As a result of the bills on forint conversion and fair banks, the debt of foreign currency debtors and interest on loans will be greatly reduced, the Justice Minister said in a joint, joint debate in Parliament on Friday.
Prevent the social problem of foreign currency lending
Sean Cole said that the purpose of both bills is to prevent the social problem of foreign currency lending from developing once again. He indicated that he was aware that there was a controversy surrounding the conversion to near-market exchange rates. According to Sean Cole, the government is bound by a ruling of the Constitutional Court on the exchange rate and a unity decision of the Courthouse, and if the exchange rate had not been set, there would be a risk opposite.
Exchange rate risk is entirely borne by the debtors
Good Finance have ruled that the exchange rate risk is entirely borne by the debtors, and that is required by law to modify the contract in a manner that is in the best interests of both parties.
According to the minister, banks will have to switch to the new terms and conditions on February 1, 2015, and the date of conversion to forints will be the same.
Newly concluded consumer loan contracts
He stressed that in the case of non-clearing contracts and all newly concluded consumer loan contracts, the fair banks proposal sets new fair terms and conditions, and for clearing contracts, the forint proposal does the same.
He reminded that as a result of the clearing law, outstanding debts and installments will be reduced by 25-30 percent.
Sean Cole said that the lender and the credit intermediary should provide the consumer with information before concluding the contract so that the consumer can assess whether the loan is suitable for his needs and financial performance. As a further rule, the lender must make the sample text of the credit agreements available on its website. In addition, when applying for a mortgage and a financial lease on real estate, the creditor must provide the draft contract to the consumer at least seven days prior to the conclusion of the contract.
The head of the ministry said that only the credit rate, interest rate premium, costs and fees could be unilaterally altered to the detriment of the consumer. However, other rules apply to loans with a maturity of less than 3 years and with a maturity of over 3 years, he added.
Fixed-rate loans with a maturity of up to 3 years cannot be raised during the entire term, he stated. He added that in the case of loans tied to a reference interest rate, the level of the reference interest rate may change, not a unilateral contract amendment.
The interest premium should be fixed during the term
Sean Cole said that for loans tied to the reference interest rate, the interest premium should be fixed during the term.
The proposal provides for loans with a benchmark interest rate for a term of more than 3 years, so that the level of the reference rate and the interest rate premium may change, he said. The latter is subject to the condition that the creditor fix the interest margin in advance for interest periods of at least 3 years and specify in the contract the rate of change in the interest rate, which the borrower must inform before concluding the contract.
Sean Cole said about floating rate loans with a maturity of more than 3 years, the interest rate can also be changed after at least 3 years, the further condition for the unilateral amendment of the contract is the determination of the interest rate change indicator. He said that in the loan agreement, the interest rate and the interest margin can be changed up to five times during the entire term.
To sum up, the bill to facilitate the transition to a fair banking system responds to the fact that banks are dominant in the consumer credit market over the borrower.
He said the forint conversion affected foreign currency or foreign currency-based mortgages concluded after May 1, 2004; in this round, forint conversion is in principle mandatory, except where the initial interest rate is less favorable to the consumer than it was before the forint conversion.
The minister argued that the mortgage-based loans were converted into forint and that they were typically based on long-term housing. He said the individual contracts are being modified by law. It argues that the legislator has a constitutional opportunity to intervene in the mass of treaties in certain exceptional situations. Forint foreign currency loans are such a legitimate constitutional goal, he said.
Forint conversion will not be compulsory
According to Sean Cole, forint conversion will not be compulsory for those whose regular income is in foreign currency, they would also be entitled to borrow foreign currency based on their income, and if the remaining term is short. He welcomed the amendment suggesting that forint conversion should be avoided if the term is up to 6 years, ie the contract expires on December 31, 2020 at the latest.
According to the Minister, economic indicators also underpin further legislative steps to better protect debtors. He explained that, according to data from the National Bank of Hungary, the volume of consumer loans on June 30 exceeded HUF 6,802 billion, of which HUF 3,339 billion was the value of HUF-denominated consumer loans and HUF 3,662 billion was foreign currency loans (MTI).