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Ministry of Industries and Innovation

Act No 121/1994 on Consumer Credit

(A consolidated version of Act No. 30/1993 on Consumer Creditand Act No. 101/1993 amending Act No. 30/1993)

Act No 121/1994 on Consumer Credit
Scope and definitions
Article 1

This Act applies to commercial credit agreements between creditors and consumers.

Article 2

This Act does not apply to the following credit agreements:

a. Credit agreements valid for less than three months.
b. Credit agreements without payment of interest or any other charge.
c. Credit agreements where loans are granted at rates of charge below those prevailing in the market and are not offered to the public generally.
d. Hiring agreements, except leasing agreements, cf. Act No. 19/1989.
e. Credit agreements involving amounts less than ISK 15,000 or higher than ISK 1,500,000.
f. Credit agreements secured by mortgage on immovable property.
g. Credit agreements in the form of an advance on a current account.
h. Credit agreements intended for the purposes of acquiring or retaining property rights in immovable property or of renovating or improving immovable property.

The provisions of paragraph 1 do, however, not apply to agreements concluded with the intention of excluding them from the scope of this Act i.e. by dividing the amount between more than one credit agreement.

Article 3

Notwithstanding the exclusion provided for in paragraph g of Article 2, where there is an agreement between a credit institution or a financial institution and a consumer for the granting of credit in the form of an advance on a current account, other than credit card accounts, the consumer shall be informed when the agreement is concluded:

a. of the credit limit, if any,
b. of the rate of interest and the charges applicable from the time the agreement is concluded and the conditions under which these may be amended,
c. of the procedure for terminating the agreement,
d. if the rate of interest or the relevant charges can be changed during the contract period. In that event the consumer shall be informed of the means by which he will receive information on any changes. Such information may be given in a statement of account, announcement in the media or in any other similar manner.
Article 4

For the purposes of this Act:

a. Consumer means a natural person who, in loan transactions covered by this Act, is acting for purposes which can be regarded as outside his trade or profession.
b. Creditor means a natural or legal person or a group of such persons who grants credit.
c. Credit agreement means an agreement whereby a creditor grants or promises to grant to a consumer a credit in the form of a deferred payment or other similar financial accommodation and which the consumer promises to repay according to the terms of the agreement.
d. Total cost of the credit to the consumer means all the costs of the credit to the consumer including interest.
e. Annual percentage rate of charge means the total cost of the credit due to the credit agreement expressed as an annual percentage of the amount of the credit granted and calculated according to Articles 10 to 12.
f. Title retention means that on purchase an agreement is made to the effect that a creditor remains the owner of goods until they are fully paid for according to the credit agreement and that the creditor can repossess the goods if the consumer does not fulfil his obligations according to the agreement.
Creditor obligation to provide information
Article 5

Credit agreements shall be made in writing and contain the information referred to in Articles 6 and 8. The consumer shall be given a copy of the credit agreement.

Article 6

On concluding a credit agreement the creditor shall provide the consumer with information on:

1. The principal, i.e. the credit granted without any charges. When the creditor is at the same time a supplier of goods or services the principal shall equal the cash price of the goods or services. When only a part of the total value of the goods or services is in the form of a credit the down payment shall be subtracted from the principal.
2. The sum received, i.e. the principal excluding charges.
3. The rate of interest.
4. Total cost of the credit in ISK calculated in accordance with Article 7.
5. The annual percentage rate of charge, i.e. the total cost of the credit expressed as an annual percentage of the principal and calculated according to the provisions of Articles 10 to 12.
6. The total amount to be repaid, i.e. the sum of principal, interest and charges.
7. The number of payments, amounts and payment dates.
8. The validity of the credit agreement and its conditions of termination.
9. Permission to pay prior to final payment date as referred to in Article 16.

Where charges, repayments and other credit terms during the contract period can be amended, the consumer shall be informed by the creditor of the conditions surrounding such amendments. Where the annual percentage rate of charge can not be calculated the creditor shall instead inform the consumer of the interest rate, credit charges and the conditions under which amendments can be made.

