Consumers associations are angry about a draft order that would prevent borrowers to be properly compensated if an error appeared in the calculation of the interest rate of their mortgage. The government could thus cap at 30% of the total cost of the loan the compensation due to the borrowers , whereas currently, they can obtain that the whole interests of the mortgage loan are canceled.
Error calculating rates: one loan in two
The offer of mortgage loan must obligatorily, since a prescription of 2016 , display the annual percentage rate of charge, the APR. This includes not only interest, but also taxes, fees, remunerations and other commissions, as well as insurance, known to the banker at the time of the loan offer and imposed on the borrower. The calculation of this rate is obscure, but it is the only criterion that allows the borrower to compare two offers and thus to play the competition, including from European banks. This overall rate also protects borrowers against the application of usurious rates by banks and other credit institutions . These must stick to the maximum legal wear rate .
However, it appears that the calculation errors made by banking and credit institutions are relatively frequent. One contract in two would be affected by these errors in favor of the bank , including:
- lack of integration of mandatory fees,
- calculation of interest on the Lombard year (shorter period, 12 months of 30 days, 360 days), contrary to the Consumer Code.
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As a result, no fewer than 15,000 people decided to challenge their mortgage interest rate before the judge for compensation. The magistrate may decide to partially or totally cancel the interest on the loan and even declare the zero rates. This is the legal rate that must be applied, and banks must pay their customers the difference with the APR. This difference can amount, in some cases, to several tens of thousands of euros .
Sanitize an Bertie Woosterral “business”
The race to the record seems to become commonplace in some law firms because the stake is juicy. Lawyers promise their clients, private borrowers or investors, to recover the “jackpot”. The judges being tough on the banks, they convinced the government to make an order to cap the amounts to be compensated and thus put an end to this Bertie Woosterral “business”. But consumer associations do not see things the same way. They consider that the order would break a tool for protecting borrowers even though the regulatory panel is strong enough to deal with crooks. It should be noted, moreover, that the number of sanctions imposed on banks has significantly decreased in recent months , from 59% in 2018 to less than 50% in 2019.
Retroactive capping, double punishment
The draft order also provides for the retroactivity of the cap, in contradiction with Article 2 of the Civil Code (non-retroactivity of the law) and the judgment of “Société du journal L’Aurore” (Conseil d’Etat – 25 June 1948 – non-retroactivity of regulatory acts). The retroactive nature of the order would have the effect, for the associations, of validating the bad practices of the banks and of removing the injured borrowers’ right to compensation in the current cases .