Changes to payday loans up for a vote: why is the cap worrying the ombudsman?

AUTHOR: Ruslana PETROVA

The new Consumer Credit Bill has been scheduled for its first reading in the parliament's weekly draft program. The proposals concern the cost of certain small loans, customer assessments and the handling of borrowers in financial distress. No new law has been finally adopted yet.

Behind the promise of greater protection lies a specific financial dispute. How is expensive credit measured? How much can a delay cost? And when does a lower monthly installment conceal a higher final bill? To assess the reform, three figures must be tracked: the amount received, the total repayment and the term. The advertised interest rate alone does not provide this picture.

The cap may also be too high

Ombudsman Velislava Delcheva is calling for the special exception for small loans to be reconsidered. According to her published position, it allows repayment of twice the principal. She also raises the issue of protection in the event of arrears.

Under the limit described by the ombudsman, a loan of 500 euros could result in a total repayment of 1,000 euros. This is an arithmetic illustration of the criticized maximum. It is not a market offer or a mandatory price for every loan.

The financial issue lies in the term. A 100% increase in cost over several years and the same increase over several months have different impacts. A single cap could prevent even higher costs. But if it is set too high, it could leave broad scope for expensive lending.

That is why the label “there is a cap” is not sufficient to assess the reform. Its level, the payments covered and its relationship to the annual percentage rate of charge must be examined.

The same 50 euros can have different costs

The current law limits the annual percentage rate of charge, or APR. Article 19 ties it to five times the statutory interest rate. This is an annual indicator. A cap on total borrowing costs measures a different quantity.

The difference can be seen in the following hypothetical example. The customer receives 500 euros and repays 550 euros in a single payment. There are no other payments. Only the term changes.

Loan term	Amount received	Total repayment	Cost for the term	Calculated APR
30 days	500 euros	550 euros	50 euros	218,9%
90 days	500 euros	550 euros	50 euros	47,2%
365 days	500 euros	550 euros	50 euros	10,0%

Editorial calculation: APR = [(550/500)^(365/дни) − 1] × 100. A single drawdown and a single repayment are assumed. There are no upfront fees or interim installments. The examples are not offers and do not claim compliance with statutory limits.

With the 30-day loan, the customer still pays 50 euros for that term. The figure of 218.9% is used for annual comparison. It does not mean that 218.9% is paid under this agreement for one month.

That is precisely why the two types of cap are not interchangeable. The total cost shows how many euros leave the budget. The APR also takes into account the time for which the money is used. A reliable assessment of the offer requires comparing both indicators for the same amounts and terms.

Arrears are a separate calculation

Article 33 of the current law contains explicit protection. In the event of late payment, the creditor is entitled only to interest on the overdue amount for the duration of the delay. Compensation may not exceed the statutory interest rate. At the same time, costs arising from non-performance are not included in the APR under Article 19.

This distinction is highly significant. Limiting the cost when payments are made on time does not automatically resolve the issue of charges imposed after a missed installment. Therefore, an assessment of protection must cover both cases.

The ombudsman wants the explicit limit on charges in the event of arrears to be included in the new law. The ministry is defending the bill’s approach based on the general rules against unfair terms. According to the ministry, excessive penalties are void, and the Commission for Consumer Protection can inspect contracts.

The practical difference lies in predictability. A specific limit provides a predetermined boundary. General protection requires an assessment of the relevant clause and the circumstances. A dispute may lead to administrative or court proceedings.

For someone facing a temporary shortage of money, this difference has an economic cost. The time and effort required to obtain protection are also resources. The law should make what is owed sufficiently clear even before a dispute arises.

Stricter approval will change access to loans

According to the ministry, the bill allows credit to be provided only following a positive creditworthiness assessment. It also proposes a wider scope covering loans of up to 100,000 euros, subject to the exceptions provided.

A more thorough assessment could prevent a loan from being granted to a customer who has no realistic ability to repay it. This is also beneficial for the creditor. Fewer non-performing debts mean fewer losses and collection costs.

Another effect is also possible. Some applicants may be refused or may receive a smaller amount. This is an economic scenario, not an established result of the law, which has not been adopted.

Therefore, success is not measured only by the number of approved loans. Arrears, repeat indebtedness and accessible legal alternatives must also be monitored. More refusals may mean losses have been prevented. They may also mean an unmet need for short-term funds.

A lower installment may increase the total repayment

The public presentation of the bill refers to deferrals, refinancing and changes to contractual terms. There is an important detail here. Obligations concerning work with customers in financial distress have existed since June 20, 2025. They are set out in Article 32a of the current law.

The substantive assessment must track how the new framework improves their implementation. Merely repeating the possibility of restructuring does not prove stronger protection.

There is also a simple financial check. In a hypothetical example, ten installments of 100 euros remain. The total repayment is 1,000 euros. A new arrangement offers twenty installments of 60 euros. The monthly burden falls by 40%, but the total repayment rises to 1,200 euros. We assume there are no other fees.

Such a change may be reasonable in the event of a temporary drop in income. It nevertheless comes at a cost. The customer must be able to see the new term, all costs and the total amount still owed. When the budget is chronically in deficit, extending the term does not by itself create income.

Small loans have costs. They must be demonstrable

The creditor incurs costs for processing, assessment, financing and the risk of non-payment. Some of these do not decrease proportionally with the size of the loan. This is why a small loan may have a higher percentage cost.

This mechanism explains why an excessively low cap could shrink supply. It does not prove that every proposed increase in cost is necessary. Such an assessment requires data on costs, losses and returns by product.

There is also a risk of the opposite effect. If competition is weak, the high statutory maximum may become a price benchmark. This is a possible market scenario. Checking it would require monitoring actual contracts after the change.

For the same reason, registration and additional procedures must be assessed carefully. They may limit violations. But high fixed compliance costs may benefit larger companies.

“Buy now” also enters the credit equation

The bill covers certain “buy now, pay later”schemes. It also provides for bans on unsolicited credit and additional services through pre-ticked boxes.

These measures address a real financial mechanism. In a hypothetical budget, three separate purchases with a monthly installment of 40 euros create a combined obligation of 120 euros. Each purchase may appear affordable on its own. The overall payment schedule determines whether income is sufficient.

Therefore, the creditworthiness assessment must take existing obligations and necessary living expenses into account. The mere existence of a salary does not show the disposable income available for the next loan.

What needs to be clarified before the final vote?

The financial assessment of the bill requires comparison with the current limits. For the same loan, the permissible increase in cost must be calculated for different terms. The maximum burden in the event of arrears must also be stated separately.

There also needs to be a clear distinction between a voluntary additional service and an expense necessary to obtain the loan. The definition of additional services is among the ombudsman’s objections.

The final vote will also determine how the new rules affect existing contracts. The ombudsman has pointed to an inconsistency between the transitional provisions on this issue. Therefore, the first reading in itself does not change the amount owed under a loan that has already been signed.