The new law of giving in payment turns the courts towards the consumers

The new version of the law of giving in payment, passed by president Klaus Iohannis in mid-May, seems to have convinced the courts, which have already begun ruling in favor of debtors.

The first surprise came one week ago, from the Bucharest Court of Appeal itself, which up until now it used to be known for its rulings favoring banks.

The Bucharest Court of Appeal decided to freeze the CHF exchange rate at 2.41 lei, in a case of giving in payment, upholding a ruling of the Court of Bucharest rendered last year, which stipulated the rebalancing of a loan agreement concluded between the consumer and Credit Europe Bank NV.

This initial ruling which came as a first, was followed, just a few days later, by similar rulings rendered by the County Court of Bucharest, respectively by the Court of district 4 of Bucharest.

Given that the court orders the adaptation of the contact, the consequence is the reduction of the payment obligation, which has become excessively onerous, to a reasonable and fair limit, both for the debtor and for the creditor, explained Alexandra Ianul (formerly Burada), lawyer who represented the debtors in all three court cases.

In her view, most likely the amendment to the Law on Giving in Payment, which clearly defined unforeseeability, in the sense that it removed any doubt that the excessive rise of the exchange rate was an unforeseeable event, along with numerous rulings concerning the interpretation, issued by The Romanian Constitutional Court (CCR), which all emphasize the same thing, represent the reasons underlying the recent rulings rendered by the Romanian courts.

According to Alexandra Ianul, the new version of the law of giving in payment, prioritizes the adaptation of the contract and the adjustment of the considerations.

Also, the solutions applied in the mentioned cases are in full accordance with the obligatory interpretation issued by the Romanian Constitutional Court in the numerous Decisions concerning Law 77/2016 (ed. note: the Law of Giving in Payment), where the Constitutional Court has repeatedly emphasized that once the excessively onerous nature of contractual obligations has been established (in this case caused by the excessive increase of the exchange rate), the court may apply a judicial remedy to the contract, which may range from the lowering of the exchange rate to the termination of the contract through giving in payment.

Regarding the court decisions, the aforementioned lawyer says: "As they are final rulings rendered following the appeal, by various Courts of Appeal, they will certainly be an incentive for lower courts. Our victories are likely to be a basis for a case law reversal, this time in favor of consumers".

Emphasizing that, at present, there are probably several thousand cases of that nature in the court, the lawyer told us that there are pending lawsuits which have been filed in 2016, and on top of that, there are those filed based on the new version of the law. Alexandra Ianul told us: "In 2017-2018, our success rate was about 60%, and in 2019-2020 it decreased heavily, to about 10%, in our case due to the fact that most favorable decisions have been quashed by the Bucharest Court of Appeal. That is why last week's ruling was so valuable.

Now, on the amended version of the law, I expect a reversal of those percentages in favor of consumers, because it removes any doubts over its interpretation. In fact, the first two cases tried on this form have actually been won on merits, this week".

• Piperea: "Finally, the real goal of this law seems to have been understood- restoring the social usefulness of loan agreements"

Lawyer Gheorghe Piperea, who wrote the text of the Law on Giving in Payment, promoted in Parliament by Senator Daniel Cătălin Zamfir, is of the opinion that, at least apparently, the first reason why these court rulings were rendered is the new version of the Giving in payment law, which now presupposes unforeseeability, in some typical cases of over-indebtedness. Gheorghe Piperea explained: "The rulings are obviously bucking the trend which was established between 2016 and 2019, when the courts demanded over-indebted consumers (often with great excesses of zeal) prove unforeseeability, instead of asking lenders to produce evidence of the borrowers' ability to pay. to It is possible that the courts may have realized the risk of market collapse and of the courts getting deluged with lawsuits, a risk posed by the pandemic. Through these rulings it may become possible to understand the importance of negotiating to reduce the debtors' burden in order to restore the social usefulness of loan agreements (I have used a phrase often used by the Romanian Constitutional Court in the countless rulings which rejected the exceptions of unconstitutionality alleged by banks in fighting the Law of giving in payment, in its original version). Extrajudicial negotiation will be able to achieve two immediate goals - ensuring true resilience of loan agreements - (a debtor who has seen relief on his debt burden is a debtor than can pay it back) and, second, reducing the pressure and amount of lawsuits involving the banking system: 350,000 cases involving banks and more than 1.2 million cases involving debt collectors (in 2018) are already too many, to allow for another few hundred thousand, maybe even a million, caused by the pandemic".

In Gheorghe Piperea's opinion, it is possible that, in addition, the four years that have passed since the coming into effect of the initial version of the Law of giving in payment, banks have realized that "those who send giving in payment notices are not debtors acting in bad faith, are not cynical real estate developers, are not irresponsible people who want to give their homes in payment to escape their debt, they are not selfish people who want to "steal" young people's "right" to borrow and be held captive by banks for 30 years (like the narrative against the Law of giving in payment goes), rather, they are excessively debt-burdened people who want a chance at a normal life, either through the balancing of the contract so that it can be paid off according to the circumstances of its signing (rebus sic stantibus) and the purposes for which it was concluded, or through the erasing of the residual debts, in exchange for the property".

Among other things, Gheorghe Piperea is surprised by the rulings of the three courts, but considers them predictable and decent: "Finally, the real purpose of this law seems to have been understood - restoring the social utility of the loan agreement (which is a primary objective for bank, and not only for the debtor), the transformation of contractual failures that generate overleveraged debtors into realistic, resilient contracts, which can lead to the achievement of the emolument pursued by both parties upon the signing. A loan that causes the debtor's ruin (multiplied by the number of those in a similar situation, i.e. many hundreds of thousands or even millions of people) only leads to big problems for the bank and the financial system, in general, because a ruined debtor means a missing debtor. On top of that there is the negative perception, the legal expenses with the lawsuits brought against the bank, the expenses of the loan-loss provisions caused by the non - performing loans etc ".

