Mortgage Loan and the Consumer Credit Act.

In the entry What is a consumer loan and why it is worth knowing, I mentioned that the Consumer Credit Act applies to a certain extent to credit and loan agreements if they are secured by a mortgage. Many people are interested in mortgage issues, which is why in today’s entry I will present the provisions of the abovementioned laws that apply to such loans. The package of these provisions is not very extensive because it includes 6 articles of the Consumer Credit Act: art. 22, art. 23, art. 29, art. 35, art. 35a and art. 46. Nevertheless, these are important regulations and it is worth being aware of what is behind them if you take out a mortgage.

Information obligations towards the borrower.

Information obligations towards the borrower.

In the first place, these are information obligations on which the Consumer Credit Act places particular emphasis. A creditor or a credit intermediary before concluding a loan agreement secured by a mortgage is required to provide the borrower with a series of credit data. Article 22 of the Act defines which customer should receive before concluding such an agreement on a durable medium (what is a durable medium you will learn from the entry “Consumer rights before concluding a consumer credit agreement” ). The scope of information that should be passed on to the consumer is quite wide and includes, among others:

  • the duration of the contract;

  • the interest rate on the loan, the rules for changing it, with the index or reference rate being given,

  • the total amount of the loan, in the case of loans indexed in a currency other than the Polish currency, the loan amount in that currency calculated as at the date of providing the information;

  • the manner and timing of payment of the loan, and in case of loans indexed in a currency other than the currency of Poland informed on what basis the following calculation of the amount of credit;

  • information that the change in the exchange rate and the interest rate will affect the total amount of the loan and the amount of principal and interest installments;

  • information on the terms of conversion of the total loan amount into a different currency;

  • information on the rules for determining the amount of the currency spread and the manner of informing the consumer by the bank of its amount during the term of the contract;

  • information on the impact of the currency spread on the loan amount and the amount of principal and interest installments ;

  • information about the required own contribution ;

  • information on costs which the consumer is obliged to incur in connection with the credit agreement, in particular interest, fees, commissions, margins and costs of additional services, if known to the lender, with the costs borne by the consumer once and periodically, and the costs these are subject to change;

  • information about the insurance contract obligation if it is required by the bank;

  • information about the consumer’s right to repay the loan before the deadline, if the lender or intermediary provides for such a right to the consumer;

  • information about costs that the consumer will incur when repaying the loan before the due date.

These data should be provided to the consumer on the information form, the specimen of which is set out in Annex 3 to the Act on consumer credit. The unified formula form makes it easier to compare offers of loans from different banks.

Content of the mortgage agreement.

Content of the mortgage agreement.

The subsequent provisions of the Consumer Credit Act that apply to a mortgage loan refer to the content of the loan agreement. Such an agreement should be concluded in writing, unless separate regulations provide otherwise. The creditor or credit intermediary is obliged to hand it over to the consumer immediately after its conclusion. The contract should be formulated in an unambiguous and understandable way. The content of the contract should specify the data referred to in art. 69 par. 2 of the Act of 29 August 1997 – Banking Law and art. 35 of the Act on consumer credit. They will be:

  • the parties to the contract,

  • amount and currency of the loan,

  • the purpose for which the loan was granted,

  • the rules and date of loan repayment,

  • in the case of a credit agreement denominated in or indexed to a currency other than the Polish currency, detailed rules for determining methods and dates for determining the exchange rate, on the basis of which, in particular, the amount of the loan, its tranches and principal and interest installments and the principles of conversion into the payout currency are calculated repayment of the loan,

  • the interest rate of the loan and the terms of its change,

  • the method of securing loan repayment,

  • the scope of the bank’s rights related to controlling the use and repayment of the loan,

  • the dates and manner of making cash available to the borrower,

  • the amount of commission, if the contract provides it,

  • the conditions for making changes and terminating the contract, and:

  • determination of fees and other costs related to granting the loan, including the fee for processing the loan application, preparation and as a condition of the credit agreement and the terms of their change,

