On 9 September 2014 a new law amending the Liberalisation of the Interest Rate and Related Matters Law of 1999 ("the LOIRL") was published in the official gazette and took effect. The LOIRL, which took effect on 1 January 2001, aims to provide transparency in interest and other charges made by authorised credit institutions by requiring them to:
- inform their borrowers of the rate of interest applicable to the loan or credit facility from time to time, the method of calculation and the time at which it is due to be collected or charged to the borrower's account;
- provide borrowers with details regarding any other charges or the recovery of any expenses concerning the loan or credit facility;
- inform borrowers of any change in the interest rate, the method of its calculation or the time at which interest becomes payable and, generally, of any other change; and
- capitalise interest no more than twice per year.
The recent amendments to the LOIRL, which were enacted at the same time as amendments intended to streamline and increase the effectiveness of the law relating to forced sales of mortgaged property, provide further safeguards to borrowers. With effect from 9 September 2014 lenders must:
- inform the borrower in writing of any changes in the base rate used for calculation of interest or in the interest repayment date;
- not utilize the provisions of any existing provision in any loan agreement that contractually entitle it to unilaterally increase the margin between the base rate and the rate charged to the borrower;
- clearly set out in any credit facility agreement the additional rate payable on overdue instalments.
The additional rate payable on overdue instalments should not
exceed 2 per cent per annum. Any higher rate creates a rebuttable
presumption that the rate is penal and, unless the lender proves
that the rate charged represents the actual damage it has suffered
as a result of the delay in payment, the additional charge is
void.
The Central Bank of Cyprus may impose a fine of up to EUR 100,000
on any credit institution breaching these provisions, together with
a further fine of up to EUR 10,000 per day and further sanctions in
the event of continued default.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.