This is not (yet) a trend, but a beginning, the lawyer points out, and he thinks that a large percentage of distressed debtors with financial problems (exacerbated to the extreme by the pandemic, which is not a simple health crisis, but an economic crisis that will culminate in famine and social or even psychological crises) should be informed about these rulings, as they will be needed as a precedent in view of future foreclosures by banks, which will occur once the loan freeze decided during the pandemic expires next year.

Gheorghe Piperea recently wrote on Facebook that, after the December 6 elections, there is a 100% "chance" that the DPI Law will be repealed through a Government Emergency Ordinance or via a law "fast-forwarded" through Parliament. The lawyer explained to us: "The PNL government, supported by USR, will repeal the law of Giving in Payment (or render it toothless, by eliminating the presumption of unforeseeability), like it did with the bank assets levy, regulated by GEO no. 88 / 2018. The Law of giving in payment - and all other consumer protection laws debated in the Parliament, but the anti-usury laws in particular - has been constantly sabotaged by the PNL and the USR, including via complaints filed with the Romanian Constitutional Court and requests addressed to President Iohannis not to pass those laws. Since there is a definite expectation in that regard from banks and debt collectors, who are the main political sponsors of the "right-wing alliance", that repeal is certain. As information is already circulating in the banking system (and among banks' lawyers), that there already exists a draft law to repeal / emasculate the Law of Giving in Payment.

This law is an "existential threat" to banks and debt collectors, especially now that it works. With the new parliament, illegitimate on the grounds of vitiating the popular will, any idea of consumer protection will have become history. With the new parliament, it will be every man for himself".

Gheorghe Piperea also told us that, paradoxically, there are not many lawsuits filed based on the Law of giving in payment: "Our law firm at least, does not have more than five such notices. It is very likely that this apathy is the effect of the misleading measures passed by banks, at the urging of the government, consisting in the apparent freezing of the effects of loan agreements during the pandemic (I say "apparent" as installments and interest rates, including interest charged on interest, have not actually been frozen, but instead carried over to January 1st, 2021, which means that the debtors impoverished by the quarantine, and who will have exhausted even their loan repayment money, will be an in infinitely worse situation than they were in when pandemic began)".

This law, which consumers are still unaware of, does not lead to the loss of the home, but to the restoration of the social utility of loan agreements. Debtors continue paying off their debts, within the initially established amounts, to keep their house and benefit from the surplus cash, which up until now were swallowed without just cause by the bank, Piperea said. He further said: "The law of giving in payment can be used as a weapon of negotiation and and instrument of fair reconstruction of the credit agreement not only by debtors who contracted loans denominated in foreign currency, but also by borrowers with loans denominated in lei whose loan installments have increased by over 50% in the last six months.

Moreover, the Law on Giving in Payment will usable as an impenetrable shield against abusive foreclosures. In the years 2021-2022 there will be massive foreclosures by banks against all debtors of loans secured by residential real estate. That tsunami will be triggered by the default of loans, caused by the multiple bankruptcies that are coming and by the massive unemployment that is expected to occur. The giving in payment notice automatically freezes the effects of the loan agreement and any foreclosure, as well as the calculation of interest, fees and penalties, triggering a mandatory negotiation for the bank (in order to reduce the debt burden or erase it), under the sanction of a court decision like he ones we mentioned".

• CREDERE: "The courts' rulings of the last week are fair and more than needed"

Consumers of the CREDERE Association emphasize the positive trend for borrowers, especially those with loans denominated in Swiss francs (CHF), praising the court rulings of the last week as fair and more than necessary. The management of CREDERE sent us the following message: "When looking at most of the rulings rendered by the courts in the last four years in cases pertaining to the law of giving in payment, we could paint a picture of injustice, something which was also acknowledged by the Constitutional Court through its Decision 731/2019. The Constitutional Court pointed out that some courts have misinterpreted and misapplied the law of giving in payment when it comes to unpredictability".

Debtors' expectations are high, especially for those who have loans denominated in CHF, bank customers told us. "It is normal to look towards the future with optimism and believe that in the next period we will see more and more decisions to rebalance contracts. Aside from our perception, Law 77/2016 on giving in payment was clarified by the Parliament this spring and we see absolutely no reason why the courts should not apply it correctly, including taking into account the instructions of the Constitutional Court requirements presented in Decision no. 731/2019 ".

A brief analysis of the court portal would result in a number of at least 10,000 giving in payment lawsuits, according to CREDERE. It is estimated that, until the clarification of the Law on giving in payment passed this spring, about 80-90% of cases were lost by borrowers: "There were even courts where almost none of the hundreds of cases were settled in favor of borrowers. It is far too early to make a statement on a change in practices which would benefit borrowers, but we are optimistic that this will happen: the law and the Constitutional Court are on the side of the debtors at the moment".

We remind that the amendments brought to the Law on giving in payment show that the following events represent alternative criteria for individualizing the contingency;

a) during the execution of the loan agreement, the exchange rate, applicable in order to purchase the currency the loan is denominated in, records on the date of the giving in payment notice an increase of over 52.6% compared to the date the loan agreement was concluded on. In order to calculate the percentage of 52.6%, the exchange rate published by the National Bank of Romania on the date of the giving in payment notice and the exchange rate published by the NBR on the date of concluding the credit agreement will be used;

b) during the execution of the credit contract, the monthly payment obligation increases by more than 50% as a result of the increase of the variable interest rate.