Buy now, pay later faces tighter rules under Czech lending overhaul

Buying a phone now and paying later could involve closer checks on your finances under legislation approved by the Czech Senate, extending consumer protections to interest-free credit.

The overhaul also introduces borrowing cost limits and restricts advertising that misleadingly presents loans as a way to improve a household’s finances or replace savings.

The bill now goes to the president. Its principal lending changes are scheduled for February 2027, giving lenders and retailers time to prepare for requirements stemming from a European consumer credit directive.

One significant change concerns credit advertised as free, including deferred payments for goods and services.

Providers will have to assess whether customers can afford repayment even when no interest is charged. For qualifying purchases, they could use information from income reporting or creditworthiness databases rather than requiring extensive documentation.

The deferred payment amount must not exceed the nationwide average wage measured over the first three quarters of the preceding year.

The legislation also restricts what lenders can use when assessing applicants. Information obtained from social media will be prohibited, as will sensitive information such as racial or ethnic origin, union membership and political opinions.

Advertising faces additional limits. Lenders will not be allowed to falsely suggest that existing unpaid debt has little bearing on creditworthiness, or that borrowing increases a consumer’s financial resources, substitutes for savings or raises their standard of living.

Creditors will also have to direct consumers experiencing financial difficulties toward debt counseling.

The bill introduces a ceiling on the annual percentage rate of charge—known in Czech as RPSN—for larger consumer loans, linked to the Czech National Bank’s repo rate.

RPSN reflects the annual cost of borrowing, including interest and relevant charges, rather than the interest rate alone. The Finance Ministry’s consumer credit guide explains the broader protections governing these loans.

Loans below CZK 20,000 with terms shorter than 12 months will have a separate cost calculation, incorporating a CZK 2,000 allowance for lending costs alongside an amount linked to the loan’s size, duration and permitted interest.

Critics warn that restrictive caps could make regulated borrowing unavailable to some higher-risk applicants, potentially pushing them toward illegal lenders. Senators requested a review after one year covering access to credit, attempts to circumvent the rules and demand for unlicensed lending.

The overhaul also makes certain challenges to existing loan agreements more difficult. Repaying a consumer loan, or making mortgage payments for at least 18 months, would create a presumption that the borrower could afford it.

Another provision limits insurers’ use of a past cancer diagnosis when arranging insurance connected with consumer credit, setting a maximum seven-year period after treatment ends.