Romania: Real estate lending – enhanced protection for consumers
The Government Emergency Ordinance No. 52/2016 transposes into Romanian law the provisions of EU Directive 2014/17. It applies to any loan granted in Romania for real estate purposes to consumers by lenders, both Romanian and foreign. This article examines the resulting changes and considers whether it will affect potential investors looking at portfolios of Romanian non-performing loans and the value of such portfolios.
The Government Emergency Ordinance No. 52/20161 (the Ordinance) came into force on 30 September 2016 to regulate the rights and obligations of the parties to loan agreements concluded between lenders and consumers (as borrowers) for the purpose of buying real estate properties or in relation to rights to immovables, as well as the establishment and supervision of credit intermediaries. The Ordinance transposes into Romanian law the provisions of EU Directive 2014/172 (the Directive) and is applicable only to loan agreements concluded after its entry into force. It applies to any loan granted in Romania for real estate purposes to consumers by lenders, both Romanian and foreign.
The Ordinance aims to reduce the impact, on consumers, of fluctuations in exchange rates, interest rates or any other unpredictable factors. The lender must provide the consumer with personalised information necessary for him to make an informed decision about taking out a loan. The information must:
a) not be misleading (by using technical/judicial/financial terms);
b) be in the form of the European Standardised Information Sheet; and
c) be provided within a set timeframe (at least 15 calendar days before the loan).
The Ordinance restricts the type of entity to whom receivables under such loan agreements can be assigned, and also prohibits certain practices, eg tying practices (although bundling practices are permitted) and others such as:3
making a customer agree to keep confidential the provisions and terms of the loan agreement;
the early acceleration of the loan agreement based on a cross-default provision;
any increase in, or addition of new, charges, costs and fees relating to the loan (with certain exceptions);
imposing a charge on the borrower for granting grace periods or for agreeing to a new repayment schedule (with or without exceeding the initial termination date); an
charging additional amounts (eg prepayment fees) or the repayment of a minimum number of instalments if the consumer prepays the loan.
Before enforcing the loan, a lender must offer alternatives to the borrower, for example extending the term of the loan, amending the interest rate and/or rescheduling or refinancing the loan.
Also in line with the Directive, the Ordinance provides that credit intermediaries must be registered with the Romanian National Authority for Consumer Protection (in Romanian, Autoritatea Națională pentru Protecția Consumatorilor) in its capacity as the supervision authority.
The Ordinance imposes several obligations on lenders which may prove difficult and/or costly to apply in practice. Non-compliance may constitute an administrative offence punishable with a warning or a fine up to RON 100,000 (approx. EUR 22,200) – note that recurrent sanctions may be applied to the lender. In addition, the sanctioning authority may also oblige the lender to amend the relevant loan agreement within 15 days or ensure the compliance of all similar loan agreements within 30 days. Failure to comply with such sanctions or repeating breaches by the lender within six months of the first breach also constitutes an administrative offence, punishable with a fine ranging between RON 80,000 (approx. EUR 17,800) and RON 100,000 (EUR 22,200).
The new rules applicable to collection procedures, which are more restrictive and pro-debtor oriented, are expected to have a negative impact on collector returns. As a consequence, it remains to be seen whether there will also be a decline in the interest of potential investors in buying the portfolios of Romanian non-performing loans or in the sales value of such portfolios. Further information This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch firstname.lastname@example.org, or tel +44 20 3088 3710.
1 Emergency Ordinance No.52 of 14 September 2016 regarding loan agreements entered into with consumers for the acquisition of real estate property and for amending and completing the Government Emergency Ordinance No.50/2010 regarding loan agreements concluded with consumers published in the Official Gazette of Romania no.727 of 20 September 2016.
2 Directive No.2014/17/EU of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives No.2008/48/EC and 2013/36/EU and Regulation (EU) No. 1093/2010 published in the Official Journal No.60L of 28 February 2014.
3 Tying practice means the offering or the selling of a loan agreement in a package with other distinct financial products or services where the loan agreement is not made available to the consumer separately. Bundling practice means the offering or the selling of a loan agreement in a package with other distinct financial products or services where the loan agreement is also made available to the consumer separately but not necessarily on the same terms or conditions as when offered bundled with the ancillary services. For example, the lender cannot impose on the consumer a certain insurer to conclude the insurance agreement with.
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch email@example.com, or tel +44 20 3088 3710.