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The Ministry of Finance sent to a coordination round a bill, which will regulate the activities of most Estonian debt collection agencies in the future -- among other things, debt collectors will need an operating license from the Financial Supervision Authority (FSA) in the future.
"Today, the debt collection market in Estonia is quite poorly regulated and as a result, debtors' interests may not always be protected. Debt collectors must in the future provide clear information to the person about the amount of their debt and what exactly is being collected from them, and also about how to dispute the claim against them," Minister of Finance Mart Vorklaev said in a press release.
The minister added that the number of debtors in Estonia is gradually decreasing, but the amount of debt has increased and the large number of those involved in enforcement proceedings has become a concern.
"Enforcement proceedings should be the last option, now the lenders will also have the obligation to consider other options for restructuring the loan first," the minister said.
With the changes, the default interest rate for consumer credit agreements will also be brought down.
According to the bill, a series of operational requirements will be established for debt collectors operating on the credit market and they must obtain an activity license from the FSA by June 29, 2024 at the latest in order to continue their activities. With this, the FSA also has the right to supervise debt collection agencies and, in the event of problems, to use sanctions ranging from precepts to misdemeanor proceedings.
The minimum capital of debt collection agencies must be 50,000 euros and separate rules will be established for holding funds received from debtors. Managers and owners of credit collection agencies must be trustworthy, for example, the manager of a credit collection agency cannot be a person who has engaged in excessive usury in the past.
The bill transposes in to Estonian law a directive of the European Union that regulates the activities of debt collection agencies that are involved in collecting and buying overdue debts arising from bank loans. The directive must be adopted by member states by Dec. 30, 2023 and the law is scheduled to enter into force at that time as well.
An extensive credit market study completed in 2021 by the Center for Applied Social Sciences of the University of Tartu also pointed out the need to more thoroughly regulate and supervise the activities of debt collectors. In the future, it is also planned to check whether the situation on the secondary credit market has improved with the introduction of the regulation of the activities of credit collectors and whether the protection of consumers' rights has been ensured before the enforcement of debt claims and also in court proceedings.
Since today the activities of debt collectors are not separately regulated, there is also no specific information on how many of them operate in Estonia. It is estimated that about a dozen companies are engaged in the management and collection of claims arising from credit agreements.