Piperea: "The law capping interest on IFNs has big differences compared to the original draft"

The law capping interest on loans granted by non-banking financial institutions (IFNs) and debt collectors has, unfortunately, big, essential differences compared to the original draft, lawyer Gheorghe Piperea, current MEP, who wrote the draft normative act assumed in the Parliament by the social-democratic senator Daniel Zamfir.

Gheorghe Piperea told us: "The original draft of this law was written by me and, unfortunately, the law, as it came out of Parliament, is emasculated from two points of view. First of all, because it refers exclusively to IFNs and debt collectors, not to banks. If you look at the title of the law, it seems that it refers to any type of credit, even to banks, but Article 1 says that it only refers to non-bank financial institutions - IFNs - and debt collectors. Then, secondly, the ceilings that the law established are extraordinarily high, to be raised. They are so high that there is no real protection. Of course yes, in relation to those 1000% interests and penalties, to now have a maximum of 34% - in the case of consumer loans, it may seem like a great victory, only the difference between what I wrote in the original form of the law and what has come out now is practically 1 to 2. That is, the ceiling that I had established in the law was 17.5% for all consumer loans, including those given by banks, and now it has reached 34%. There are therefore 27 percentage points above the interest on the credit facility that the National Bank of Romania offers to commercial banks, interest which is currently 7.5%. Plus 27% means 34.5%, compared to 17.5% as I said 6 years ago, which means an almost double difference. In the case of mortgage loans given by IFNs, I had proposed a ceiling of 2.5 percentage points above the legal interest, which today - when the legal interest is 6.5% - would mean 9%. Well, in the current version of the law, 8 percentage points are added to the facility interest, not to the legal one, which brings the effective interest to 15.5%, which represents a much larger difference compared to the initial text of the draft normative act. That is why I say that, for these two reasons, the law is emasculated".

The lordship also referred to the amendment by the Parliament, compared to the original draft of the normative act, of the mechanism for freezing the effects of the loan contract.

Mr. Piperea mentioned: "In the version written by me six years ago, a mechanism was introduced to freeze the effects of the credit contract, similar to the one in the payment law. That is, if the debtor discovered that these ceilings were exceeded, he could ask the bank/IFN to revise the contract - either amicably or in court - and when he sent the notification to the IFN, the effects of the contract were completely frozen, exactly as in the case of the payment law. The law voted by the Parliament and promulgated by President Iohannis says that this effect is produced only if in the meantime there has been a decision of the National Authority for Consumer Protection to ascertain usurious interest. In other words, only after this decision the debtor can notify the IFN and that notification has a suspension effect. Otherwise, the suspension effect does not occur. There is one more thing: the deadline for the entry into force of the law provided for in Article 13, i.e. 90 days from publication in the Official Gazette, means that the law will apply starting around Christmas, which means that until then those who have astronomical interest rates or they are assignees of debts or those who carry out enforced executions can fly in peace. In short, the big problems of the law are: it does not apply to bank loans, the established ceilings are extraordinarily high and the freezing of the effects of contracts only occurs if ANPC has carried out an investigation procedure and found that they are usurious interest".

Read here - The capping of interest on IFNs, promulgated by President Klaus Iohannis

• The debt collector will no longer be able to claim from the assigned debtor more than the nominal value of the purchased debt

The European deputy also showed that there will be a serious discussion about capping interest on loans in the fall because there is a draft European directive that was adopted in first reading last year in October - a project concerning bank loans - and which talks about capping interest at a maximum of 2.5 percentage points above the legal interest practiced in each EU member state. According to the draft European directive cited by Mr. Piperea, in the Eurozone we will reach a situation where the maximum cost of APR crediting will be 4.5%, because now the legal interest in that area is 2%.

Lawyer Gheorghe Piperea also mentioned the good parts of the law capping interest on loans granted by IFNs: "First of all, the idea of capping interest rates is a good idea, which has been put into practice in Romania and will be put into practice in the European Union as well. Second, there is talk of revising contracts that are affected by usurious interest that exceeds the ceilings established by law, contracts that will be corrected on the fly to become bearable for consumers. This revision is done by reducing the debt burden, which can intervene by partially or totally erasing some debts, by rescheduling, by paying them off, in such a way that the respective contract is made resilient, that is, to survive this moment of crisis for the next 15 -20 years. The review is not only a gift given to consumers, but it is also a gift given to the bank or the IFN, because the usurious interest has the purpose of ruining the debtor, who may even be left without a home, or ruining the bank because there are too many non-performing loans on which the bank pushes to debt lenders with 1% interest. Thirdly, regarding debt collectors, the law says that in the case of debt assignment, when you sell the debt to a debtor, you make a quantification of this debt so that it is very clear and easy to recover, you attach the documents of this debt and of interest and notify the debtor that it will be sold to a debt collector, in which case the debtor may challenge this assignment. The debt collector will no longer be able to claim from the assigned debtor more than the nominal value of the purchased debt".

His lordship also showed that the law provides that, in the case of loans of less than 25,000 lei, even if the interest rates can be 34.5%, they cannot lead to a difference greater than 100% of the initial credit, i.e. the total of the debt to be repaid in the case of a loan of 25,000 lei cannot exceed 50,000 lei.

"So, for example, for a loan of 3,000 lei it will not be possible to pay more than 6,000 lei", concluded lawyer Gheorghe Piperea.

We mention that President Klaus Iohannis promulgated two days ago the law on capping interest rates at non-banking financial institutions and limiting the claims requested by debt collectors, the normative act coming into force 90 days after its publication in the Official Gazette.

• Alin Iacob, AURSF: "Many abusive IFNs set out from the beginning to lead debtors into default"

The new law, with all its imperfections, is necessary because most of the IFNs had created a financial mechanism to rob vulnerable people, who would not have received any credit from the banking system because they did not have enough monthly income to pay them back, he told us Alin Iacob, president of the Association of Romanian Financial Services Users (AURSF)

Alin Iacob told us: "The law is necessary because there were many abusive IFNs that proposed from the beginning to lead debtors into default, unable to repay. For example, many consumers borrowed 10,000 lei, obtained the credit only for a few months, later they could no longer pay and the interest had to be calculated on the borrowed amount for the period held and for the period while the credit was recovered by a company which was part of the financier's financial group. The IFNs and debt collectors quickly went to court, quickly asked for the approval of enforcement, and the court authorized the so-called remunerative interest which represented all the interest that should have been calculated over the 3 or 5 years of the loan, i.e. in instead of 10,000 lei borrowed, the debtor had to return 60,000 lei granted by the court, on top of which was superimposed a 6,600 lei fee of the bailiff. There were also cases when for 15,000 lei, the debtor was obliged by the court to pay 85,000 lei, to which were added the execution costs that brought the amount to be returned to 100,000 lei. This has been repeated in other cases, which appears to be a mechanism by which vulnerable people who cannot repay a loan are identified, only to be ripped off after a few months by asking for 5, 6 or 7 times the amount than that of the loan granted. Basically it was a modern Caritas, without any justification and no legal cover. There are many Romanians who lost their homes from a 10,000 lei loan taken from IFNs, a loan that swelled to 60,000, 80,000 or even 100,000 lei. There are hundreds of thousands of Romanians who are in foreclosure for such loans granted by these abusive IFNs".

The President of AURSF specified that the said law must also be respected by pawnshops, because they are constituted as IFNs, and that with the entry into force of the new normative act, citizens will be able to address IFNs and through consumer associations for reviewed the credit agreement and to calculate the interest capped by the new normative act.