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Liabilities of Banks in Relation to Consumer Mortgage Loans in a Foreign Currency

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In a previous article we analysed the pre-contractual obligations of banks in relation to Consumer Mortgages which are secured by a mortgage. In this article we analyse some of the other obligations which banks owe to a Consumer in accordance with Law 41 (I)/2017 on Credit Contracts for Consumers relating to Residential Immovable Property Law of 2017 as well as obligations stemming from loans in a foreign currency.

1) Review Period of the Credit Agreement

Prior to the conclusion of the credit agreement, the creditor provides the consumer with a review period of 15 working days which are calculated from the day of providing a binding offer to the consumer, so that the consumer has enough time to compare the offers, assess their consequences and make an informed decision. This offer is binding on the creditor for the duration of the review period and the consumer may not accept the offer before the first 5 working days of the review period have elapsed.

2) Right of Withdrawal After the Signing of the Agreement

The consumer has the right to withdraw within 5 working days from the signing of the agreement, without compensation and without stating a reason unless he disburses any amount before the expiration of the deadline.

3) Debt Rate Changes

The Bank is obliged to inform the consumer by written notice or other fixed means of any change in the debit interest rate before the entry into force of the new interest rate.

4) Delays

The creditor provides a reasonable period of tolerance before initiating debt settlement and sale procedures to recover debts.

Foreign Currency Loans

The cases of loans in a foreign currency deserve special mention.

Before concluding a credit agreement for a foreign currency loan, the creditor asks the consumer to provide information about his/her knowledge and experience in relation to the foreign exchange risk involved in the proposed credit agreement, so that the creditor can assess whether the intended credit agreement is appropriate for that consumer and that the consumer is able to assess the risk involved and the potential impact.

In the event that the creditor considers, on the basis of this information, that the intended credit agreement is not appropriate for the consumer in question and/or that the consumer is unable to assess the risk involved in the intended agreement and its potential impact, then the creditor should warn the consumer about this. The warning may be provided in a standard format.

In the event that a credit agreement concerns a loan in a foreign currency, the creditor, at the time that the agreement is concluded, will have to fulfill one of the two obligations.

The first is that the consumer has the right to convert the contract into an alternative currency, meaning that, in the event that the consumer’s obligations under the credit agreement are secured by a guarantee or other security agreement (i) any such guarantor  agrees in writing to the conversion into an alternative currency or (ii) where the consent of the guarantor is not provided, then that the conversion into an alternative currency is made under such conditions as may be agreed between the creditor and the consumer. It is noted that in such a case, the exchange rate at which the conversion is made is the exchange rate applicable on the day of the conversion, unless otherwise provided in the credit agreement.

Alternative currency is the currency in which the consumer receives his income or retains the assets from which the credit is to be repaid, as indicated by his most recent creditworthiness assessment. The creditor can determine if the consumer has both options or only one of them.

The second is that the foreign exchange risk to which the consumer is exposed is hedged throughout its duration by a financial hedging instrument, listed for trading on a regulated market.

This article has been prepared by the Cyprus Consumer Center for Alternative Dispute Resolution and is co-financed by the European Union under the Consumer Program (2014-2020).

The Cyprus Consumer Center for Alternative Dispute Resolution is a Body approved by the Consumer Protection Service and notified to the European Commission.

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