  • the total cost of the loan specified on the date of the contract,

  • the total amount to be paid by the consumer specified on the date of the contract,

  • the principles and costs of establishing, changing or losing collateral and insurance, including loan repayment insurance costs,

  • the consumer’s right to repay the loan before the deadline,

  • the date, manner and consequences of the consumer’s withdrawal from the contract if such a right is granted to the consumer,

  • consequences of failure to meet the terms of the contract, including information about the interest rate on overdue debt, the terms of its change and possible fees for arrears in repayment of the loan,

  • the manner and conditions for determining the interest rate on the basis of which the principal and interest installments are calculated – in the case of loans with a floating interest rate.

In addition, in mortgage contracts indexed in a currency other than the Polish currency, the contract should additionally contain information about:

  • amount of principal and interest installment in a currency other than the Polish currency, and

  • principles and terms of determining the exchange rate for currency conversion Polish sums made available and the amount of principal and interest.

All this information and credit data should be recorded directly in the content of the loan agreement, not in the general terms of the agreements or regulations used by the bank.

Anti-spread rules.

Anti-spread rules.

The loan agreement secured by a mortgage also applies the regulations introduced by the so-called the anti-spreading law contained in art. 35 a of the Consumer Credit Act. According to them, in the case of a credit agreement denominated or indexed to a currency other than the Polish currency, the consumer may make repayment of principal and interest installments directly in that currency. The consumer’s exercise of this right may not involve additional costs. It can not be also subject to additional restrictions by the lender, in particular, it can not oblige the borrower to purchase a currency to repay loan installments from a specific entity. These provisions apply to those loan agreements in which there is a currency spread, i.e. the difference between the buying rate (used when paying out the loan) and the sale rate (used for loan repayment) of a given currency pair.

Free credit sanction.

Free credit sanction.

The last solution, provided for in the Act on consumer credit, which applies to mortgage loans is the so-called sanction of free credit. If the creditor has breached the contractual requirements set out in art. 35 of the Act, the borrower is entitled to a free credit sanction. After submitting a written statement to the lender, he may return the loan without interest and other credit costs due to the creditor for the period of 4 years preceding the day of making the statement in the manner specified in the contract. However, the Borrower-consumer bears the costs of establishing a loan security, in the case of a mortgage loan they will be the costs of establishing a mortgage. This entitlement expires after one year from the date of contract performance, which in principle means the repayment of the loan.

The scope of application of the provisions of the Act to a mortgage loan.

The scope of application of the provisions of the Act to a mortgage loan.

The Consumer Credit Act does not impose restrictions on the purpose of the loan, the repayment of which was secured by a mortgage. Therefore, the discussed regulations should be applied both to loan agreements that have been granted for the purchase of real estate, as well as those intended for other purposes if they are secured by a mortgage.

Consumer credit is a loan in the amount of not more than 255 zł 550 or its equivalent in another currency. The question then arises whether mortgage loans granted in a larger amount are covered by the provisions of the Consumer Credit Act? The content of the Act does not directly result in such a request. However, in the explanatory memorandum of the Act, one can find an interpretation that a loan secured by a mortgage should be treated as a separate category under the Consumer Credit Act and the provisions of the Act that apply to this separate category apply irrespective of the amount of such loans granted to consumers, i.e. both below PLN 255 550 and exceeding this amount.

Personally, this view does not convince me, because the content of the Act can not be clearly deduced. I am inclined to interpret that since the Consumer Credit Act applies to contracts up to PLN 255.550, this threshold should also apply to the mortgage contract. However, in practice, according to the interpretation resulting from the justification of the Act and the recommendation of the Polish Bank Association, banks should apply the provisions that I presented regardless of the amount of the mortgage loan. Therefore, if your loan exceeds this amount, it does not relieve the bank from fulfilling the obligations imposed on it by the act on consumer credit. This applies to loans contracted from December 18, 2011, the date of entry into force of the Consumer Credit Act.