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House strikes down debtors’ rights bill

foreclosure

After a fiery debate in the House of Representatives on Thursday, showcasing vastly divergent ideas about the relationship between debtors and banks, the plenum voted down two bills which the government had warned could threaten the financial system as well as the country’s standing in international money markets.

The first defeated bill was Akel’s, which would have afforded borrowers the right to obtain a court order setting aside ongoing foreclosure proceedings against their property, on the grounds of unfair contract clauses and overcharging by banks.

The vote came to 27-27 and – with 54 MPs in attendance – it failed to pass.

Also defeated was the other bill – tabled by Edek – on selling a property at the estimated price on the date of signing a loan agreement.

Both the government and banking authorities had been vehemently opposed to these two legislative proposals.

In addition, MPs decided to postpone voting on a government bill providing for the creation of special-jurisdiction courts to fast-track foreclosure disputes, concerning mortgaged primary residences of a value up to €350,000.

The Akel bill in particular had been regarded as particularly problematic by banking and financial authorities. It had been co-sponsored by Elam, Edek, the Greens, three Diko MPs and Dipa. Combined, this would have garnered as many as 33 votes – enough to pass.

But after Dipa’s four MPs did an about-face, and with Akel’s Irini Charalambidou away abroad, the defeat of the bill became a foregone conclusion.

Dipa’s change of stance apparently solidified following a meeting of the party leadership with President Nikos Christodoulides earlier in the week. Dipa is part of the pro-government coalition.

During the week, Central Bank officials warned that the Akel-led bill would potentially affect all repossession proceedings – and in the process damage the country’s sovereign credit rating as well as the stability of the financial system.

At the moment, the Central Bank said, there are approximately €2.2 billion of NPLs in the banking system, backstopped by just €1.1 billion. Should there be any significant delay in recovering the amount owed on a mortgaged property, this backstop would need to go up to 100 per cent.

Any such change would likewise impact performing loans, and in turn adversely affect the cost of lending as well as the amount available for lending.

Seeing the writing on the wall about their bill, Akel boss Stefanos Stefanou censured the ‘fearmongering’ that had gone on during the previous days with claims that delays in foreclosures would send the financial system into a tailspin.

“This year banks stand to make €600 million in profits, taking advantage of rising interest rates,” he said.

“What will they do with all this money?”

For his part, Diko MP Zacharias Koulias – among those voting for the Akel bill – asked rhetorically how a three-month suspension would have brought about a downgrading of Cyprus’ credit rating.

Disy had an entirely different take, reiterating their position about the need to protect the financial system and thus oppose “dangerous legislation” that could make the stock of non-performing loans spiral.

Disy MP Onoufrios Koulla dismissed as a “myth” Akel’s contention that distressed borrowers would have no effective legal recourse left.

“As we speak, each day cases [disputes over repossessions] are being heard in court. What we did not want now, was an almost automatic suspension on foreclosures for anyone going to court.”

In a statement in the evening, the government voiced relief at the outcome of the vote in parliament.

“Today, with the defeat of the bill that would have led to a mass suspension of foreclosures, a bulwark of responsibility was raised up against populism and the bad practices of the past,” government spokesman Constantinos Letymbiotis posted on Twitter.

Thursday’s was the last session of the House plenum before the summer break.

 

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