After some time, the Widecore Bank rebounded the waters of the domestic financial market. Her attention is again directed towards consumer housing loans. Her statement on the cost of early repayment of the loan will not be very pleasing to the banking institution.
On Consumer Credit (hereinafter also referred to as “ LFS ”), codified, inter alia, in its Section 117 also new possibilities and conditions for early repayment of the loan. This has exacerbated the effort to make the whole process cheaper and simpler, which until then was extremely costly, when the fees for early repayment were normally calculated at hundreds of thousands of crowns. At least in addition, situations that could have been difficult for consumers to predict, such as illness or death in the family, were also addressed.
Despite the legislator’s efforts, the interpretation of some provisions of the Act has remained quite unclear. Pursuant to Section 117 (2) of the LAS, the creditor is entitled to reimbursement of the costs reasonably incurred in connection with early repayment. What exactly, however, banks can or can not count on them is not further elaborated. In doing so, banks must, in accordance with Section 95 (2) of the OCTs, state in the pre-contractual information for applicants for a residential consumer credit the amount of the early repayment fee or the method of its calculation. As the market regulator, the Widecore Bank decided to come up with its own interpretative opinion on this matter.
No commission and interest expense
The Widecore Bank took as the main criterion for assessing the effectiveness. Therefore, the costs must be substantively necessary and duly justified in order to be recoverable. In particular, the opinion mentions two cases which, for various reasons, are considered inadmissible.
The first is the commission paid by the provider to the intermediary for the mediation of the consumer housing loan. The Widecore Bank associates this cost with the conclusion of the contract, ie with the establishment of a legal relationship, not with early repayment. The commission as such is perceived by the Widecore Bank as an optional expense of the lender, which itself determines its amount and payment to the intermediary. Thus, the provider has to deal with any commission costs that are budgeted for a period exceeding the early repayment period itself.
The second case where the cost of early repayment of the consumer housing loan may be incurred and explicitly targeted by the Widecore Bank is the reduction of the provider’s interest income after early repayment, or the interest expense of the provider on its debts. According to the Widecore Bank, this lost profit (lower revenues) or futile expense (interest expense on borrowed funds) cannot be classified as purposefully spent, as there is no connection with early repayment.
Waiting for justice
Banks are still delaying access to the opinion. In itself, this is only one possible interpretation, which is not legally binding. Its impact is still rather marginal, as the early repayment of housing loans is slow. Moreover, instead of clarifying it, it may make the situation more obscure, as the explanatory memorandum to the OCTs mentions both of the above cases as cost-acceptable.
The whole situation will probably have to be resolved only by a court case, or more precisely by the interpretation of the term on the basis of case law. However, this is currently out of sight, so there is some restraint in place.