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Financial ombudsman writes off person’s loans

Financial ombudsman Pavlos Ioannou

The financial ombudsman has granted debt immunity to a mentally handicapped person, asking the entity to which the money is owed to comply.

In a final decision dated May 26, Pavlos Ioannou called on Kedipes – the successor entity to the state-owned cooperative bank – to write off the person’s debts “definitively and irrevocably.”

The person in question – diagnosed as mentally handicapped as far back as 1979 – had years ago applied for and obtained two loans from the ex-Strovolos cooperative bank.

Throughout all this time, the person never made a single loan repayment.

One of the loans was a mortgage. As such, in his decision the financial ombudsman also ordered Kedipes to immediately terminate any foreclosure proceedings on the property in question.

Kedipes is to waive any and all claims against the mentally handicapped person.

In his findings, the ombudsman said the cooperative bank had failed to carry out due diligence on the person whom it was lending to. In particular, the bank appears to have violated a clause in Chapter 149 of the Civil Code, according to which an individual “not of sound mind” cannot enter into a contract.

According to the ombudsman, the bank’s decision to grant the loans, but also its failure thereafter to take any action to deal with the accumulating debt arrears, raises “many questions.”

“Therefore, the responsibilities of the financial institution – ethical, civil and other – are huge,” Ioannou noted in remarks accompanying his decision.

“They are responsibilities both vis a vis the complainant [the mentally handicapped individual], but also vis a vis the taxpayer, due to the consequent damages caused by the loans and their inevitable write-off.”

The ombudsman did not accept the argument that Kedipes – which is now responsible for the loans – was unaware of the debtor’s situation.

It appears the mentally handicapped person had been manipulated by others into seeking the loans, and it was those other persons who made use of the money.

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