Traian Băsescu: The retroactivity of Government Ordinance 50 is a false issue

The retroactivity of the Government Ordinance 50 is a false issue, president Traian Băsescu says, who stressed that the ordinance will apply for future contracts. "It is the wrong idea to say that this ordinance would affect contracts which already exist. It oversees ongoing contracts, not those that were concluded in the past ", he said.

Attorney Gheorghe Piperea has a similar opinion. Gheorghe Piperea considers that banks will not incur losses of up to 900 million Euros, which is what Radu Gheţea (ed. note: the chairman of the Romanian Banking Association) claims will happen if the ordinance will apply to ongoing contracts: "Nobody spoke of losses, it simply means banks will see lower profits, which is different from actually losing money, and those estimates are not realistic".

Piperea considers that the International Monetary Fund (FMI) pre-conditioning the release of the next tranche of the 900 million Euros loan on the amendment of the Government Ordinance 50 is an abuse of law. He added that after realizing they"ve jumped the gun, the officials of the IMF didn"t bring the subject back up.

Piperea explained for BURSA: "Compare the situation of the loan agreements with the case where public sector workers have seen their wages cut by 25% starting with June, and someone would come and say that that amounts to applying the decision retroactively. Which would not be true, it would simply mean that it applied starting with the day the law came into effect. In the case of mortgage contracts, we are discussing contracts that expire in 20-25 years".

According to Gheorghe Piperea, who represents in court most of the borrowers who decided to sue the banks, if the Ordinance were made not to apply to ongoing loans, it might as well be scrapped completely.

"There are over 8 million ongoing loan contracts. There are just 10,000 loan contracts that were concluded after the coming into effect of the Government Ordinance 50. How can one pass a law that applies only to those 10,000 contracts, while ignoring the other ten million?", Gheorghe Piperea asked rhetorically.

He also warned that the four million borrowers that did not have the money they needed to sue the banks, are worried they may not benefit from the changes in the ordinance.

Piperea represents the customers of Volksbank and of BCR in the lawsuits they have filed or they intend to file against the banks in question.

Also yesterday, president Traian Băsescu said that he hopes the Government Emergency Ordinance will become law and added that banks may be "tempted" to introduce new commissions and fees.

"The Romanian Central Bank (NBR) directly regulates the banking system. It"s only the NBR that can forbid the use of specific banking products", said Băsescu.

He nevertheless said that the principle of fairness needs to be abided, and borrowers should not be exempt of the payment of their initially assumed obligations.

"On the other hand though, we need to discourage the attempts by banks to shift the losses from their non-performing loans to their customers", the head of state said.

• Piperea: "Risk commissions, recorded as interest revenues"

Risk and risk monitoring commissions, or the mandatory reserve commissions levied monthly by banks on ongoing loans are recorded by banks as interest revenue, attorney Gheorghe Piperea warned.

"We have found, and this will be made public next week, an absolutely amazing fact, which the NBR has unfortunately not uncovered so far: these commissions, which are applied monthly, are recorded by banks as interest revenues. This is proven by the very annual financial statements drawn up by some banks and which they submit with the NBR and the Ministry of Public Finance. In other words, those commissions are a way of concealing the charging of interest", Piperea explained.

He warned that the risk and risk monitoring commissions, and the minimum reserve commission are abusive, not because they are included in the contract and they are labeled as commissions, but because of the fact that they are charged monthly, essentially meaning they represent interest.

The IMF has proposed making the amendment of the Government Ordinance 50/2010 a precondition to be included in the draft letter of intention by the Romanian government, by completely eliminating the stipulation that the Ordinance would apply to the ongoing contracts.

The Romanian authorities however consider that any divergence between the national legislation and the European regulations needs to be solved on an institutional level, based on the EU Treaty and it should not influence any financing agreement.

The disagreements between the customers and bankers began in July, when the Government approved the Emergency Ordinance 50/2010, concerning loan agreements, based on a draft drawn up by the National Consumer Protection Agency (ANPC), which implements the provisions of the European Directive 48/EC/2008, with some of the most well-known provisions of the normative act including the elimination of the early reimbursement fee for loans with a variable interest rate, and the transparent calculation of the interest rate based on an index plus a fixed margin, which banks would not be allowed to change compared to the initial value set in the contract. In the beginning of September, the Senate approved the law which adopted the Emergency Ordinance 50/2010.