1. The scope of the law
In addition to consumer loans, leases, credit cards, customer rewards cards and overdrafts (with a credit option) are covered by the law. For the last three, only parts of the Federal Act on Consumer Credit (KKG) apply (link not available in English).
A consumer loan is a loan that fulfils the following criteria as defined by the law:
The loan is for private purposes
The loan amount is between 500 and 80,000 francs
The loan period is longer than three months
No collateral deposited
Does your loan not fall under the scope of the Consumer Credit Act? Then the legislation on the loan contracts comes into effect. For example, the right of withdrawal is eliminated, as the payment is made directly. Otherwise, most institutes still apply the KKG principles, as they want to keep risks and defaults to a minimum.
2. Aim of the Consumer Credit Act
The Consumer Credit Act protects borrowers from falling into excessive debt through consumer loans. Key elements of this law include:
Prohibition of aggressive advertising of consumer loans
Mandatory credit capacity check by credit institutions
Compliance with the maximum interest rate
Right of withdrawal of the borrower
Reporting obligation of the lender for granted loans
Early repayment
3. Prohibition of aggressive advertising of consumer loans
Aggressive advertising of consumer loans is forbidden. The credit industry has defined exactly what this means in a convention on advertising restrictions (link available in French and German).
4. Credit capacity check by credit institutions
Before concluding the contract, each lender carries out a creditworthiness check. A consumer is considered creditworthy when they meet the following criteria:
The loan can be repaid within 36 months with the person's freely available income.
It is imperative that the minimum necessary living requirements continue to be met.
How high is your maximum loan amount? Calculate approximately how much you can afford to borrow now.
When conducting the check, credit institutions will take into account existing obligations (current loans and leases) of the borrower. Among other things, they query the data stored at the Information Centre for Consumer Credit (IKO). The IKO is under the supervision of the Federal Department of Justice and Police and is subject to data protection laws. It only records data for loans and loan-like transactions insofar as they are subject to the Consumer Credit Act.
Every private person has a right of self-disclosure at the IKO. For this, you need to send a signed information request form, together with a copy of your ID (identity card, passport, driving licence) to the IKO (link available in French and German). Access to the data is restricted to IKO members who grant commercial loans, conclude leasing or rental contracts for movable goods, or issue credit cards or payment cards.
In the event of a subsequent positive credit check, the lender decides on the granting of the loan and the conditions (e.g. effective annual intrest rate).
5. Difference between the ZEK and the IKO
In addition to the IKO, the Central Office for Credit Information (ZEK) has a database for borrowing that is even more important from the customer's point of view (link available in French and German). The ZEK is the Central Office for Credit Information, which collects and provides information on the credit histories of private individuals and legal entities The ZEK records more comprehensive data than the IKO.
6. Maximum interest rate for loans at 12%
All lenders define the loan interest rate within the framework of the law. Each year, the Federal Council sets the maximum permitted annual percentage rate (Ordinance to the Consumer Credit Act [VVKG], link not available in English). It currently stands at 12% for consumer loans. The maximum interest rate for credit and customer rewards cards with an overdraft facility is 14%.
7. Right of withdrawal within 14 days
Have you changed your mind? You may cancel a consumer credit agreement in writing within 14 days. Therefore, loans that are subject to the Consumer Credit Act are always paid out after 14 days.
8. Loans must be reported
Credit institutions must report all consumer loans granted to the IKO. The following data is stored for each loan:
Last name, first name, address and date of birth of the borrower
Type of credit
Start date of the contract
Number of instalments
Gross loan amount (including contractually agreed-upon interest rates and costs)
End date of contract (if agreed upon)
Amount of repayment instalments (if agreed upon)
Outstanding payments must also be reported as of 10% of the net loan amount
9. Possibility of early repayment
You may repay your consumer loan faster than agreed upon, or before the end of the agreed term. Interest is not charged on the unused borrowing period.
Have your personal or market circumstances changed during the term of the loan? Check whether it's worth refinancing. Are you looking for a suitable personal loan? Brokers like Credaris can guide you through the process.
This article was first published on 17.02.2021
