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Pre-Contractual Obligations of Banks in Relation to Consumer Mortgages

Do you have a mortgage? – Find more about your rights here!

One of the most important areas of consumer protection is financial services. At the level of the European Union there are various Directives which protect the consumer either by securing certain rights or by preventing banks from using specific practices.

For general consumer rights in relation to financial services you can follow the link below.

In this article we analyze some of the obligations which Banks owe to Consumers before concluding a loan secured by a mortgage (for other obligations click here).

Relevant is Law 41 (I)/2017 on Credit Agreements for Consumers relating to Residential Immovable Property Law of 2017.

1) Professional Ethics and Staff Knowledge

In relation to financial products offered by Banks, the Banks should act honestly, fairly, with transparency and professionalism and consider the rights and interests of the consumers.

The remuneration of bank employees should not be linked in any way to the number or percentage of applications accepted.

According to the Law, the Bank’s employees must have an appropriate level of knowledge.

2) Securing the Signature of the Spouse

When real estate is mortgaged, the Bank must obtain the written consent of the borrower’s spouse.

3) Providing Information Free of Charge

Also, the information provided to the consumer for the purposes of compliance with the provisions of this Law, this must be provided for free.

4) Obligations in Relation to Advertisements

Any advertisement and commercial announcement for credit agreements must be legitimate, clear, and not misleading. Each advertisement should provide specific information including the total amount of credit, the duration of the credit, etc.

5) Prohibition of Tying and Bundling Practices

It is forbidden for a bank to use tying practices. A tying practice is the offering or the selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is not made available to the consumer separately.

Bundling practices are allowed. A bundling practice is the offering or the selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is also made available to the consumer separately but not necessarily on the same terms or conditions as when offered bundled with the ancillary services.

Regarding insurance policies, the Bank must accept an insurance policy from an insurer different from the one preferred by the bank when the level of guarantee of this insurance policy is equivalent to that proposed by the bank.

6) Provision of Information by Banks

According to the Law, the Bank must have in all cases provide in writing or in another durable medium or in electronic form, clear and comprehensible general information about the credit agreements they offer. Such information is for example the additional costs to the consumer, the description of terms related to early repayment, etc.

7) Creditworthiness Assessment of the Consumer

The Bank has a duty to conduct a thorough assessment of the creditworthiness of the consumer.

The creditworthiness shall take due account of the relevant factors in determining whether the consumer will meet its obligations under the credit agreement.

The Bank is required to establish and maintain the procedures and information on which the assessment is based. For creditworthiness purposes, the bank does not rely primarily on the assumption that the value of the property intended for residence exceeds the amount of the credit or on the assumption that the value of the property intended for residence will increase, unless the purpose of the credit agreement is the construction or renovation of a property intended for a home.

Following the conclusion of a credit agreement with a consumer, the bank may not cancel or amend the agreement to the detriment of the consumer, on the grounds that the creditworthiness assessment was not properly performed unless the consumer knowingly omitted or falsified information.

The above information concern the duties of the Bank before the conclusion of a credit agreement relating to real estate intended for residence and secured by a mortgage. For the duties of a bank after the conclusion of the credit agreement you can click here.

This article has been written on behalf of 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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