Calculation of charges
Article 7

Total cost of the credit involves all the costs of the credit payable by the consumer including interest and other charges with the exemptions referred to in paragraph 3.
For the purposes of calculating the annual percentage rate of charge the following charges shall be excluded:

1. Charges due to default.
2. Charges that the consumer is obliged to pay when purchasing goods or services irrespective of whether the transaction is paid in cash or by credit.
3. Charges for the transfer of funds.
4. Charges for keeping an account intended to receive payments towards the instalments of the credit except charges for collection of repayments, whether made in cash or otherwise.
5. Membership fees arising from agreements separate from the credit agreement, even though such fees have an effect on the credit terms.
6. Charges for insurance or guarantees, except those designed to ensure payment to the creditor.

The provisions of paragraph 2, subparagraphs 3 and 4 apply only where the consumer has reasonable freedom of choice of the way in which funds are transferred or repayments collected and where charges are not abnormally high.

Article 8

On conclusion of a credit agreement the creditor shall provide the consumer with information on the charges referred to in Article 7, paragraph 1, subparagraphs 2 to 6 and also state when such charges are due. Where charges are unknown the creditor shall, if possible, provide the consumer with information on how it is calculated or estimate the amount.

Variable charges
Article 9

Although this Act provides for consumer information on interest rates or sums including interest rates, cf. Article 6, the parties concerned are not prevented from reaching an agreement on variable interest rates either to some extent or altogether. In that case the interest rates shall be accounted for as they are at the time of provision of information, in what way they are variable and the circumstances under which they might change.

Calculation of the annual percentage rate of charge
Article 10

The annual percentage rate of charge is the rate which balances the present value of the payment obligation of the creditor on the one hand and the consumer on the other according to their credit agreement. The annual percentage rate of charge shall be expressed as an annual percentage of the loan's principal. It shall be calculated in accordance with a mathematical formula set out in a regulation.

Article 11

The annual percentage rate of charge shall be calculated when the credit agreement is concluded. The calculation shall be made on the assumption that the credit agreement is valid for the period agreed and that the creditor and the consumer fulfil their obligations under the terms of the agreement.

Article 12

In the case of credit agreements containing clauses allowing indexation or variations in the rate of interest and the amount or level of other charges contained in the annual percentage rate of charge but unquantifiable at the time when it is calculated, the annual percentage rate of charge shall be calculated on the assumption that the price level, interest rate and other charges will remain unchanged until the end of the credit agreement.
The following assumptions shall be made in calculating the annual percentage rate of charge:

1. If the agreement does not specify a credit limit, the amount of credit granted shall not exceed ISK 150,000.
2. If no fixed maturity is specified, and one cannot be deduced from the terms of the agreement, the maturity shall be deemed to be one year.
3. Where the agreement provides for more than one repayment dates, the repayments shall be made at the earliest time provided for in the agreement.
Article 13

Advertisements or any offer which is displayed at the creditors' business premises shall indicate a rate of interest, any charges relating to the cost of the credit and the annual percentage rate of charge. If the creditor is also a supplier of goods or services the cash price shall also be given.

Article 14

Where interest rates or other charges are not indicated in the credit agreement the creditor may not demand payment of these from the consumer. Interest rates in respect of consumer credit are in other respects dealt with pursuant to the Interest Act.
Creditors may not demand payment of other charges than those indicated in the agreement as referred to in Article 6, paragraph 1, subparagraph 4. Where calculation of the annual percentage rate of charge, as referred to in Article 6, paragraph 1, subparagraph 5, is too low the creditor may not demand a total cost of the credit which would give a higher annual percentage rate of charge.
Paragraphs 1 and 2 shall not apply where the creditor can prove that the consumer should have had knowledge of the intended cost of credit. Where paragraphs 1 and 2 lead to reduction of remaining payments the consumer shall pay according to the agreement and the reduction be taken into account in the last instalments.

Article 15

Where the creditor has not provided the information provided for in Article 6, cf. Article 5, he can be liable for compensation the consumer having been led to believe that the credit terms were more favourable than later turned out.

Payment before the due date
Article 16

The consumer shall be entitled to discharge his obligations under a credit agreement before the time fixed by the agreement. In this event the consumer shall be entitled to a reduction in the total cost of the credit that equals the interest and other charges due after the date of payment. Reimbursement or reduction of charges independent of the payment schedule can not be demanded.
Paragraph 1 does not apply to a payment before the due date when not related to a pay-up of a loan before final date of payment or to another change in instalments agreed upon.

