The first step that a credit institution can take in such cases is to contact the client. The sequence or the types of actions that may be taken in such situations may differ from institution to institution, but generally, a credit institution will do the following:
- contact you if it suspects or is certain that you are in a financial distress (by telephone, e-mail, SMS, in writing, in a personal contact on the operating unit's premises);
- discuss the specific issue with you - the credit institution needs additional information so as to be able to give you adequate advice or suggest a specific activity;
- notify you in writing (by means of notices or warnings) about your debt balance;
- suggest the best plan for debt repayment in cooperation with you and record the results of the communication with you; and
- explain all other actions it can take to collect your debts, for instance, enforcement action on your income or a court proceeding, and explain to you any additional costs that you may incur as a result of such action.
Should you have uncertainties in relation to any other situation in connection with your contractual relationship, make sure you first contact your credit institution as that is the fastest way to getting all the answers you need. Also, if you are dissatisfied with the actions of your credit institution in relation to your contractual relationship, you can file a complaint with the credit institution.
To deal with uncollectible debts which represent a considerable cost to the business operations of credit institutions, credit institutions have adopted adequate policies and/or procedures for handling distressed debtors. We can expect further improvements in this area, in line with the ongoing contribution of binding regulations of the European institutions to the business with consumers, through recognised good practices and guidelines (particularly in the area of improvement of the provision of information and development of cooperation with debtors and the terms and conditions for recovery). Some credit institutions are also developing system models for monitoring the behaviour of their clients (consumers) which can enable them to identify any signs of distress in a timely manner and choose the appropriate measures to prevent debt emergence or growth.
However, within the mentioned general guidelines, credit institutions may have different approaches to different clients, depending on the type and number of products he/she uses, the amount of debt due under these products, the number of days past due or the results of actions taken already. For instance, approach to a client who only uses a current account and is HRK 50,00 overdrawn for the first time does not require the same measures and the time limit offered to settle the debt as the approach to a client with multiple delays in housing loan payments whose monthly payments amount to half of his/her monthly income and who is a user of a current account and has reached the limit on his/her credit card. Individual approach to each client is therefore key to successful measures for debt collection/client recovery, but it cannot be done without cooperation with the debtor. Good practice of credit institutions implies that the credit institution explains to the client, using a simple, clear and understandable vocabulary the advantages and disadvantages of each contemplated measure for easing debt repayment, pointing out in particular any possible costs that may be associated with each measure. The responsible employee of the credit institution will acquaint you with other actions at the disposal of the credit institution if no agreement can be reached.
Measures for easing debt repayment (debt suspension - refinancing - reprogramming)
The measures for easing debt repayment are generally those taken for client recovery and collection of debts which the debtor cannot settle in a one-off payment. Large debt amounts are usually the result of some form of long-term borrowing, but large debt amounts may also be generated by exceeding your permitted current account and/or credit card limit and similar combinations of different forms of borrowing.
Long-term borrowing typically implies housing loans which are generally secured by a mortgage on the real estate. Housing loans are specific in that they are probably the largest financial obligation that a consumer will ever assume in his/her lifetime and that they expose the consumer to different risks over a long-term. However, such products may also expose credit institutions which offered them to large risks and ultimately affect the stability of the financial system.
Therefore, credit institutions are encouraged to be proactive in handling credit risk they are faced with (i.e. the risks of partial or full default) early on from the moment of their emergence. Proactive action comprises a set of reasonable measures aimed at resolving the generated debt before initiating any form of enforced collection. The first step is a conversation with your banker which can be initiated by you or by your credit institution, during which the issue at hand will be examined and further activities suggested.
The measures which may be agreed upon include:
Loan refinancing (partial or full), by:
- a one-off repayment using the debtor's funds (your funds) if there are additional sources which may be used to make the repayment (e.g. sale of assets or borrowing from family members, etc.); or
- using a loan granted by another credit institution which offers more favourable lending terms.
In the case of partial repayment, the solution to be considered in cooperation with the credit institution is the possibility of shortening the repayment period or reducing the amount of annuity/instalment.
Changes to the earlier agreed terms and conditions (reprogramming) may include one of the following possibilities or a combination thereof:
- extension of repayment period;
- change in lien;
- postponement of the payment of due debt;
- interest rate change; and
- loan repayment pause (suspension).
The list is not exhaustive or binding for credit institutions and may differ depending on the possibilities and procedures of an individual credit institution, but it may certainly be used as a starting point for negotiations with the credit institution. These activities are most commonly handled by specialised departments of credit institutions, with the staff qualified for all segments of the transaction, including privacy and personal data protection.