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Consumer Protection of Borrowers under the Cyprus Law on Consumer Credit of 2010

The Contracts of Consumer Credit Law of 2010 (L.106(I)/2010)  (“Cyprus Law on Consumer Credit”) which transposes Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (“Consumer Credit Directive”) has entered in force on 19/11/2010.

Cyprus Law on Consumer Credit aims to protect consumers who enter into “credit agreements” with “creditors”. A Creditor is a natural or legal person who grants or promises to grant credit in the course of his trade, business or profession. A Credit Agreement is defined as an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a deferred payment, loan or other similar financial accommodation, except for agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments. The definition of Creditor, therefore includes a service provider or the seller of goods provided that he/she provides credit of some sort to the consumer.

Cyprus Law on Consumer Credit applies to every credit agreement between a consumer and a creditor. It is therefore of no significance if the contract is a distance contract or a contract which has been signed outside business premises. However, the Cyprus Law on Consumer Credit does not apply to credit agreements which are less than €200 or over €75,000. Also, it does not apply, to credit agreements secured by a mortgage or similar security, to credit agreements the purpose of which is to acquire or retain property rights in land or in existing or projected buildings, hiring or leasing agreements with no obligation to purchase, overdraft facilities where the credit has to be repaid within a month, credit agreement which relate to the deferred payment of an existing debt, credit agreements which are the outcome of a settlement reached in court as well as some other exception.

The Cyprus Law on Consumer Credit lays specific obligations on the Creditor to inform the Consumer prior to the contract. Such pre-contractual information includes information in advertisements as well as information relating to the contract to be signed (such as the Annual Percentage Rate of Interest (“APR”)). The burden of proof that the information has been given lies with the creditor. Furthermore, the creditor has an obligation to assess the creditworthiness of the consumer. In case the creditor rejects the application of the consumer for credit, then the creditor must inform the consumer of the reasons for the rejection.

Under section 10(3) of the Cyprus Law on Consumer Credit, the creditor must provide the consumer with a drawn copy of the credit agreement on paper or on another durable medium. In the contract, there is a list of information which must be provided in a clear and concise manner. Such information includes the type and duration of the credit, the total amount of the credit, the identities of the contracting parties, the borrowing rate, the APR, a warning regarding the consequences of default of payment, the procedure to be followed in exercising the right of termination, as well as other information. In case the APR is not mentioned, then the court may order that no interest is payable by virtue of the contract.

In case the interest rate changes, the consumer must be informed of the change prior to the new interest rate coming to effect.

Specific provisions are made in relation to an overdraft facility. In cases where the consumer retains an overdraft facility with a creditor then the creditor must inform the consumer regularly by means of a statement of account on paper or on another durable medium, providing information relating to the precise period to which the statement of account relates, the amounts and dates of drawdown, the balance and date from the previous statement, the new balance, the borrowing rate applied, the charges applied and dates and amounts of payments made by the consumer.

Further provisions are also made in relation to overrunning account. Overrunning under the law means a tacitly accepted overdraft whereby a creditor makes available to a consumer funds which exceed the current balance in the consumer’s current account or the agreed overdraft facility. In the case of an agreement to open a current account, where there is a possibility that the consumer is allowed an overrun then specific information on the overrunning, the amount involved, the borrowing rate as well as the penalties, charge or interest on arrears applicable should be given to the consumer on paper or on another durable medium.

In similar vein, credit intermediaries (i.e. persons who are not acting as a creditor and who, in the course of their trade, business or profession, for a fee, which may take a pecuniary form or any other agreed form of financial consideration, present or offer credit agreements to consumers or assist consumers by undertaking preparatory work in respect of credit agreements or conclude agreements with consumers on behalf of the creditor) are also covered by the Cyprus Law on Consumer Credit.

Under section 20 of the said law, a credit intermediary must indicate in any advertising and documentation intended for consumers the extent of his powers, in particular whether he works exclusively with one or more creditors or as an independent broker. Furthermore he must disclose to the consumer his/her fee, if any, payable by the consumer to the credit intermediary for his services. This fee must be agreed between the consumer and the credit intermediary on paper or another durable medium before the conclusion of the credit agreement. Finally, the credit intermediary must inform the creditor of his fee for the purposes of calculating the APR.

Rights of Consumers

The first right which a consumer has is that of early repayment of the credit. This means that the consumer has the right to repay the credit with minimal extra charges by the creditor. What’s more is that the extra charges are limited to what is a fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed.

Another right which a consumer has is the right to withdraw from the contract. This is governed by section 14 of the Cyprus Law on Consumer Credit and it states that a consumer can withdraw from a credit agreement without mentioning any reasons within 14 days from the date of the conclusion of the credit agreement or from the date on which the consumer has received the contractual information.  When the right of withdrawal is exercised in relation to sale of goods or the provision of services contracts (for example under the Consumer Rights Law of 2013), then, any connected credit agreements are also automatically cancelled and the consumer is not bound by the credit agreement.

The Consumer Protection Service of Cyprus is the authority which has the task of enforcing the abovementioned law.

This article is given for information purposes only and it does not constitute legal advice.

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