Main opposition Akel have tabled three bills aiming to boost the protection net around loan guarantors, but a fourth bill proposing to lengthen the time period until a bank moves in on a debtor’s property has been rejected outright by the finance ministry and banks alike.
Akel unveiled the bills at the House finance committee on Monday. The first amends the law on the insolvency of natural persons, so that protection from legal action to loan guarantors – who guaranteed a debt governed by a personal repayment scheme – is extended to up to six years from the entry into force of the insolvency law.
The insolvency law entered into force on May 7, 2015. Currently, as the law stands, the protection afforded to loan guarantors covers only loan guarantee contracts entered into prior to that date.
The second legislative proposal amends the bankruptcy law, so that likewise the protection granted to loan guarantors in relation to the monthly instalments paid toward the verifiable debt of a bankrupt debtor, be extended to up to six years from the entry into force of the insolvency law.
A third bill again proposes to lengthen the protection from legal action afforded to guarantors, to up to six years after May 2015, for guarantees covering a corporation’s debt where a debt settlement scheme is in place, or else a debt restructuring scheme, or for the verifiable debt of a corporation that is being wound up.
The Association of Cyprus Banks voiced opposition to the proposed changes, arguing that the insolvency and bankruptcy laws were designed to give protection to debtors and guarantors whose situation had deteriorated due to the financial crisis, which they could not have then foreseen.
The difference, the association added, is that anyone signing a loan guarantee contract now should be aware that they are undertaking a risk.
By contrast, these proposals received at least verbal support from the government, including from the finance ministry and the head of the Insolvency Service. The Central Bank of Cyprus also appeared to be on board, as was the Institute of Certified Public Accountants.
However, Akel’s fourth legislative proposal was rejected both by the finance ministry and the banks.
It provides that the deadline in which a mortgage debtor must repay the outstanding amount, in order that the lender does not initiate foreclosure proceedings, be extended to 90 days, from 30 days currently, from the date on which the lender issues the relevant notice to the debtor.
The bill also provides extending from 30 to 90 days the deadline for auctioning a mortgaged property following the date of final notice sent to the debtor.
Speaking in parliament, a finance ministry official said this would make debt collection – particularly for delinquent debts – even harder, thus further exacerbating the situation with non-performing loans and forcing banks to raise their capital provisions.
“The existing foreclosures framework is already described as ineffective as it is,” the official stated.
“How many primary residences have been sold since the date the law entered into force, in September of 2014? I believe it is less than five residences.”
The same official stressed that the foreclosures law was never designed to target debtors’ primary residences, but rather to put pressure on strategic defaulters.
Likewise the Association of Cyprus Banks said the law already affords ample time for a mortgage debtor to come good.
“Those who sincerely wish to settle their debt will start from day one. There is no need to add more time to the 170 days already available [before foreclosure actions are initiated],” an association representative said.
Source: Cyprus Mail, June 26, 2018