By George Kazoleas, Lawyer LL.M.It is well known that loan agreements contain terms and
conditions that disturb the balance between the parties to the detriment of the
borrower and are therefore legally and judicially diagnosed as contrary
to law. Despite this, most banks insist on including them in their new
contracts, refusing to comply with court rulings even by the European Court of
Justice.
Especially, foreign currency loan agreements (such as the
Swiss franc) contain many unfair and opaque terms. Particularly:
The Bank had to inform the potential borrower of the foreign
exchange risk and explain in detail the relevant clauses before concluding the
loan. It is very common, that the loan agreement does not mention anything
about this risk, nor does it appear that the borrower has been effectively and
properly informed by a competent bank official.
According to Cypriot and European legislation and case law,
the loan agreement must set out in a transparent manner the exact functioning
of the foreign currency conversion mechanism and the exchange rate clause so
that the consumer can assess the financial consequences of this mechanism. The
borrower must be clearly informed by the bank that, by concluding a loan
agreement in a foreign currency, he / she is exposed to a certain foreign
exchange risk that he / she may find it difficult to cope with in the event of
a devaluation of the currency against the foreign currency borrowed.
It is important to be noted that the cancellation of a
foreign currency loan agreement containing an unfair foreign exchange risk
clause results in retroactive effect, as this clause defines the subject of the
whole loan agreement. (EU Case Law).
In most of the loan agreements is provided that in
calculating the interest the number of days of each month shall be taken as the
case may be, but the financial year shall be computed as the fixed divisor of
360 days.
This clause is based on using for the calculation of the
daily interest the commercial year of 360 days with the understanding that all the
months have 30 days. However, to calculate the monthly interest they multiply
the daily interest by the actual days that the month has; it is a practice that
generates an imbalance in the rights and obligations between the parties, with
the result of ‘giving 5 days of extra interest to the bank’.
It must be noted that 365 days calculation is in force and
applies today, as required by Directive 2008/48 / EC, which was incorporated
into Cypriot law by the Consumer Protection Act of 2010 (Law No. 106/2010).
This term has repeatedly been found to be illegal und unfair
and this conclusion demonstrates the borrower’s indebtedness in calculating the
interest rate.
The right of early repayment of the loan by the borrower is
enshrined in Cypriot and EU law. There are essentially two main effects of this
right: on the one hand, the consumer/borrower is entitled to a reduction in the
total cost of the credit consisting of interest and charges for the remaining
period of the contract. On the other hand, the bank shall be entitled to
reasonable and objectively justified compensation for any costs directly
attributable to the early repayment of the credit, provided that the early
repayment is made within the period for which the borrowing rate is fixed.
(Article 16 (1) of Directive 2008/48 and Article 16 of the Consumer Credit Laws
of 2010). In any event, the compensation that the bank may require may not
exceed 1% of the portion of the credit repaid in advance, provided that the
period between the early repayment and the agreed termination of the credit
agreement exceeds one (1) year.
Most of loan agreements include an unfair term regarding
early repayment of the loan. It is usually provided that the Debtor will pay
management and operational expenses to the Bank equal to 1,5‰ of the early
repayment amount, with a minimum charge or equivalent to such an amount that
the Bank may decide at its absolute discretion from time to time. This term has
repeatedly been found to be illegal und unfair and it is of particular importance
in the event of an early repayment of the remaining loan amount.
Another term of loan agreements provides that the Bank has
the right to change the interest rate, the margin, the commission and also
reserves the right to vary either upwards or downwards the amount of each and
every remaining instalment in case of any alteration of interest rate, so that
the duration of the loan and the number of instalments are not altered.
This term has been repeatedly found to be opaque and illegal
as it disrupts the contractual balance to the detriment of the consumer and is
contrary to good faith.
Also a term, which is often overlooked, provides that, the
loan agreement shall be governed by and construed in accordance with the Laws
of Cyprus and the parties hereto hereby irrevocably submit to the jurisdiction
of the courts of Cyprus but this is without prejudice to the Bank’s right to
sue the Debtor in any court of any other country.
The provisions of Articles 15-17 of Regulation (EC) No.
44/2001, on jurisdiction, the recognition and enforcement of judgments in civil
and commercial matters, prohibit clauses in consumer contracts which establish
exclusive jurisdiction of the supplier at the place of business.
Τhe bank’s right to sue the borrower in any country other
than Cyprus constitutes an unlawful clause and cannot be accepted.
It should be noted that the reference to the above unlawful
and unfair terms of the loan agreement is indicative and relates to the most
basic terms, without excluding any further terms that do not meet the
requirements of the law.
Read more articles by George Kazoleas here
(photo: freepik.com)
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