The new institutional framework for the protection of borrowers promoted by the Ministry of Development attempts to put a definitive end to loan sharks. The issue was also mentioned by Prime Minister Kyriakos Mitsotakis in his review today.

This is an intervention in consumer credit, aimed at bringing the country in line with European law. The aim of this decision is to stop the phenomenon where a debtor is asked to repay two or even three times the original amount.

The framework covers loans up to €100,000, unsecured. It also includes credit cards, where interest rates remain high.

Right of withdrawal and “safety net”

Under the new rules, a borrower will be able to cancel the contract within 14 days of conclusion.

And the regulation becomes particularly important in a period of punctuality as cards are often used for basic needs, increasing the risk of creating new overdue debts.

At the same time, a protection mechanism is provided for in cases of debt settlement, in order to avoid excessive charges.

And the bill, which will be consulted in May, introduces a cap on the debt. As a result, the total amount cannot exceed 30% to 50% above the original principal.

For example, on a loan of €100,000, the final debt will not exceed €130,000 to €150,000. The final percentage will be determined by a ministerial decision.

Where interest rates are today

On credit cards, interest rates move:

  • from 15,5% to 18% for purchases
  • from 18% to 20% for withdrawals

On consumer loans, interest rates range between 8% and 15%, depending on the customer’s profile.

These high levels explain why debts rise quickly when a loan goes “red”.

What will happen to old debts

After the law is passed, if the debt exceeds the allowed limit, the excess amount will be written off automatically.

The arrangement will cover:

  • debts to banks
  • loans that have been passed on to servicers

Note finally that the impact on balance sheets is estimated to be small and additional projections are unlikely to exceed 200 million. EUR.

This is because many of these loans have already been transferred. Management companies are already implementing mortgages, often close to the original principal. This keeps the burden on the banking system under control.

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