In a previous article we analysed the cases where a term in an agreement between a consumer and a business can be considered unfair. In this article we analyse cases of such terms in loan agreements.
What is an Unfair Contract Term?
An unfair contract term is a term that creates significant imbalance to the rights of the consumer to the benefit of the trader despite the requirement of good faith that should govern business and consumer contracts.
Such clauses are usually inserted in the standard terms used by a trader no matter how reasonable such a requirement is.
Where there are such clauses in consumer and business contracts, they are considered invalid – that is, they do not bind the consumer.
Loan Agreements and Unfair Contract Terms
The following terms in a loan agreement are considered unfair:
1) Clauses that allow a credit institution to unilaterally require the immediate repayment of a loan.
2) Clauses which add to the interest rate charges, other charges connected with the operation of the credit facility.
The Following Cases in a Loan Agreement have been Deemed Unfair by the Consumer Protection Service:
1) Terms which allow a Bank to change the basic interest rate, margins, commission or any other charges or expenses as well as the method of calculation of the above.
2) Terms which state that the Bank is allowed to change the margin from time to time. Such a term is also explicitly prohibited by Law since 2014. However, in accordance with the decision of the Consumer Protection Service, this prohibition applies from 1996 where the Unfair Contract Terms Law came into force.
3) Terms which allow the Bank to impose any charges, expenses, charges and/or rights that the Bank at its sole discretion and for which it will notify the Customer in writing.
4) Terms which state that the Customer has received a “List of Interest Rates and Charges” as well as the “General Terms and Conditions” by the Bank.
We note that although the above terms have been deemed unfair by the Consumer Protection Service, the matter is left for the court to decide on a case by case basis.
As mentioned above, if a term in a contract is found to be unfair, then it does not bind the consumer, but the rest of the agreement remains binding on the parties unless it cannot continue to exist without the unfair term.
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.