The biggest legislative news of 2016 is by far the entrance into force of the Law regarding datio in solutum. Intended as a social policy mean, the sole aim of the bill was to create a legal mechanism applicable to consumers unable to reimburse their mortgaged loans.
The noble objective of the bill consisted in the implementation of a simple procedure, to be accessed by the average citizen, with the purpose of balancing the power scale, which was tilting in favour of the banks, thus affecting the indebted consumer. The bill passed at a rather inappropriate moment, considering the already tense relationship between the consumers and the banks, due to the many litigations grounded on the provisions of Law no. 193/2000 regarding the abusive clauses in consumer contracts. The promotors of the datio in solutum law claimed that the bill was a new mean of protecting the indebted people, that it would open the way for negotiations and that the banks would be forced to implement more prudential lending conditions.
On the other hand, the banks fought tooth and nail to prevent the pass of such a bill. Apocalyptic effects were envisaged, such as increasing the advance payment for the mortgaged loans, the Euro exchange rate instability, a decrease of the foreign investments in the Romanian markets.
Despite the many controversies and hostility from both of the opposite sides, after suffering many changes, the bill was passed by the Parliament, with the vote of the majority of its representatives, irrespective of their political convictions.
Without going into details and addressing already discussed topics, datio in solutum provides in theory a rather simple mechanism, initiated by the consumer, meant to discharge him of the owed debt, by transferring the property over the mortgaged immovable assets to the bank.
The conditions to be met in order for the consumer to benefit from such a mechanism are minimal and the bank’s will, which can either unconditionally accept the transfer or attack the relevant notification in court becomes irrelevant. .
The legal form chosen by the legislator is rather unconventional given that the Civil Code already provides the possibility for the debtor to give a good in payment, but only with the creditor’s express consent. The argument behind this provision resides in the fact that the creditor cannot be forced to accept a consideration, other than the one he has envisaged when concluding the agreement, especially in consideration of banks’ activity objects.
Excluding such an essential element from the law’s provisions is abusive, but it may be considered by some as justified given that the banks would have never willingly accepted such a proposal from the consumer. Therefore, it seems that the will of the creditor has been superseded by the will of the legislator. On a side note, the law stipulates the possibility of concluding an agreement between the contractual parties, with the purpose of avoiding such a procedure. Nonetheless, the several months that passed have proved that a settlement is not the consumers’ intention, but rather letting go of a now easily dispensable loan.
Another aspect that goes beyond the scope of the law is that the phenomenon reached the point where the consumers have given in payment plots of land and buildings that were not destined for living purposes. Again, we can assess the legislator’s superficiality when choosing the wording, that states that the destination as a home must exist only at the moment the credit is contracted, in irrespective whether the purpose is achieved or not.
Since the very beginning, the wording, as well as the lack of interest proven by the legislator, have raised many question marks and given birth to endless controversies.
Within the content of the following sections, we will attempt to emphasize the most noticeable effects of the law, as they have been crystallized as a result of the legislator’s intervention, by the Constitutional Court’s decision, by the doctrine, or simply as a consequence of the banks defensive attitude.
After more than 6 months since its entrance into force, we can now objectively analyse some of its effects. The impact is yet to be assessed, considering the fact that consumers tend not to give up on their homes, no matter the desperation degree.
Since the very beginning, the promoters expected over 800,000 borrowers to benefit from its entrance into force. The expectations were high and it was believed that the banks would be flooded with thousands of giving in payment notifications from the debtors. The recent data provided by the National Bank of Romania states that, at this moment, approximately 4,000 notifications were registered, a small number compared to the initial predictions.
However, this aspect would be irrelevant if we were to know for sure that bill reaches the intended target, respectively to help those in need.
According to recent studies, the noble scope has been misapplied and the procedure has been exploited by clients having a good payment behaviour and not by financially burdened consumers, as originally predicted. Therefore, many of the banks’ clients reached the conclusions that the payment of the loan was no longer profitable, considering the depreciation of the guarantees during the economic crisis. Furthermore, 10% of the notification originate from debtors that own more than one immovable asset or chose to give in payment a single asset, the consumers have chosen to terminate multiple mortgage loans , the record been held in case of a number of eight contracts.
It can be clearly stated that the bill has been written down by using a far too simplistic terminology, without making a clear distinction between those who are unable to repay their loan and those who simply don’t want to anymore, giving way to subjective interpretation.
In June 2016, Emergency Government Ordinance no. 32/2016, modifying the Fiscal Code, entered into force.
According to these new legal provisions, natural persons, regardless of their capacity, will not be compelled to pay the tax for the transfer of property in case of giving in payment of an immovable asset.
In addition, the persons against whom the enforcement procedure was already initiated and who wish to make use of the legal provisions will not have to pay the tax on the transfer of assets. Furthermore, if they have already paid it, as of the entrance into force of the law, they will be entitled to its restitution. On the other hand, those who have paid the tax before the enforcement of the present bill will not be able to recover it.
When they have found themselves in the post-enactment situation, banks joined forces and used the only available mean of opposition legally stipulated, more specifically the appeal against the giving in payment notice, in order to create the procedural setting for challenging the constitutionality of the bill.
