The Law on Consumer Loans Relating to Residential Property of 2017 (Law 41(I)/2017) (“Consumer Loans Relating to Residential Property Law”) in Cyprus transposes Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential property. The Directive is a minimum harmonization Directive.
The Consumer Loans Relating to Residential Property Law governs credit agreements (loans) concluded with consumers which are secured by a mortgage or other similar collateral and which relate to residential property. Article 4(1) of the Law states that such loans fall into two main categories. The first category are loans secured either by mortgage or a similar collateral which are intended for residential purposes or secured under a right relating to residential property intended for the consumer. The second category relates to loans the purpose of which is to acquire or maintain property rights in land or in existing or buildings under construction, provided that the person to whom the credit is given acts as a consumer.
The Law imposes specific obligations to creditors (such as banks) or credit intermediaries which deal with consumers. More specifically, under Article 7(a) of the Law, the creditor or the credit intermediary must act honestly and in good faith, transparently and professionally and should take into account the interests of consumers at the time of implementing the credit agreements as well as at the time of executing such agreements. It is very important to note that the creditor must avoid the promotion of salary policies which may involve a conflict of interest between the salaries paid to employees and the credit checks of consumers. For example, the creditor is prohibited from giving out commissions to employees based on the number of credit applications accepted. The same applies to credit intermediaries unless the credit intermediaries inform the consumer of the fact that they are receiving commission and the consumer accepts this in writing.
A rather odd provision in the Law relates to mortgages which are given out to a person who is married and acts as a consumer. In such cases the written consent of his/her spouse is required before the mortgage can become legally binding.