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.
Conclusion
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.
Further Reading
CCPS Decision no. 2016/16 (AP) Alpha Bank Cyprus Ltd (Greek)
I agree that the fine is not very high, but that is the fine only. The most important is what this judgement represents. It is an opinion of CCPS to validity of the contract terms and this judgement will be taken into considerations by Cyprus court as well as European court if any of the cases go through all the way.
It is definitely a positive news.
Ed: The decision of the CCPS will certainly add weight to the to the plaintiffs’ arguments when their cases regarding the mis-selling of Swiss Franc loans eventually get to trial.
A quarter of a million EuroS, what a joke considering the outright lies and corruption that went on in the early years with thousands of mortgages. Now faced with thousands of court cases which are continuously adjourned purely on the back of a lack of defence from the bank.
Thank you Nigel – great and illuminating update. At last – they are being dragged out into the light.
John Based on previous experience court action from start to finish could take around 2/4 years ?, Taking into account ongoing legal organisations in place and many people on board we are expecting the start of court action proceedings against many Cyprus banks to commence early 2017 ? people needing legal representation need to be on board with a reputable legal company dealing with all mis-sold Cyprus contracts issues.
Very good news indeed.
Anybody any idea how long the Cyprus courts are going to take before commencing action against the Cyprus banks – it seems to have gone on for years!
What were the time elements time element requested by the courts?
Ed: The plaintiffs are still waiting for the final setting down of firm trial dates.
Very good news
Banks will be taken to court via the consumers . Action is already in place and proceeding will be acted soon, this within the time element requested by the courts.
Banks will lose and my objection is to walk away from our outstanding miss sold loan contract and be compensated fully for all court costs. deposits ,excessive interest etc etc
Based on bad practice via Cyprus banks before and now No way will we allow the corrupt banks off the hook .
The banks should all be publicly shamed as to the best of my knowledge they are dodging the court cases brought by their victims, why won’t they face us? Who would ever buy property in Cyprus when the banks behave like this and are allowed to get away with it, just receiving the very occasional slap on the wrist?
Isn’t it about time that the Cyprus banks complied with correct banking practice & settled all compensation claims for CHF & libor fiddling (ie/ When the libor rate went negative & Cyprus banks kept quiet about this)
Exact
The corruption on this beautiful Island is a for over 20 years lasting ugly situation upon my experience.
I achieved to obtain my title deed because I got befriended to a key person in the administration.
A shameful procedure for a honest person.
Now I’m disgusted and wish to get rid of my humble cottage,
whom to trust?
Only to my good-hearted straight friends whom I m going to miss, in case…
so sad, because I was one of the first who bought 32 years ago in Paphos, but the moral deterioration of the
local Authorities became too filthy !
Really sad
A relatively small fine, not even the equivalent of one modest loan contract balance, however the implications could be more interesting. If the CHF contracts were deemed to be unfair, even on one account, then presumably CHF contracts cannot be enforced? Now that 10 years has since passed by, many victims will not be in a position to agree new ‘fair’ contracts, since their personal circumstances could be quite different now. Currently, I have a 15yr contract from 2006, but unbeknown to me at the time, this was to pay off only half the amount borrowed. At 65yrs, I will not be agreeing to a new 25yr loan! So many problems ahead!
Far Too little and far too late.
Too little:-
A fine of 250,000 euros is petty cash for Alpha Bank and is an insult given the scale of the blatent illegal flouting of the rule of law and the devastating misery inflicted on innocent victims.
Too late:-
Had fines and injunctions been imposed to enforce the rule of law when the illegal mis-selling started over 9 years ago the devastating consequences would have been mitigated.
However, the tide is at last turning and this result should be a rallying cry for all victims to come forward to make their complaints to the CCPS until justice is secured.
Well – at last some good news!
It’s a start – and overdue.
Thank you for posting up.
I greatly admire Cyprus so much and for ever!..
Excellent outcome.
Alpha bank tricked people into getting a multi complex mortgage that wasn’t for the man on the street and should never have been offered. They never gave people a cooling off period and allowed everyone to have these mortgages regardless of age etc. The terms and conditions were horrendously one sided towards themselves yet the CCPS award a tiny fine like that? There was a few local so called independent lawyers that said all this was OK and investors were OK to sign. No mention of these lawyers actually sitting in with the banks and developers on original meetings therefore knowing this was all so wrong but went ahead knowingly conning the British buyers. Please if anyone is reading this and thinking of buying in Cyprus, this is the norm here and simple advice is DO NOT BUY ON THIS ONCE LOVELY BUT NOW CORRUPT ISLAND.