Recent studies confirm that only 7% out of 4,000 notifications have had as a result the actual transfer of property from the consumer to the bank, the rest being blocked by appeals grounded mainly on the fact that the bill is not in accordance with the Romanian Constitution. The majority of banks claimed that the law infringes the separation of power principle, the non-retroactivity principle, the right to ownership, freedom of commerce and the right to legal certainty.
Given that the bill flagrantly infringes the principles instituted by the Romanian Constitution and the Civil Code, the whole country impatiently awaited for the Romanian Constitutional Court’s decision. On the 25th of October, a ruling was finally given; nonetheless, until the effective decision the Court is issued, even more controversies have been born. The only certainty is that the bill was not declared unconstitutional in its entirety.
The court felt the enormous pressure of handling such an important case and decided to rule in favour of two exceptions and to reject another two, one as inadmissible, and one as unsubstantiated.
More precisely, the Court stated that the phrase “and from the depreciation of the immovable assets” provided by article 11 is unconstitutional. After a close look, it does not seem that eliminating this phrase will fundamentally affect the bill, but, for confirmation purposes, we will have to deeply review to Court’s grounds after its issuance.
In addition, an exception was partially granted, in the sense that the enforcement of the law is constitutional only if the common courts determine that the conditions for the unpredictability theory are met. It is important to emphasize that these conditions are expressly stipulated by the Civil Code and will be analysed by the courts in each case.
A first issue regards the fact that the unpredictability theory was not regulated by the former Civil Code and, thus, it shall be determined to what extent the law will be applicable to the contracts concluded under the provisions of the previous legal provision. Such an aspect has to be analysed in corroboration with the fact that the Court overruled the exception regarding the unconstitutionality of the law retroactivity as being unsubstantiated.
Over these two aspects, the specialists disagree; more specifically, the promoters of the bill allege that the giving in payment can be made for the above mentioned contracts, if they were still in effect when the law entered into force.
On the other hand, those who are against the bill, declared that the Court’s decision represents a victory for the banks, considering that the condition regarding the incidence of the unpredictability will eliminate the agreements concluded before the entrance into force from the application sphere.
Numerous analyses were made which clarified most of the issues, therefore we will not reiterate them. The only novelty resides in the solution given by the doctrine and the jurisprudence regarding the giving in payment of an asset object of the enforcement proceedings.
The legislator stipulated the consumer’s right to submit a claim with the common courts, with the purpose of completely discharge of his/her right, irrespective of the enforcement procedure phase. Despite the ambiguous language, such type of claim can only be submitted if the asset in question has already been adjudicated further in a public auction procedure. If the enforcement procedure has been initiated, but the asset is still in the debtor’s patrimony, the aforementioned procedural mean will not be available to the consumer, but only the standard action provided by the law. By “regardless of the phase in which the enforcement procedure is in”, the legislator intended to assure the applicability of the law irrespective of whether the mortgaged good has already been sold or not. In the above described situation, the preliminary notification of the intent to give in payment in not required, because a transfer a property cannot take place, the asset being already adjudicated. However, the debtor may choose to inform the creditor, before submitting the action, of his intent to discharge the debt.
It is again noticeable that the above mentioned judicial procedure only favours the consumer, to such extent that the entire situation is completely inequitable for the bank, which will be forced to accept the debt discharge, even if it won’t recover the whole claim.
After the enactment of the law, the banks reactions rapidly followed. Thus, it was predicted that the living conditions would deteriorate because of the increasing rent costs. This assumption was based on a simple theory, that the demand for rentable living spaces would exponential grow due to the numerous giving in payments notification. At this moment, the lending conditions are already more restrictive and the majority of the population will not be eligible for a mortgage loan and, thus, the only available option lies in renting a place. Given these premises, so far, a significant increase of rent costs has not yet been detected.
Surprisingly, the sale prices for both old and new apartments have decreased in some of the country’s largest cities. This aspect may appear as being a positive effect of the bill; however, the results of a long term analysis may differ.
As already mentioned, the banks increased the advance payments for the mortgage loans granted both in Euro and RON , thus significantly restricting the number of people who dispose of the necessary cash amounts. In the end, fewer and fewer will benefit from the price decrease, given the restricted access to loans. The only viable option resides in the “First House” Program, which apparently has not been affected by this uncertain legislative frame, despite the initial prediction.
Beyond the controversies that surrounded this bill, an incontestable aspect is that the giving in payment law introduces an atypical remedy at the consumer’s disposal. The bill is still in a transition period, in which uncertainty is its main characteristic. There are yet numerous unclear elements regarding the law’s implications, such as the inability to recover the enforcement procedure expenses, simply because they are not included in the “debt” category, as provided by the law, or the possibility to apply the law also in case of already initiated enforcement proceedings, as a result of declaring the entire debt immediately payable.
To all of these matters we still do not have an answer and our only expectation is to rely on the expertise of our judges, in hope that, by analysing each individual case, they will find the most suitable solution.
Finally, we also hope that, once the constitutional Court’s decision in published in the Official Monitor, more aspects will be clarified.