The Swiss consumer credit act (German: Bundesgesetz über den Konsumkredit or KKG, French: Loi fédérale sur le crédit à la consommation or LCC) defines the rules applicable to consumer loans in Switzerland. The rules stipulated by the act came into effect on January 1, 2003.
Loans which are governed by the Consumer Credit Act
The regulations laid out in the Swiss Consumer Credit Act apply to loans that meet these criteria:
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The loan size must be between 500 and 80,000 francs.
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The loan term must be longer than three months.
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The loan must be from a business lender to a private individual. Business loans and loans between private individuals do not fall under the Consumer Credit Act.
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The loan must be a personal loan, credit card line of credit, customer card line of credit, leasing agreement, or bank account overdraft option.
Maximum legal interest rates
The interest rates of loans that meet the criteria listed above are limited by law. The maximum interest rates are set by Switzerland’s Federal Council on an annual basis based on the 3-month compounded SARON (SAR3MC) rate. The maximum interest rate cannot be lower than 10 percent or higher than 15 percent.
The current maximum effective annual interest rates are:
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Personal loans: 12 percent per annum.
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Bank account overdrafts, negative balances on credit card and customer cards (store cards and gas cards, for example): 14 percent per annum.
The rights of borrowers
The Swiss Consumer Credit Act defines the rights of borrowers with regards to loans governed by the Act:
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The borrower can make additional repayments in order to amortize the loan faster, without any penalties. The lender can only charge interest on the actual outstanding debt.
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The borrower can repay or refinance the loan in full at any time and terminate the loan agreement ahead of schedule. The lender can only charge interest for the actual term within which the loan was repaid. Important: Lenders are allowed to charge separate fees when you do not fulfill your contractual requirements.
Additional rules that apply to loans governed by the Consumer Credit Act
In addition to maximum legal interest rates, loans governed by the Consumer Credit Act are also subject to other rules:
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All fees must be included in the effective annual interest rate. The borrower cannot be charged separate fees for the loan itself. Important: The lender is allowed to charge separate fees if you do not fulfill your contractual requirements.
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A 14-day waiting period applies from the time that a loan application is accepted. The lender cannot pay out the loan to the borrower until the 14-day waiting period expires. During the 14-day waiting period, the borrower can cancel the loan agreement without any penalties.
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A lender is not allowed to give a borrower a loan if it could result in the borrower becoming overindebted. Before a lender can grant a loan, they must calculate the prospective borrower’s debt capacity. The borrower must be capable of repaying the loan within a maximum of 36 months, based on their income and expenses. If a lender makes a major mistake when calculating a borrower’s debt capacity, the borrower may be freed from the obligation to pay the interest charges and fees. You can find more information in the guide to Swiss debt capacity requirements.
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Lenders must report activity related to loans to the official Swiss credit bureaus, the ZEK (Zentralstelle für Kreditinformation) and the IKO (Informationsstelle für Konsumkredit).
More on this topic:
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Swiss debt capacity requirements explained
