EVERY borrower who thinks that his/her rights in a loan agreement are negatively affected is entitled to resort to the District Court, which can decide if a specific term is unfair or it affects the validity of the loan agreement. It is up to the borrower to allege that specific terms of a loan agreement are unfair. When raising such an issue, the consumer has to request from the court to declare the terms unfair, non-binding and affecting the validity of the loan agreement to such an extent that they render it unenforceable and consequently void.
The Unfair Terms in Consumer Contracts Law introduces restrictive provisions for unfair terms in consumer contracts and specifies that the scope of the law extends to every term in a contract between a supplier and a consumer which has not been the object of negotiation. A term is deemed not to have been negotiated when it has been drafted in advance and the borrower could not shape or amend its contents. Even if a term was partially negotiated or negotiations took place for a specific term of the contract, this does not preclude the application of the law to the remaining part of a contract, provided that an overall assessment of the loan agreement leads to the conclusion that it constitutes a standard predetermined agreement.
A term is deemed to be unfair when despite the demands of good faith, it creates significant imbalance between the rights and obligations of the parties under the contract to the detriment of the consumer. According to the law, the assessment of the unfairness of a term takes place upon
taking into consideration the nature of the services or goods constituting the object of the contract, all the circumstances surrounding the signing of the contract and the remaining terms of the contract in issue or of any other related contract. The recent amendment to the Unfair Terms in Consumer Contracts Law added a number of new terms which may be deemed as unfair and expressly states that a term pursuant to which the interest payable is calculated on the basis of 360 days per year instead of 365 or 366 days per year in the event of a leap year, constitutes an unfair term.
In a recent decision, the Director of the Competition and Consumer Protection Service decided that a significant number of terms in a housing loan entered into between an English consumer and a bank in Cyprus violated the law for being unfair or ambiguous and non-comprehensible, distorting the balance of the contract to the detriment of the borrower. The bank filed a recourse against the said decision and the Administrative Court held that the conclusion of the Director as to the unfairness of a term may come from an administrative organ, but still, it does not constitute an enforceable administrative act coming from an administrative organ with competence to take decisions.
The Director’s decision lacked authoritative character and direct force. Furthermore, the Administrative Court indicates that the outcome of the Director’s examination constitutes his own assessment for the unfairness of a term, which allows him to resort to the District Court and pursue the issuance of an injunction. The issue of whether a term is unfair or not will be decided in the course of a civil action in the District Court. The Unfair Terms in Consumer Contracts Law regards only the protection of the consumer acting in his capacity as claimant in an action against
a bank or as a defendant in an action filed against him by a credit institution, or even upon the initiative of the Director acting as a
George Coucounis is a lawyer specialising in the Immovable Property Law, based in Larnaca, Tel: 24 818288, [email protected], www.coucounislaw.com