Consumer Law: Borrower who is a consumer
The first issue which needs to be addressed is whether the borrower acts as a consumer at the time of entering into the loan agreement. Under our Consumer Laws on credit agreements, the general rule is that loans granted to natural persons who are acting outside the scope of their business or professional capacity are considered to be consumer loans. Where the loan is granted to a consumer and certain other conditions are met, the bank must provide specific information to the consumer – and if the bank fails, then the loan may be judged by the court as interest-free.
Time of entering into the loan agreement
The second issue which needs to be dealt with is the time of entering into the loan agreement. The timing of the conclusion of the agreement is important as it relates to the rights of the borrower vis-a-vis the creditor. For example, before January 2001, when the Liberalisation of Interest Rate and Related Matters Law of 1999 came in force, banks were not entitled to recover interest which exceeded the original loan amount. This provision may also be applicable to loan agreements concluded before January 2001 but which continue in existence today. It is noted that this provision applies to any loan agreements irrespective of whether the borrower is a consumer.
Purpose of the loan agreement
The third issue to be addressed is the purpose of the loan agreement and the amount of borrowing involved. Examples are consumer mortgage contracts for a loan amount of less than €200,000 or hire-purchase agreements where the loan does not exceed €35,000. In such cases, where the contract was concluded between 01/06/2002 and 09/05/2017, then the loan agreement is caught by Consumer Law provisions – more specifically the Consumer Credit (Housing Loans and Hire-Purchase Agreements) Law of 2001. Based on this Law, a bank which provides a loan falling within the above categories to a consumer, owes certain duties towards the consumer.
For example, in the case of a hire-purchase agreement, a bank who claims repayment of the loan due to a breach of contract instigated by the consumer, is required to send a notice of at least 21 days, requiring the consumer to remedy the breach. In case the bank does not proceed in the aforementioned way, it cannot then claim repayment by filing proceedings against the consumer.
Where a loan agreement was granted after 09/05/2017 and where it relates to residential property secured by mortgage or other similar collateral or where the loan agreement concerns acquisition or rights to land, existing buildings or buildings which are under construction etc, and where the loan is granted to a consumer, then the Consumer Credit (Contracts in relation to Residential Property) Law of 2017 applies. In such cases, the creditor is obliged to provide specific standardized information to the consumer. Such information includes the Annual Percentage Rate of interest (also known as “APR”). The creditor is also required to assess the creditworthiness of the consumer as well as to ensure that valuation experts who carry out valuations of mortgaged properties are professionally trained and independent. Additional requirements should be met in respect of loan agreements denominated in a foreign currency. These include giving to the consumer the right to convert the contract into an alternative currency or to hedge against the risk to which the consumer is exposed
In relation to other loan agreements between a bank and the consumer, for amounts between €200 and €75,000 which have been concluded from 19/11/2010 onwards (except where the contract relates to the renovation of a property) then the Consumer Credit Contracts Law 2010 applies. This Law contains specific information that should be provided prior to the conclusion of the contract as well as information which should be contained in the contract itself. Very important in this respect is the right to withdrawal from the contract. On the basis of this right, the consumer is entitled to withdraw from the credit agreement (i.e. to terminate the contract legally) within 14 days of the date of conclusion of the contract or the receipt of the creditor’s terms. It also entitles the consumer to pay prematurely and at no significant cost all or part of his obligations under the credit agreement.
The terms of the loan agreement
The fourth issue which the borrower must be aware of are the terms of the loan agreement itself. The terms may relate to the interest rate as well as other issues such as the right of the bank to make additional charges on the loan or to unilaterally change the interest rate. From 09/11/2014 onwards:
- All credit institutions must notify debtors by written notice of any change in the basic rate,
- any term in a credit agreement that allows the creditor to unilaterally increase the margin is void,
- the default interest rate may not exceed 2%.
Another important but separate issue which relates to the terms of the loan agreement, is whether they are standardized or whether they create significant imbalance at the expense of the consumer. Where, the borrower acts as a consumer at the time of concluding the loan agreement, terms are scrutinised for fairness. For example, if it was agreed that interest rates are calculated on a yearly basis, the year consisting of 360 days, this term is considered unfair and therefore invalid. Also, according to the Liberalisation of Interest Rate and Related Matters Law of 1999, the maximum rate at which interest can be capitalised is twice a year.
At D. Hadjinestoros & Co LLC we can advise on your rights based on the terms of the loan agreement. We can also advise on whether the substance of the loan falls within specific consumer protection legislation. We can also advise on whether specific provisions are valid and can provide advice and liaise on behalf of clients in order to restructure their loan agreements.
This article is given for information purposes only and it does not constitute legal advice. For further information and advice please contact Mr. Evripides Hadjinestoros at email@example.com.