A Strict Regulatory Framework for SMS Credit and Its Effectiveness in Latvia

Abstract

The aim of the article is to provide an overview of the legal framework for regulation of SMS‑based credit in Latvia, to assess its effectiveness, and to analyse the relevant case law. The author discusses the effectiveness of licensing of SMS creditors and debt-collection companies. It is concluded that the licensing has facilitated uniformity and improvement of the conditions of consumer contracts, also creating limitations in the realm of advertisement and to the activities of collection services. For example, Latvian law imposes specific restrictions on the advertisement of SMS loans. One of these is that the advertisement may not encourage irresponsible borrowing, and the law sets forth a prima facie list of examples of advertisement encouraging irresponsible borrowing. Also, the SMS creditors’ activities are subject to rules designed for prohibition of unfair commercial practices.