A PROPOSAL FROM MUGUR ISĂRESCU CONCERNING THE LAW OF GIVING IN PAYMENT: Banks to be required to report to the NBR the status of their negotiations with their customers

The law of giving in payment may require banks to report to the NBR on their negotiations plans with customers and on the status of said negotiations, Mugur Isărescu, the governor of the Central Bank of Romania said yesterday.

According to the official, in the document sent by the NBR to the Parliament, in response to the request made by president Klaus Iohannis for the reexamination of the law, the Central Bank is proposing a series of clear criteria for clearly distinguishing the rightful beneficiaries of this legislative initiative, as well as a number of obligations for the banks, in order to guarantee a "fair" process for the sharing of the burden between the financial institutions and consumers.

Mugur Isărescu yesterday warned banks that foreclosure would only become "a last resort solution".

He stated the following yesterday, in a debate: "To move away from what we are currently doing, namely moral constraint, towards instruments that are more constraining, in compliance with the Civil Code and with the banking laws that have existed for the last 25 years, and not to the detriment of the banking legislation, it could (ed. note: the law of giving in payment) include regulations which would require banks to build partnerships in good faith with the debtors that we have talked about. These measures will incorporate at least the following obligations for banks, which could be stipulated in the law: drawing up transparent negotiation plans, wherein considering foreclosures would be a solution of last resort, banks having to report to the National Bank of Romania on their negotiation plans and the status of their negotiations with their customers".

According to the governor, it is necessary for the law to stipulate several strict criteria, including: consumers would need to have concluded a loan contract guaranteed with a mortgage over a property intended as a residence, the amount of which did not exceed a reasonable level at the moment of its granting; to own only one home mortgaged in favor of the bank, which represents their place of residence; to have a significantly deteriorated financial situation compared to the time that contract was concluded, where the degree of indebtedness is significantly burdensome compared to their income; to have tried negotiating with the banks, in good faith, and to have failed to reach a solution.

According to the governor, "The NBR has supported, it continues to support and will support in the future recommendations to the commercial banks, to prevent them from initiating foreclosures against consumers of financial products whose financial liabilities have become too burdensome, due to unexpected changes which have occurred after the conclusion of the loan agreement, through the initiation of negotiations meant to lead to the finding of balanced solutions".

Mugur Isărescu mentioned Directive 17/2014 concerning mortgage loans, which must be transposed by March 21st, 2016: "The directive refers to a humanization of lending by ensuring sustainability and also by rebuilding consumers' trust in the financial system, by increasing consumers' degree of financial education when it comes to responsible debt management practices. From that point of view, if one also looks at the provisions of Directive 17, if possible through this law, at least partially, if not, through a special law, for the loan inventory, in other words for the ongoing loans, this humanization process, of renegotiation, of finding solutions bilaterally, must be conducted following an evaluation made according to objective criteria, which would justify the beginning of this renegotiation process. The end result must be the splitting between customers and banks of the additional burden. That additional burden created as a result of the crisis and its sharing could be introduced in the text of the law (ed. note: of giving in payment)".

Another proposal, which comes from the banking system and is backed by the NBR, stipulates that the negotiation plans, the criteria would be accepted by banks voluntarily and would serve as the object of a code of ethical conduct for banks.

If banks don't do this very soon, the NBR is proposing that "this issue be regulated in the text of the law", Mugur Isărescu further said.

The governor said that he totally supports the Government's position which states that the Law of giving in payment must be intended as an aid for social cases and that the First Home program should not be included in the law.

Prime-minister Dacian Cioloş mentioned that the loss of credibility of the First Home program should be avoided: "Essentially, the Government supports the wise resolution of the real social cases and urges the actors involved to work together so that we can eventually get a good law, which would meet people's expectations who truly need that, but to avoid creating benefits to speculators through this law, a law which would then affect the confidence in a state that retroactively changes the rules of the game, which also runs the risk of radically affecting the access of a new generation of youngsters to homes, including by blocking or causing the loss of credibility of programs that have proven successful so far, like the First Home program".

Mugur Isărescu came up with proposals for the future customers - the Program must be excluded from the application of this law, and for standard loans, borrowers must be given a choice between loans which provide the giving in payment option, while requiring a bigger downpayment, and those without giving in payment, with a smaller downpayment.

Lately, the initiator of the law, liberal deputy Daniel Cătălin Zamfir, has repeatedly said that he intends to amend the law with a stipulation that the law would not apply to the state guarantees granted through the First Home Program.

Prime-minister Cioloş yesterday said that with 2016 being an electoral year, there are several legislative projects which pressure the budget without clarifying how they would be funded, and the Government finds itself forced to turn them down.

He explained that this year, the budget construction will be "extremely strapped" and that things have to be done in such a way so as to avoid affecting the economic and capital market in Romania.