ALPHA BANK Cyprus has been hit with an administrative fine of €250,000 by the Cyprus Consumer and Protection Service (CCPS) for its business practices relating to mortgage contracts.
‘Low cost’ Swiss franc loans were sold to around 11,000 of home buyers, both Cypriots and non-Cypriots, by Cypriot banks and their agents during the island’s property boom.
Banks found Swiss franc loans easy to sell as the interest rate was much lower than loans denominated in Cyprus pounds or Sterling. But borrowers have seen their monthly loan repayments soar as the Swiss franc strengthened against other currencies, in some cases more than doubling.
Many home buyers who were sold Swiss franc loans have signed-up to various legal groups that are taking action against a number of Cypriot banks (including Alpha Bank Cyprus) alleging that the Swiss franc loans were mis-sold. They are currently waiting for the final setting down of firm trial dates.
In December last year the CCPS found Alpha Bank Cyprus culpable of dealing unfairly with two of its clients in relation to a loan that was converted to Swiss francs without their knowledge. At that time DISY MP Zacharias Zachariou, who chairs the House Commerce Committee, said the decision was a tool that could be used by the plaintiff in a court. Zachariou spoke of a “landmark decision” that would have ramifications for all banks engaging in unfair practices.
The latest decision to impose an administrative fine of €250,000 on Alpha Bank Cyprus by the CCPS is another “landmark decision”.
I am grateful to the law firm of Christodoulos G. Vassiliades & Co. LLC for providing the following summary of the Consumer Protection Service’s Decision.
Summary of Judgment with No. 2016/16
The Consumer Protection Service examined the terms and practices of Alpha Bank housing loan agreements.
Broadly explained, they found that all the terms and practices that are referred below were unfair, misleading and contrary to the law.
The following issues were examined by the Consumer Protection Service:
Lack of information regarding currency exchange risks for loans in foreign currency and especially Swiss franc.
Foreign exchange currency loans have inherent risks resulting from exchange and interest rate fluctuations. These risks may have significant financial burdens on the loan instalments (especially for long term housing loans). The Bank has failed to provide critical information and/or has provided inadequate information to consumers, which may have affected their decision to purchase mortgage loans in currencies other than the currency of their income. Proper information (as per the sample warning provided by Central Bank in 2006) may have prevented consumers from signing the loan agreements or agreements with those specific terms
Consumers lack the specialised knowledge required to calculate the risk of loans in foreign currencies. It is required that the average consumer will be able to understand the consequences of his/her decision based on a detailed, specific and simplified explanation, which will include numerical examples.
It seems that in some cases the Bank did not warn the Consumers at all for any currency risk, since they considered that it was not their duty and that the burden of notifying consumers of the risks was on their lawyers.
Ambiguous contract terms
The Terms of the contract must contain clearly the rights and duties of both parties. This obligation is not limited to the contract itself though, it also extends to the marketing practices of the Banks before and after the contract is signed. If the terms of the loan are unclear or vague, in such a way that it will affect the behaviour of the Consumer when exercising its rights, then this constitutes an abusive practice on behalf of the Bank.
Based on the Consumer Protection Service judgment the following terms were considered vague and, thus, abusive:
- Charges payable by the debtor.
- Gradual disbursement of loan.
- Penalty for early repayment of the loan.
- Charges, expenses and disbursements payable by the debtor
- Costs, expenses and charges incurred by the Bank in examining the application of the debtor etc.
Variable interest rates, extra charges, disbursements and early re-payment are considered essential terms of the loan agreements. The manner in which they were described in Alpha Bank contracts was unsatisfactory considering that if they were described in more detail the consumer might have made a different decision.
Charges, commissions and administrative fees were not defined, explained and they did not have specific prices.
Charges for providing information
The Bank charged €5 for each email and €50 for each letter of response. These charges could not be justified and it was found that the Bank used these charges in order to discourage the consumers from requesting the provision of information.
Presumption of charges being correct in case they were not contested within specified timelines
Although such terms were not included in the agreements at all, the Bank kept including in the bank account statements in small letters at the bottom of the page that the consumers had the right to contest the charges showcased within14 days from the day of receipt of the statement. Despite the fact that this was not in fact true or legally binding, it constitutes an abusive practice since it may discourage consumers from exercising their rights.
Covenant that all contractual terms were accepted as legal
Such terms in contracts, despite not being legally binding created the assumption that the consumer had no standing/ right to question or challenge the legality of the terms of the agreement. Thus, it was considered an abusive practice by the Bank.
Jurisdiction clause and courts
The Bank included jurisdiction and applicable law clauses in its contracts. As per the clauses, any claims by the consumer against the Bank could be brought solely before the Courts of the Republic of Cyprus. On the other hand, the Bank had the right to sue the consumer before the Courts of any country they considered appropriate. The Consumer Protection Service decided that such Jurisdiction clauses constitute unfair commercial practices.
The Consumer Protection Service ordered Alpha Bank Cyprus Ltd to discontinue the breach caused by using those terms and to refrain to use those terms in the future. Furthermore, they imposed to the Bank an administrative fine of €250.000,00.