PUBLICATIONS
Consumer Protection in Loans Relating to Residential Property in Cyprus
The Law on Consumer Loans Relating to Residential Property of 2017 (Law 41(I)/2017) (“
Consumer Loans Relating to Residential Property Law”) in Cyprus transposes Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential property. The Directive is a minimum harmonization Directive.
The Consumer Loans Relating to Residential Property Law governs credit agreements (loans) concluded with consumers which are secured by a mortgage or other similar collateral and which relate to residential property. Article 4(1) of the Law states that such loans fall into two main categories. The first category are loans secured either by mortgage or a similar collateral which are intended for residential purposes or secured under a right relating to residential property intended for the consumer. The second category relates to loans the purpose of which is to acquire or maintain property rights in land or in existing or buildings under construction, provided that the person to whom the credit is given acts as a consumer.
The Law imposes specific obligations to creditors (such as banks) or credit intermediaries which deal with consumers. More specifically, under Article 7(a) of the Law, the creditor or the credit intermediary must act honestly and in good faith, transparently and professionally and should take into account the interests of consumers at the time of implementing the credit agreements as well as at the time of executing such agreements. It is very important to note that the creditor must avoid the promotion of salary policies which may involve a conflict of interest between the salaries paid to employees and the credit checks of consumers. For example, the creditor is prohibited from giving out commissions to employees based on the number of credit applications accepted. The same applies to credit intermediaries unless the credit intermediaries inform the consumer of the fact that they are receiving commission and the consumer accepts this in writing.
A rather odd provision in the Law relates to mortgages which are given out to a person who is married and acts as a consumer. In such cases the written consent of his/her spouse is required before the mortgage can become legally binding.
There are further legal provisions aimed at enhancing consumer protection such as those relating to the adequacy of employees of the creditor. Employees of the creditor must have a sufficient standard and level of knowledge and experience and be updated with current developments and practices.
Under the Consumer Loans Relating to Residential Property Law, the creditor must adhere to specific duties, prior to concluding any loans with consumers. These measures aim to achieve a higher level of consumer protection in that they better inform the consumer prior to him/her being bound by a credit agreement. For example, in case the creditor or credit intermediary advertises his/her products, the advertisement must not be unfair or aggressive or lead to false impressions in relation to the cost of credit.
In all cases, specific information must be provided to the consumer in writing or in another durable medium or electronic form. This information includes general information such as the identity and geographical position of the person giving out the information, the purposes for which the credit is given, the duration, the rate of interest, the Average Percentage Rate of Interest (“APR”) as well as a general note in relation to the consequences of default on the credit. This information must all be given out in a standard template termed as the ESIS i.e. the European Standardised Information Sheet.
Further obligations are contained in relation to the valuation of the APR as well as for performing the credit check on the consumer. Article 18 states that the creditor must only give credit to the consumer only when the credit check shows that the consumer is likely to abide by the terms of the credit agreement. Under Article 19 the valuation of the property must be carried out by licensed valuation experts who do not have any conflicts of interest.
After the conclusion of the credit agreement, the creditor must also inform the consumer in writing whenever the interest rate changes. In case the consumer is late in repaying his loan, the creditor must allow for a reasonable period of time for the consumer to pay prior to pursuing any legal remedies.
A ground breaking new development in the law relates to loans made out in a foreign currency. In such cases, the creditor must make sure that the consumer understands the risk inherent in such loans associated with the exchange rate. In addition, the consumer must be allowed to convert the loan to another currency (provided that any guarantors agree to that). That currency need not necessarily be the Euro, but it must be the currency which is the consumer’s main source of income.
The consumer’s right to early repayment of the loan
Under Article 25 of the Consumer Loans Relating to Residential Property Law, the consumer has the right of early repayment of his loan. This includes the right to repay the loan before its agreed expiry date. If the consumer exercises this right, the cost of credit is reduced by subtracting the interest or any other charges which would accrue after the date of repayment. The creditor can claim however any damages which he has suffered. These damages are called early repayment charges and they represent the actual damage suffered by the creditor. i.e. under no circumstances can the creditor charge a penalty to the consumer just because the consumer exercised his right of early repayment.
The authorities responsible for enforcing the provisions of the Consumer Loans Relating to Residential Property Law are the Consumer Protection Service of Cyprus and the Central Bank of Cyprus.
This article is given for information purposes only and it does not constitute legal advice. For further information and advice please contact Mr. George Antoniades at georgea@dhadjinestoros.com.
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