President challenges foreclosure amendment citing risks to financial stability — borrowers association rejects claims of unconstitutionality

Serious constitutional and institutional concerns have been raised over a new foreclosure law, following a referral by president Nikos Christodoulides to the Supreme Court, according to the Cyprus News Agency (CNA).

Citing a government source, the agency reported that the legislation in question concerns the Transfer and Mortgage Law amendment of 2026 on abusive clauses, recently passed by parliament.

According to the government source, the move constitutes a formal constitutional review rather than a political dispute, aimed at safeguarding the legal order.

“This is an institutional review of constitutionality and not a political confrontation,” the source said.

“The referral is a tool to ensure the proper functioning of the legal order,” the source added.

The source explained that the president acted within his constitutional powers by exercising the right to refer legislation to the Supreme Court.

It further stated that the law has direct implications for fiscal policy and economic planning, which fall under the remit of the executive branch.

“There is an issue of intervention by the legislative power into the core of executive competences,” the source said.

The government also warned that the legislation could weaken the foreclosure framework, posing risks to the functioning of the financial system.

According to the source, it may encourage abusive legal appeals, delays in foreclosure procedures and strategic defaults.

The law is also expected to lead to an increase in non-performing loans, a deterioration in payment culture and lengthy court delays.

The source added that the changes could negatively affect economic activity, as weaker collateral enforcement may result in higher interest rates on new loans and restricted credit expansion.

“Therefore economic activity, growth and financial stability are negatively affected,” the source said.

“It also directly affects the ability of [state-owned asset management company] Kedipes to recover debts and this complicates the repayment of state aid and affects public revenues,” the source explained.

Moreover, the source stressed that the previous framework did not deprive borrowers of access to justice, as full judicial protection was already available.

“The existing framework, before the adoption of this law, did not deprive anyone of the right to access justice,” the source said.

Borrowers could file legal claims, challenge the level of debt and invoke abusive clauses or irregularities under the existing system.

The key difference, the source explained, was that foreclosure suspension was not automatic, but subject to court approval.

“The borrower could request an interim injunction and the suspension of foreclosure was not automatic but decided by the court on a case-by-case basis,” the source said.

“This means that there was substantive judicial review,” the source added.

“The protection existed, but it was targeted and subject to judicial control, not horizontal,” the source said.

The government source also stated that non-automatic suspension is critical for system stability, as it prevents incentives for abusive litigation.

The source also mentioned that rating agencies have repeatedly linked reductions in non-performing loans and an effective foreclosure framework to maintaining investment-grade status.

In addition, the International Monetary Fund (IMF) recently warned that such interventions may undermine repayment incentives, increase credit risk and restrict access to financing.

“The government fully respects parliament and its proposals, but has a responsibility to ensure constitutionality and financial stability,” the source said.

“The referral does not aim to reject policy proposals, but to ensure a balance between social protection and system stability,” the source added.

The source further stressed that the government must ensure that any legislative intervention is constitutionally sound, aligned with European rules and does not undermine financial stability or public finances.

Turning to the framework introduced in 2018, the source said it never removed the right of access to justice or legal recourse.

“The borrower could file a lawsuit, challenge the amount of the debt and invoke abusive terms or illegality,” the source said.

Consequently, the right to judicial protection was effectively safeguarded, with courts able to assess each case on its merits.

However, a different view was expressed by the Cyprus Borrowers Association (Syprodat), which rejected claims of unconstitutionality.

Jenny Papacharalambous, director of the association, told the agency that no issue of constitutionality arises from the legislation on abusive clauses.

“The law gives borrowers access to justice regarding the level of their debts and abusive clauses,” she said.

Papacharalambous expressed hope that the Supreme Court ruling would be positive for the legislation.

“We also hope the same for the proposal on interest rate liberalisation as the benefit for borrowers from these decisions will be significant,” she said.

She also explained that the related proposal aims to prevent banks from imposing additional interest once a loan amount reaches twice the original debt, including accrued interest.

“The main reason for the referral is the provision on retroactivity, but the ministry’s representative had agreed provided that it would apply to new loans,” she said.

The case now awaits a ruling from the Supreme Court, which will determine the constitutionality and future implementation of the law.