The CCA explained in simple terms – Summary of the Swiss Consumer Credit Act

The Consumer Credit Act is of crucial importance for the Swiss credit market! Unfortunately, however, many Swiss people are still not entirely clear about what exactly it entails. With this article, we would like to explain and summarize the sometimes complicated formulations of the Consumer Credit Act in a simple and understandable way.

Scope and Objectives of the Consumer Credit Act

What is the Consumer Credit Act?

The Swiss Consumer Credit Act (KKG) or officially known as the “Federal Act on Consumer Credit ” is the legal foundation that regulates the market for consumer credit . It serves to protect consumers from over-indebtedness and sets clear guidelines for the granting of personal loans . The law covers different types of loans, including cash advances and overdrafts (as well as leasing), and aims to promote transparent and fair lending practices.

Objectives of the Consumer Credit Act

Swiss Laws

The main objectives of the CCA are multifaceted and aim to promote a balanced relationship between lenders and borrowers:

  • Protection against over-indebtedness: Strict requirements for credit checks are intended to protect consumers from financial bottlenecks.
  • Transparency: Clear rules for advertising and contractual conditions ensure better comprehensibility and comparability of offers.
  • Fairness: The law establishes fair conditions for loan origination and repayment in order to protect the interests of borrowers.

Who or what is subject to the Consumer Credit Act?

The CCA applies to all financial institutions operating in Switzerland that grant loans to private individuals. It applies to:

  • Personal loans (whether for the purchase of cars, holidays or other private consumption)
  • Cash advances
  • Leases
  • Credit lines and overdrafts

Which loans are not covered by the KKG?

Despite its broad scope, there are certain forms of credit that are exempt from the CCA. These include:

  • Loans that must be repaid within 3 months.
  • Loans where collateral is deposited.
  • Loans with a loan amount of less than CHF 500 or over CHF 80,000
  • Loans granted by natural persons to each other, provided that they do not act commercially.

The Swiss Consumer Credit Act thus forms the basis for a regulated and secure credit market that takes into account the interests of both borrowers and lenders. With this information, you’ll be well placed to explore the further details and nuances of this important law.

Basic Principles of the Consumer Credit Act

Prohibition of aggressive advertising

The Consumer Credit Act lays down strict rules for the advertising of loans. Aggressive advertising methods that could tempt you to take out a personal loan without thinking about it are strictly forbidden. This includes making misleading promises about the terms or omitting important information.

Creditworthiness check: Credit check with the help of ZEK & IKO

Before granting a loan, credit institutions carry out a comprehensive credit check. The purpose of this check is to assess the applicant’s financial situation and creditworthiness. The following aspects are typically taken into account:

  • Income and expenses
  • Existing liabilities and liabilities
  • Payment history and previous borrowings

The Central Credit Information Centre (ZEK) and the Consumer Credit Information Centre (IKO) play a central role in this. They collect and manage data on the credit activities of consumers in Switzerland in order to promote responsible lending and prevent over-indebtedness. The goal is to ensure that the borrower is able to repay the loan without running into financial difficulties.

Maximum interest rates for consumer loans

The KKG sets a maximum interest rate for consumer loans in order to protect consumers from usurious interest rates. Currently, this maximum interest rate is 12% per year for cash loans and 14% for credit and debit cards (as of 2024). This arrangement helps to keep the cost of loans transparent and fair.

Right of withdrawal and early repayment

The Consumer Credit Act grants borrowers the right to withdraw from a loan agreement within 14 days without giving reasons. In addition, there is always the option of repaying the loan early during the term and thus having the interest waived for the unused loan period. Both are designed to provide borrowers with more flexibility and protection.

These basic principles of the Consumer Credit Act show how the Swiss legal system protects borrowers from potential financial risks while creating a fair and transparent environment for lending. In the next section, we will look at how you can improve your creditworthiness in the context of the Consumer Credit Act.

