governor Boris Vujčić and Economy Minister Tomislav Ćorić.
Marić said the purpose of the meeting was to exchange information and views on current account overdrafts with a view to finding an adequate and satisfactory solution in which, he added, the government emphasised consumer protection.
He said several good proposals crystallised at the meeting, aimed at protecting social sensitivity, fairness, information and transparency as well as at reaching a solution under which authorised overdrafts would again dominate, as they are regulated by law in much more detail, much more clearly and transparently than tacit overdrafts.
The 2010 Consumer Credit Act recognises authorised and tacit overdrafts, but since 2018 the latter have become prevalent, accounting for almost 95% of all overdrafts, Marić said. Tacit overdrafts have been approved for almost 1.8 million consumers and are being exercised by 840,000.
That happened because under a central bank decision from the end of 2017, pursuant to European regulations, the calculation of the effective interest rate includes the fee for having a current account. As a result, authorised overdrafts became less available to lower income citizens and banks switched to tacit overdrafts.
Marić said a solution should be prompt but not rushed and to the benefit of all consumers. He told people living with tacit overdrafts that the government did not intend to nor would support a solution that would result in a drastic cancellation of overdrafts because that would put additional pressure on their everyday lives and livelihoods. "We'll dispel all fears that this instrument will be annulled and disappear."
A solution may be found by changing the decision within the central bank's remit, but if necessary, the law will be adjusted, he said, adding that if the former option was chosen, that would be known in the next few days, and in case of the latter, in the next few weeks. "We are really not talking about months."
The minister said it was necessary to continue to work on people's financial literacy as well as on product transparency.
Vujčić: The goal is that lowest income citizens don't lose current account overdraft option
The central bank governor said that since Croatia was the only country limiting effective interest rate on overdrafts, the inclusion of the current account fee in the rate as of 2018 resulted in the fee "swallowing" interest, primarily on small overdrafts.
He said that, for example, no interest was paid on overdrafts up to HRK 2,000 and a current account fee of HRK 12.
"We have several different regulations which produce such results and that should be put in order, so that for those with the lowest incomes, and consequently overdrafts, those products don't become unprofitable for banks and they start cancelling them."
Vujčić said the point was to return tacit overdrafts under the same regulations that applied to authorised overdrafts, without a certain number of people with the lowest incomes losing the overdraft option in the process.
"That's the point and that's what we'll do," he said, adding that it remained to be agreed on how to do it.
Croatian Banking Association (HUB) director Zdenko Adrović said that representatives of the banking sector spoke at the meeting about practices in other European countries, expressing hope that the new solution would be in line with those practices.
He stressed that there was no cap on the effective interest rate in other countries, so one of the proposals presented was for the cap on the effective interest rate to be removed and a cap on the nominal interest rate to be possibly introduced.
Adrović said that one of the proposals was for costs related to current account overdrafts to be calculated at "a slightly higher minimum amount", but noted that this was a technical solution that still had to be discussed with the HNB.
Asked by reporters how citizens would now be able to trust banks after they had switched their authorised overdrafts to tacit ones, Adrović claimed that everything was done in line with the law and that authorised and tacit overdrafts were two equal products.
He said that he "assumed" that a "vast majority" of citizens had been informed by their banks about tacit overdrafts, but that a large number of citizens, including himself, "relatively rarely" read notices about possible changes.
Marić: No reduction of VAT on food in 2022
Asked is VAT, including on food, would be lowered considering current price hikes, Finance Minister Marić said that the government had already reduced the VAT rate on some food products, including fresh meat and fish, and fruit and vegetables, and that it planned to reduce VAT on all food products during the current term in office.
But that will happen only after the necessary conditions are met, he stressed, noting that currently and in 2022 there was no fiscal room for such a move.
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