In April 1993 the Council of Europe issued Directive 93/13/ΕEEC on unfair terms in consumer contracts between consumers and persons or entities providing goods or services as part of their business activities (providers). For the purposes of the Directive, services include consumer loans entered into between banks and consumers.
Cyprus implemented the Directive into national law in 1996 by enacting the Unfair Terms in Consumer Contracts Law, which was gradually amended to take into account the increasing need to protect consumers’ rights. The Law integrates the Directive’s principles on establishing whether a term is unfair and the effect of such a finding on the rights and obligations of the contracting parties.
The Law itself provides an indicative list of types of terms that may be considered unfair, of which the following are of particular interest with regards to consumer loan contracts:
- Terms excluding or limiting legal rights of the consumer against the provider (i.e. a bank) in the event of non-performance of contractual obligations of the provider.
- Terms limiting the right of a consumer to offset amounts owed by the consumer to the provider by virtue of a contractual obligation with claims of the consumer against the provider for a breach of contract.
- Terms inferring the consumers’ acceptance of contractual terms, of which the consumer had no actual knowledge prior to entering the contract.
- Terms by which the provider has the right to unilaterally modify the contract without a valid justification.
- Terms by which the provider has the sole right to interpret a contract term.
- Terms by which the consumer is obligated to perform contractual obligations, despite non-performance by the provider.
- Terms by which a banking institution may demand the loan amount to be immediately paid in full without specific conditions in the contract, and/or conditions specified by any Law.
- Terms by which a disproportionate penalty is imposed on a consumer who is in default (a penalty clause).