§ 5-4. Duty to refuse credit: the bank must say no when you cannot manage the loan

The duty to refuse credit prohibits the bank from lending to a consumer who will probably not be able to pay it back. The assessment is based on the credit assessment under § 5-2. The bank must see that it is likely that the customer can fulfil the agreement as it is set up. It is not enough that the bank has good security.

The law lists factors that can count in the assessment: bridging finance (a short-term loan while waiting for other financing), equity release loans (loans that release value tied up in, for example, a home), refinancing (a new loan that replaces an old one) and interest-free or repayment-free periods. Other factors that affect your ability to service the loan can also count.

The second subsection says that the value of the security cannot on its own justify that creditworthiness is sufficient, neither its current value nor estimates of its future value. The exception is mortgages that are to finance renovation or construction of a home. The bank therefore cannot say "the house is worth more than the loan" and stop there.

The Government can issue further rules on the duty to refuse credit, including that it shall not apply to certain agreements. The rules here must therefore be read together with the regulations.

The connection with the rest of the chapter is clear. § 5-1 requires explanations before the agreement, § 5-3 imposes a duty to provide information during the assessment, and § 5-5 says what happens when the bank has granted credit in breach of this section. Section § 6-1 on personal guarantees (kausjon) and § 5-5 refer to this section. Example: The customer has a low income and a lot of debt, but owns a home. The bank cannot grant a loan just because the home covers the amount.