|"The Wealth of Nations" Session A3 Country report: Greece
|by Melina Mouzouraki Legal Adviser of EKPIZO Consumers’ Association
G G R E E C E
TABLE of CONTENTS
1. Introduction – Level of indebtedness, main providers of credit for consumers, percentage of people in default
2. Access to credit in Greece
3. Protective rules on over-indebtedness
a. Overindebtedness as a problem of society
b. Rules prohibiting predatory lending
• Maximum interest rate
• Restriction of total amount of credit to be repaid
• Restriction of assignment of wages
c. Self-binding rules
4. Institutions that exist to help people in debt.
5. The expectations concerning the regulation from the EU.
With a long history of protective rules concerning credit for consumers, Greece (with a population of ca.11.000.000 people) is perhaps the last of the countries participating to the euro-zone to have abolished such rules and Greek consumers enjoy gradually from 1991 access to credit. It is only since 2003 that access to credit for consumers in unrestricted. The main providers of credit for consumers are banks, which are the only one allowed by law to give loans (together with a couple of companies which have taken a special license under the Act of the Central Bank of Greece of 2003). As in all countries, a large grey area of private companies exists, which sell loans under extortionate interest rates and operate under no license and no supervision by the Bank of Greece.
According to the Bank of Greece (www.bankofgreece.gr) , credit to consumers from banks during the last three years (2003-2005) has raised by a very high rate which is close to 30% per year. Nevertheless, the overall consumer debt-to-GDP level is lower than the average of the ratio of countries participating in the euro-zone (2005 : Greece 36,5%, Eurozone : 52,6%). This fact is the main argument of banks to promote further selling of credit. On the other side a very alarming fact is given by the Bank of Greece : 8,8% of consumer loans is in arrears (3 months and more) for the year 2005, a percentage which is much higher than the average in the eurozone. This fact alone shows that for a number of reasons and parameters, Greece does not implement efficient rules and policies for the prevention of problems related to indebtedness.
This report makes brief references on some positive rules and jurisprudence which may be useful to the discussions on the problems related to over-indebtedness, held either in national or in European level.
2. ACCESS TO CREDIT
The issue of denial of access to credit arises only for those who are registered in the negative data bank (“TIRESIAS s.a). Generally, till recently banks have struggled for market shares and granted credit to practically anybody who applied. Since 2003, a data bank collecting all the bank obligations of consumers, has been put in place and is consulted by banks before granting a credit. Due to Basle II and the on-going discussion on over-indebtedness this picture will most probably change significantly.
3. PROTECTIVE RULES ON OVER-INDEBTEDNESS
a) OVER-INDEBTEDNESS AS A PROBLEM OF SOCIETY
Over-indebtedness is a social problem, but it is understood as such only since a couple of years. The issue of “how much greek households owe to the banks” is a daily reference to the television news. Consumer representatives are asked almost every day to participate in TV programs and give information and advices. In EKPIZO Consumers Association, complaints connected to credit are the first (in quantity) in the list of complaints that the association has taken in the course of 2005. Parties are currently having discussions on how to tackle the problem.
b) RULES PROHIBITING PREDATORY LENDING
• MAXIMUM INTEREST RATE
Law 879/1979 defines the maximum interest rate that can lawfully be agreed in the framework of a credit contract. Under the provisions of the same law, a maximum default interest rate was also set, i.e. 2% above the contractual interest rate. Since 1990 the restriction of the maximum interest rate was regulated as binding only for non-banking transactions. Thus, since 1990 banks were excluded by the maximum interest rate. In practice, banks have adopted very high interest rates, especially before Greece joined the euro-zone, at a period where inflation was also high. At that time interest rates of 25% were common.
Nevertheless, jurisprudence has clearly stated (Cour de Cassation Decision 1219/2001), that, taking into account the economic and social aim of the right to free determination of the interest rate in banking transactions, the restriction of the maximum interest rate should apply also in bank transactions. According to this jurisprudence, the aim of letting the banking interest rates free was to force down the cost of money to the benefit of the consumers. If maximum interest rates applied to banking transactions, banking interest rates would be as high as the maximum provided by the law. This is the reason why the legislator adopted the provision only for non-banking transactions. According to the same jurisprudence, non-banking interest rates have a general socio-economic importance and do apply to banking transactions, in the case that banks offer high interest rates.
The maximum interest rate, which follows the changes of the interest rates of the European Central Bank, is currently set at 8,5% (default interest rate at 10,5%).
Banks have chosen to ignore the above-mentioned jurisprudence and today offer credit to consumers at very high interest rates (e.g. nominal interest rates of credit cards are at about 15%).
In the years till 1998, banks were free to impose anatocism. Hundreds of small and medium enterprises, and privates were led to economic catastrophe through debts which were anatocised even on a daily basis. Since 1998, law provides that anatocism is legal only if it is has been agreed in the credit contract and if such anatocism (compound interest) is applied every six months. This provision is useful, because it sets a restriction to the former status, where bank contracts included a term permitting the bank to impose compound interest at its free will.
• MAXIMUM TOTAL DEBT
Article 39 of Law 3359/2004 provides that the total debt, when it is due and payable, arising from any kind of credit (private or professional), cannot exceed the triple of the initial capital of such credit. From that sum (the triple) one deducts the sums paid by the borrower to the bank. This is the maximum that a bank can demand concerning a credit that is due and payable.
This provision is very important, especially in consumer credit, which is offered under very high interest rates, but also in credit contracts agreed before the inclusion of Greece in the euro-zone, a period where also very high interest rates were imposed to borrowers.
• RESTRICTION OF ASSIGNMENT OF WAGES
According to article 982 of the Greek Code of Civil Procedure, wages, pensions and insurance benefits cannot be assigned.
d) SELF-BINDING RULES
Unlike to other European countries, Greece does not have a tradition of self-binding rules. There is a bank Ombudsman, but this institution does not fulfil the criteria of the Recommendation 98/257/EC regarding alternative dispute resolution schemes. The Bank Ombudsman is a person selected and financed by banks. Third parties, or the consumers, do not participate at all in the procedures related to the Bank Ombudsman. The Bank Ombudsman applies a Code of Deontology adopted by banks in Greece, which, moreover, include no rules concerning responsible credit and its principles related to transparency, adequate advice etc.
4. INSTITUTIONS THAT EXIST TO HELP PEOPLE IN DEBT.
Unfortunately Greece does not have institutions to help people in debt. EKPIZO Consumers’ Association is the only one that offers legal advice to its members in all matters related to credit, including over-indebtedness.
5. EXPECTATIONS OF GREEK CONSUMERS CONCERNING THE REGULATION FROM THE EU.
In general, Greeks are favorable to Europe as it is shown in Eurobarometer. In relation to the forthcoming EU Directive on Credit for Consumers, consumer Representatives of the National Consumer Council have expressed their concerns and disagreement in some of its provisions, including the dropping out of the principle of minimum harmonization. This is so because the Greek legislator has in many cases adopted provisions that are friendlier to consumer than the ones provided in the respective European directives.
Created: 19/04/06. Last changed: 19/04/06.
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