For many people, the purchase of a house is of high importance, but, in most of the cases, this purchase cannot be done without a loan. Such loans usually take considerable time to be repaid and require the consumer to pay a significant amount from her monthly salary for its repayment.
Thus, it is important for consumers to make informed decisions when getting housing loans and avoid being misled by creditors.
The Consumer Protection Service of Cyprus, acting within the powers granted under the law on credit agreements for consumers relating to residential immovable property (Law 41(I) 2017), issued a Directive addressed to creditors, in an effort to put an end to misleading advertisements for housing loans.
The Directive, which will come into force on the 15th of June 2018, states explicitly the information and warnings that must be contained in such advertisements.
In order for a creditor to comply with the Directive, it must ensure that:
- The advertisement does not aim to affect the stance of the consumer towards the credit facility or the creditor;
- The design, presentation and content of the advertisement are clear, fair, accurate and non-misleading;
- The nature and type of the credit facility being advertised are clear and are not concealed in any way;
Especially on the presentation of the advertisement
- In every advertisement, annotations are used only to supplement or clarify basic information contained in the advertisement and must be of sufficient size and presentation so that they can be easily read.
- All warnings must be legible. Warnings must be surrounded by border, the text must be in bold and the size of the font must be at least as big as the size used in the whole of the advertisement. In addition, warnings must be shown simultaneously with the benefits of the advertised credit facility. In case of a verbal advertisement, warnings must be stated at the end.
On the content of the advertisement – Warnings
- In case of advertisements for credit facilities backed by mortgage, the following warning must be included - "Warning: If the repayment plan is not followed, you might lose your house"
- A warning must be included in the advertisement in case of fixed and/or floating interest rate (if applicable) - "Warning: Charges apply in case of early repayment of your loan"
- Advertisement for a loan backed by a mortgage, for which a floating interest rate applies must contain the following warning - "Warning: The amount of the installment and the total credit amount may increase or decrease, depending on the fluctuation of the base rate"
- The meaning of any abbreviations used in the advertisement, must be specified in that same advertisement.
Consolidation of loans
- Finally, in case of an advertisement for consolidation of two or more credit facilities in one, where the creditor uses numerical example to compare the outcome of the consolidation with the facilities under consolidation, must provide information that compares, not only the differences in the installments but also the total cost and time of repayment for each of the credit facilities under review. In addition, the following warning must be added - "Warning: The new consolidated loan, may take longer to be repaid, compared to the loans under consolidation. Increase to the repayment period means proportionally, higher total cost for the credit facility".
In addition, the Consumer Protection Service, issued another Directive with which it provides an example on the information that must be contained. Among others, the creditor should provide to the consumer information about:
- The amount of credit
- The time for repayment
- Amount, frequency and total number of installments
- Total repayment amount
- Annual percentage rate (APR)
- Base rate
- Interest margin
- Other charges included in the APR such as stamp duty, charges for mortgage registration, valuation expenses
- Other anticipated expenses for the consumer not included in the APR such as costs for life insurance of the consumer and costs for the insurance of the immovable property
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.