Author: Ingrid Ulst

Abstract

A prepaid card is a fairly new financial product that is part of the global innovations in financial services of the last 10 years. Some non-bank financing companies (e.g., SMS loan providers) have further advanced this product by linking prepaid cards to retail loans, which entails more developed transaction schemes and technical solutions. This combination is seen as a practical solution that broadens the customer base of loan providers and improves consumer convenience. However, from a legal point of view, practicality often entails complexity.This article seeks to address some of the major legal features and positions with regard to the prepaid card and its combination with a retail loan. In doing so, it will review the position of a prepaid card and the status of the issuer within the existing legal framework in Estonia. It also seeks to explain how the idea of linking prepaid cards with retail loans is being carried in practical terms through a complex network of agreements. We shall also discuss treating a prepaid card as an instrument of electronic money or some other form of payment, and examine the functions and licensing of an issuer. In anticipating potential discussion of the above topics from the perspective of a member state, this article compares the principles of EU law and the legal framework of Estonia. While we shall briefly deal with certain aspects of consumer protection, the focus of the article is on examining the relevant financial services legislation.

In: Review of Central and East European Law
Author: Ingrid Ulst

Abstract

In 2009, a legal limit to the annual percentage rate of charge (APRC) was established in Estonia. The limit is 'soft' in its nature, allowing a lender to opt to exceed it; simultaneously, however, the burden of proof is placed on the lender who argues that such a lending transaction should not be declared void on the ground on the basis of being contrary to good morals. This article examines the legal function of the APRC limit and addresses the legal problems with regard to the nature and extent of the burden of proof; it also makes suggestions as to how lenders could comply with their legal obligation in respect of the burden of proof when engaging in their daily practice of electronic retail lending. The legal function of an APRC limit, which is linked to the market of consumer credit, is to reduce the willingness to conclude credit agreements in which mutual obligations are unreasonably out of balance. The author suggests that identifying the extent of the lender's burden of proof could be based on the principles of reasonableness and effectiveness. Accordingly, the lender would be reasonably expected to use due care to ensure the understanding and willingness of the borrower with regard to the lending transaction, and be convinced about the repayment ability of the borrower. The principle of effectiveness implies that, at a minimum, the extent of the lender's burden of proof should include the identification of a borrower profile and, furthermore, that due care should be exercised in such identification. As there are no legal directions about the meaning of 'due care' or the details of 'profile identification' in lending, the author suggests applying the analogy of law (e.g., the provisions of the 2001 Estonian Securities Market Act). On this basis, electronic retail lenders could attempt to identify the purpose of a loan, prior lending experience, education, profession, income, assets and obligations, payment discipline and repayment sources of the borrower in order to design good practices which, in turn, should assist lenders to comply with the obligations deriving from the legal limit of the APRC.

In: Review of Central and East European Law