Debt collectors and banks have different expectations for new credit register

Commercial banks want Estonia’s planned positive credit registry to include information on debts that have been sold to debt collection agencies, warning that without this, financially troubled borrowers could continue taking out new loans. However, debt collectors are pushing back and feedback on the current draft bill is divided.

The idea of a positive credit registry has been under discussion for years. Its primary aim is to provide a clearer picture of a person’s real repayment capacity and prevent over-indebtedness. The registry would consolidate data on all financial obligations — home and consumer loans, car leases, installment payments and payday loans.

The government introduced a bill to establish a credit information registry in the spring of 2023, which passed its first reading in June. At the end of the year, the Ministry of Finance sent a draft version of the bill to stakeholders for feedback. This version proposed that debt collection agencies also be required to submit information to the new registry regarding the consumer credit agreements they manage.

Debt collectors, however, oppose such a requirement. Last week, Argo Virkebau (board member of Aktiva Finance Group), Merle Laurimäe (board member of Julianos Inkasso) and Art Anderson (board member of Krediidiregister OÜ) sent a joint letter to the Ministry of Finance voicing their opposition to the section of the draft requiring them to report debts arising from consumer credit contracts.

“Debt collectors and buyers do not enter into consumer credit agreements with borrowers themselves and are not involved in fulfilling the contract under its original terms,” the representatives argued.

They explained that the claims managed or purchased by debt collection firms are usually already due in full, meaning the original loan agreement has either been violated or terminated prematurely. This means the original repayment schedule no longer applies and the full amount is being collected at once.

As such, collection firms say they are unable to track data that presupposes an active repayment schedule and ongoing contractual obligations.

“In summary, the structure and logic of the credit information law are not suitable for regulating the disclosure of payment defaults by collection firms and debt buyers,” stated Virkebau, Laurimäe and Anderson.

They also emphasized that Estonia already has an established framework for disclosing payment defaults, which has evolved over the past 30 years. According to them, there’s no systemic issue that the credit information bill would actually solve.

Banks, however, see things differently. Estonian Banking Association CEO Katrin Talihärm has previously stated that while debt collectors may not formally enter into consumer credit contracts, the claims they purchase and manage still stem from consumer credit agreements.

“If a person makes payments to a collection agency on schedule and no default occurs, the debt is not displayed in the default register. Relying on current legal practices creates loopholes and such fragmented legislation should be avoided,” Talihärm emphasized in a written opinion submitted to the Finance Committee last year.

She noted that when a debt is sold to a collection firm, the borrower may still appear creditworthy and be able to take out additional loans, increasing their risk of falling into a debt trap.

“We believe that even though debt collectors do not formally enter into consumer credit agreements, this should not prevent lawmakers from requiring them to report consumer credit-related claims in the registry,” Talihärm stated.

Thomas Auväärt, deputy director of the financial services policy department at the Ministry of Finance, told ERR that it’s currently difficult to predict what form a potential compromise might take.

“Feedback was submitted by the end of last week, but since it was extensive and opinions are deeply divided, we are still in the process of reviewing and analyzing it,” Auväärt said.

Finance Committee chair Annely Akkermann told Delfi that debts transferred to collection agencies must be reflected in the registry. She argued that while most borrowers behave responsibly, the registry is primarily needed to monitor the small percentage whose loans have already been sold to collectors.

“If we’re unable to monitor that one percent through the credit registry, then the registry itself becomes pointless. Worse still, we end up creating unnecessary bureaucracy and spending money on data collection that serves no real purpose,” Akkermann said.

Two years ago, the Ministry of Finance had hoped to launch the registry by 2026. As of now, however, there is no clear timeline for progress.

According to Auväärt, the Finance Committee is likely to hold a new round of discussions on the credit registry in the near future.

—

Follow ERR News on Facebook and X and never miss an update!