Assignment of creditor's rights
Article 17

Where the creditor's rights under a credit agreement pursuant to this Act are assigned to a third person, the consumer shall be entitled to plead against that third person any defence which was available to him agaist the original creditor. The same applies if the creditor has pledged his rights as security or they are the subject of attachment.
This does, however, not apply when the consumer pays the creditor and knows or ought to know that the creditor has no right to receive payment or negotiate to the same effect.
Where a consumer has a claim against a creditor, who is at the same time a supplier, on account of a purchase, e.g. because of a defect, the assignee shares the liability with the creditor.
This provision does, however, not apply to claims related to transferable securities on the condition that there is an insurance, cf. Article 18.

Article 18

A supplier who pursuant to this Act grants credit to a consumer in the form of transferable securities shall insure against possible consumer-claims due to non-fulfilment of the transactions the securities are based on.
The insurance amount during each insurance period, which lasts for one year, shall be ISK 5,000,000. The consumer shall make a claim within a year from the supply of goods or services. Where the claimants are more than one their right to the insurance amount depends on their order. When final judgement has been passed or after settlement in court of a non-fulfilment of an agreement and after it becomes clear that the supplier is unable to fulfil his obligations according to the ruling or the settlement the consumer shall receive payments from the insurance.
The Minister concerned shall lay down more detailed provisions in the form of a regulation concerning the insurance obligation, scope of the insurance, who are entitled to sell insurance and insurance terms. The regulation may also provide for a lower insurance amount than laid down in paragraph 2 where the scope of the transactions is limited to such a degree that a lower insurance amount is justified.
Where the supplier does not have a valid insurance according to this Article the consumer can object on the grounds that the document is not equivalent to a transferable security.

Purchase with title retention and repossession
Article 19

Where an item is sold with title retention the creditor can repossess the item on the basis of a written agreement with detailed provisions on title retention. Repossession is only permitted if the consumer is in arrears with repayments or charges.
When an item is repossessed the parties to the credit agreement shall while reaching settlement of accounts endeavour to reach the same position as if the transaction had never taken place.
If the value of an item is higher than the remaining payments of the credit agreement the creditor shall pay the consumer the difference. If the value of an item is lower the consumer shall pay the creditor the difference.
When estimating the value of an item an attempt shall be made to establish if wear and deterioration is normal and subtractable from interest due from the date of repossession until the termination of the credit agreement.
In case of a difference of opinion on the market value of an item the case shall be settled by obtaining the valuation of two impartial persons appointed by court. The appraisers shall make decisions regarding valuation expenses.

Article 20

Where more than one item of goods have been purchased according to the same agreement and the creditor demands their repossession the consumer can choose to return one or more items provided he pays the difference of the value of the items he retains. If the creditors credit balance is lower than the value the consumer can claim a payment of the difference when returning the items.
The consumer cannot redeem an item which is a part of a collection or an assembly which the creditor has also repossessed from the consumer if the separation leads to a substantial decline in the value of the items.

Miscellaneous provisions
Article 21

The Minister of Commerce is responsible for the implementation of this Act. The Minister may lay down more detailed provisions concerning its implementation in a regulation.

Article 22

The Minister of Commerce can lay down rules describing how information about the legal status of consumers should be printed on written agreements and documents which this Act applies to.

Article 23

Subject to development in the price level the Minister of Commerce can alter the amounts provided for in this Act.

Article 24

Agreements should not derogate, to the detriment of the consumer, from this Act or regulations subsequently adopted in accordance with this Act.

Liability, control and entry into force
Article 25

The Competition and Fair Trade Authority exercises supervision of the provisions of this Act. The procedures of the competition authorities are subject to the Act on competition except that decisions of the Competition Council regarding periodic penalty payments can not be subject to judicial review by the Board of Appeal in Matters of Competition.

Article 26

The Competition Council has the authority to prohibit acts in contravention of this Act. The prohibition can be followed by a decision regarding periodic penalty payments which will be implemented provided this prohibition is violated. Periodic penalty payments can range from ISK 10,000 to ISK 100,000 per day.
Prior to the implementation of the prohibition referred to in paragraph 1 the Competition and Fair Trade Authority can conclude the matter by settlement. A settlement applies as a prohibition as referred to in paragraph 1.

Article 27

Violation of this Act can give rise to liability in accordance with general rules of law of tort.
A legal person can be obliged to pay compensation even though none of his employees are found guilty of an infringement if it becomes obvious that an employee of the legal person concerned has violated this Act.
Compensation decided by a court of law, as referred to in paragraph 1, can be collected from the person obliged to pay compensation or the legal person for whom he served at the time of the infringement.


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