PT – Responsible lending Package
Decree-law nr. 226/2012 of 18 October and Decree-law nr. 227/2012 of 25 October constitutes the legislative package that aims to combat situations of over-indebtedness and tackle the escalation of non-compliance consumer credit that have been experiencing in recent years given the difficult economic climate that has affected the country.
These measures create a protection scheme to consumers who are in a very difficult economic situation (lost near 35% household income or face unemployment situation).
On the other hand, an additional to this package and that also embodies the "responsible lending" are the recent changes on banking minimum services and the changes that introduced amendments to the PPR/E reimbursement (investment funds scheme which that carried penalties to consumers in its early withdrawal) and in the mortgage legal framework.
Noteworthy changes yet introduced the Code of Civil Procedure, in particular the determination the value of the property relation, denoting a clear intention to prevent properties are sold in process execution price far below its real value.
PT – Extends the mortgages loans legal framework to all related consumer credits which are secured by a mortgage or other property right
The scheme of Decree-law nr. 226/2012 of 18 October covers created situations of failure of loan agreements concluded in under the concession system housing loan for the acquisition, construction or performance of works of conservation and reclamation of permanent housing for households who are in very difficult economic situation which is defined by state law through a set of requirements cumulative, namely: existence of unemployed or reduction of the gross annual income of household less than 35% and only when the household does not have another house on their own.
The law also clarifies that the regime applies only to cases of wherein the default value property tax asset mortgaged does not exceed from EUR 90,000 to EUR 105,000 or EUR 120,000, depending on the location coefficient.
PT - New rules on client’s default
Decree-Law nr 227/2012 establishes a set of measures intending to prevent the default of the credit agreements by the banking clients and, in scenarios where default has already happened, to minimize its impact to the parties involved.
Of the series of measures implemented, we highlight the obligation for each credit institution to create and make available to its employees a Plan of Action for the Default Risk (PARI). This plan shall contain the procedures and measures that shall accompany the execution of the credit agreements (including mortgage loans, consumer loans and overdraft facilities with a term up to one month), which, on one hand, allow the early detection of the signs of default’s risk and support the clients that communicate they are having difficulties in complying with obligations arising from said agreements and that, on the other hand, promote the fast adoption of measures to prevent the mentioned default.
In addition, it is worth noting the creation of an Extrajudicial Procedure for Settling Default Situations (PERSI), under which the credit institutions shall evaluate the occasional nature and duration of the registered default, evaluate the financial capacity of the client and, when such is viable, present settlement proposals adequate to the such client’s financial situation, aims and needs.
These procedure is mandatory between the 60th (or earlier, namely if requested by the client) and the 91st (extendable through written agreement between the parties) day following the term of the relevant debt.
Finally, the Decree-law also establishes the creation of a support network to clients, with the purpose of preventing default and settling of the situations of credit agreements’ default. This network shall inform advice and support the clients who are in risk of default under obligations arising from the credit agreements celebrated with a credit institution or which have outstanding payments.
The network shall be composed by public or private companies, that fulfil the access conditions set in this diploma and that are recognized for such effect by the Consumer’s General Direction, after hearing the Bank of Portugal. It is also established that the using of such network shall be free of charges for the consumers.
Credit institutions are now required:
- To monitor the implementation of credit contracts;
- To reinforce information provision to consumers;
- It is prohibited to charge fees for renegotiation of contracts with consumers;
- In specific cases, where no agreement is reached between the consumer and the financial institution it is possible to appeal to the Credit Ombudsman
- Guarantor has the possibility to also use the PERSI recourse by itself and financial institution has the obligation to provide information to him for that purpose
This diploma enters into force on 1 January 2013.
PT –Banking minimum services regime
Decree-law nr 225/2012, of October 17 concerning banking minimum services regime is applicable to all bank clients although specially destinated to vulnerable consumers, consumers with low economic resources, old age and indebted consumers, with only one bank account, one bank and no associated credit card.
Those banking minimum services are: constitution, manutention and management of deposit bank accounts, debit card, access to ATM, home banking, deposit, payment services and direct debit as well as national banking transfers.
The banking minimum services regime was created in 2000 (Decree law nr 27-C/2010, march 10, modified by Law nr 19/2011, may 20). The number of consumers within this regime is presently 1.200 which does not reflect the current need to protect those vulnerable consumers.
With the recent changes and information campaigns Portuguese Government attends to double the number of beneficiaries of this regime.
The regime establishes a charge limit for those services of 1% of minimum salary (including commissions, costs and taxes). Therefore, annual charges are limit to €5.
PT - Early withdrawal of saving retirement plans without penalties for the purpose of mortgage loans payment
Law nr 57/2012, November 9 allows the early withdrawal of saving retirement plans (PPR-Planos Poupança Reforma) without penalties for the purpose of mortgage loans payment.
PT - Order and rules for determining the value of the real state on judicial execution proceedings
Law nr 60/2012, November 9 amends the Civil Procedure Code on rules of garnishment order and rules for determining the value of the real state on judicial execution proceedings.
The aim of this law is to establish limits to the ability or opportunity to house garnishment with regard of small credits by preventing households who would be forced to default on their mortgage loan.
In short the main changes occurred are the admissibility of a garnishment of real estate or commercial premises, when the seizure of other goods would presumably not allow the full satisfaction of the creditor, has become dependent on the following deadlines: (i) Twelve months, if the debt does not exceed half the value of the purview of the trial court and the property is the permanent housing; (ii) Eighteen months, if the debt exceeds half the value of the purview of the trial court and the property is the permanent housing (iii) Six months in other cases.
The base value of the property now corresponds to the higher of the following values: - (i) Book value tax, according to an evaluation carried out for less than six years; (ii) Market value. The value of the advertising for the sale of properties in the foreclosure process began to be equal to 85% of the base value of the property.
The changes introduced by Law n. º 60/2012 entered into force on 10 November and apply to all pending cases, except those in which the garnishment has already been implemented in accordance with the legal criteria then in force
PT - Safeguards for borrowers of mortgage lending
Laws nr. 59/2012 and nr 58/2012, both of November 9, create safeguards for borrowers of mortgage lending (modifying Decree-Law n. 349/98 of 11 November)
Law n. º 59/2012, of November 9 establishes a set of initiatives that apply to all credit contracts:
- enables the borrower to make the appointment the fulfillment of mortgage for which the credit institution shall not use the available funds in the account of the borrower for payment of other credits;
- Which determines the circumstances under which credit institutions may terminate the contract on grounds of non-compliance;
- Gives the possibility of borrowers in certain circumstances, resume compliance of mortgage loans during the enforcement proceedings;
- Prohibits the increased spread associated with the credit agreement upon a change of the place of work or unemployment of household members, as well as in case of loan renegotiation motivated by divorce, legal separation and property, dissolution of marriage fact or death of a spouse, provided that the rate of effort does not exceed a certain threshold.
Law n. º 58/2012, of November 9, establishes extraordinary and temporary measures to applying only to the poorest households which include a restructure debt plan in order to tackle debts that emerged from loans (grace period; partial extension of the amortization, spread reducing, additional lending).
(MCP, Dec 2012)