A controversial law

A controversial debt discharge law has been recently endorsed by the Romanian Parliament

Mihai Pelin, 14.04.2016, 13:37

Under the new debt discharge law that has been passed by the decision-making Chamber of Deputies in Bucharest, insolvable mortgage owners can have their debt paid in full by ceding the house to the bank that granted the loans. The law will benefit only those who applied for a loan in order to buy or build a house, as well as those who took a loan using houses as collateral.

After having reassessed the law, upon request from President Klaus Iohannis, Parliament has introduced a fresh provision under which the law can be applied only for credits not exceeding 250 thousand euros. The main amendment to the first draft was an exemption to the “First House programme, a project aimed at easing peoples access to mortgage loans.

This controversial law is expected to do away with the bankers inflexibility forcing them to come to terms with clients. The debtors representatives, however, dont expect the banks to be quick in complying with the law. According to an initiator of the project, Liberal MP Daniel Zamfir, the law hasnt been conceived against the banking system but aimed to strike a balance between banks and clients. He argues that those struggling with the loans arent only needy people but hard-working individuals with several jobs who are unable to pay their installments due to abusive loan clauses. The act also clearly defines the beneficiaries of the new law.

Daniel Zamfir: “Only natural persons who are consumers can benefit from the law, and not those who took credits to open a business. The law also provides for those whose properties have been foreclosed.

Those who have been indicted through a definitive sentence for offences related to the loan will not benefit from the new provisions. The new law has been endorsed by all Parliamentary parties, which underlined that most mortgage owners would benefit from its provisions.

Bankers, however, said the law is retroactive and unconstitutional and its enforcement violates the constitutional principle of non-retroactivity, which might lower Romanias ratings and raise funding costs. Central Banks estimates show the new law could cause 626 million euros in losses, as 97,500 mortgages that might benefit the law, have been sharply depreciated during the present crisis.