How not to pay BGN 5,000 for a debt of BGN 350

The so-called fast loans (i.e. loans under BGN 400) have become particularly relevant lately. On one hand – because of the public discussions around their regulation, and on the other – due to the ever-increasing activity of the companies that provide them. Increasingly, there are examples in the media of people taking a small amount and subsequently having to return double, triple, or even quadruple. The increased public sensitivity also creates higher expectations for the legislator to regulate the activity and the conditions for granting fast loans. The inclusion of loans up to BGN 400 in the scope of the Consumer Credit Act would contribute to limiting unscrupulous practices in the sector.

What are the specifics of fast loans and why do they create a feeling of inequality?

A fast loan is essentially a small cash loan, granted without collateral and for a short period. Therefore, the interest rate is higher – the consumer receives the funds almost immediately and in situations where banks would not approve a loan. This in itself is neither unusual nor necessarily unfair.

The problem is that often the main users of these loans are people in difficult financial situations – without savings, without stable income, and sometimes without sufficient financial literacy. They often do not read or understand the contracts they sign, and thus agree to extremely unfavorable conditions.

One cannot expect every person to understand complex contractual clauses. It is true that no one is forced to sign a contract, but the "free market" argument does not always take into account the real vulnerability of consumers. The lack of sufficient regulation can place them in a severe debt spiral.

Why is a clear legal framework needed?

Let's look at an example.

Ivan works in a construction company. He often spends his salary before the end of the month and relies on "payday" loans. He takes a fast loan of BGN 350 to cover rent and bills. The contract provides for: the first 15 days without interest, the next 15 days – double interest. On the due date, he must return BGN 450 – it seems acceptable.

The problem arises with delay. In case of default, penalty clauses are activated – interest, penalty interest, management fees, etc. are charged. The debt quickly increases many times over and continues to grow.

If Ivan does not pay on time, the amount can reach BGN 1,500, then BGN 2,000. Then the creditor takes legal action – often through arbitration. Enforcement proceedings under a bailiff follow, with all costs borne by the debtor. In the end, Ivan may receive an invitation for voluntary enforcement for over BGN 5,000. In case of non-payment – there is a risk of description and sale of property.

This scenario is not an exception. And yet, the creditor may not have broken the law.

Where is the role of the state?

The problem is not so much in the initial interest rate – it is usually clear to the consumer. The more serious issue is the sanctions for delay – penalty interest, fees, and other burdens that can lead to a drastic increase in debt.

This is where the role of the legislator comes – to introduce clear and binding limits on:

• interest rates

• fees

• delinquency interest

Currently, these parameters often remain outside of real control, hidden behind the principle of freedom of contract. But the role of the state is not to limit the market without reason, but to ensure fairness and protection for the weaker party.

It is important to keep in mind that contracts or clauses that contradict good morals within the meaning of the Law on Obligations and Contracts are null and void. Excessively unfavorable conditions can lead to the invalidity of parts of the contract.

The question also arises whether the court (including arbitration) should respect claims of creditors when the contracts contain clauses that obviously contradict the principles of fairness and good faith.

In conclusion

The large number of fast loan companies is the result of real demand. They should not be generalized or demonized. But clear legal regulation is necessary to limit the opportunity for profit at the expense of financially vulnerable debtors.

Only through a balance between the free market and consumer protection can situations be avoided where a small loan leads to a huge debt.