Improvement of creditworthiness in the context of the Consumer Credit Act

Cleaning up and improving creditworthiness in Switzerland: strategies and measures

Typical image of an orderly Swiss city centre

The creditworthiness plays a central role in the granting of loans. Having a good credit rating means better terms and a higher probability of getting a loan approved. Here are some effective strategies and measures as an example to improve your credit rating in Switzerland :

  1. Create an overview: Start by getting an accurate overview of your financial situation. This includes income, expenses, existing debts, and liabilities.
  2. Reduce debt: Try to pay off existing debts, especially those with high interest rates. Not only will this improve your credit rating, but it will also save on interest payments.
  3. Make payments on time: A punctual payment history is essential. Missed or late payments will have a negative impact on your credit rating.
  4. Minimize credit requests: Every loan request can affect your creditworthiness in the short term. Only ask for loans if it is really necessary.

Deleting Bad Credit: Myths and Possibilities

There are many myths and misconceptions surrounding the topic of “deleting bad credit”. While negative entries on the ZEK or IKO cannot simply be “deleted”, there are legal ways to improve your credit rating:

  • Request corrections: Check your credit report regularly and ask for corrections if there are any errors.
  • Improvement of the financial situation: In the long run, the best strategy is to improve your financial situation by paying off debt and improving your income situation.
  • Wait: Negative entries in the ZEK usually remain visible for a certain period of time. At the end of this period, they will be automatically deleted, provided that no new negative entries are added.

Improving creditworthiness in the context of the Consumer Credit Act is a process that requires patience and discipline. By following the above strategies, you can strengthen your financial health and increase your chances of getting favorable loan terms.

In the following section, we will look at the obligations and rights under the Consumer Credit Act in order to gain an even deeper understanding of this important topic.

Obligations and rights under the Consumer Credit Act

For borrowers: What does the KKG prescribe?

Revoke credit

The Consumer Credit Act grants borrowers the right to withdraw from a loan agreement within 14 days of the conclusion of the contract without giving reasons. This right of withdrawal provides an important safety net in case you want to reconsider your decision.

Repay the loan early

Borrowers also have the right to repay the loan early at any time. This can be especially beneficial if you have received funds and want to save on interest costs.

Timely payment of loan installments

Paying the loan installments on time is not only the most important duty of the borrower, but also protects you from possible negative consequences such as reminder fees or negative entries in the credit report.

For credit institutions: requirements and obligations

Credit check

Credit institutions are obliged to carry out a careful assessment of creditworthiness before granting a loan. This protects both the borrower from over-indebtedness and the credit institution from default risks. Loans without a credit check are not permitted according to the KKG.

Reporting obligation for all loans

All loans granted must be reported to the ZEK. This reporting obligation supports transparency and helps to prevent over-indebtedness.

The maximum interest rate in detail

The law sets clear limits on the interest rates of loans in order to protect consumers from usury. Credit institutions must comply with these legal requirements.

The Consumer Credit Act provides a comprehensive framework that clearly regulates the rights and obligations of borrowers and lenders. By understanding these aspects, consumers can make informed decisions and improve their financial health.

In the next step, we will look at the most frequently asked questions about the Consumer Credit Act to give you an even deeper understanding.

FAQ: Frequently asked questions about the Consumer Credit Act

When is lending prohibited?

Lending is prohibited in Switzerland if it would lead to over-indebtedness of the borrower. Therefore, the lender must always carry out an appropriate check of creditworthiness. Contrary to popular belief, however, this is not the content of the KKG, but is regulated in Art. 3 UWG ( Federal Act against Unfair Competition ).

Summary and conclusions

The Swiss Consumer Credit Act provides a comprehensive legal framework that protects the interests of both borrowers and lenders. The prohibition of aggressive advertising, the setting of maximum interest rates and the introduction of a credit check obligation will ensure fair and transparent lending. For consumers, the law provides important safeguards, such as the right of withdrawal and the possibility of early loan repayment, and sets clear guidelines for improved financial health and creditworthiness.

Improving one’s creditworthiness and understanding one’s own rights and obligations are essential to benefit from favorable credit conditions and ensure financial stability. By familiarizing yourself with the provisions of the Consumer Credit Act and acting responsibly, you can achieve your financial goals while protecting your financial health.

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