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Repayment of loans at the time of the pandemic

The Chamber of Deputies will discuss certain measures related to repayment of loans during the COVID-19 pandemic. The relevant bill postpones repayment of both business and consumer loans generally until 31 October 2020.

The above is subject to certain conditions and modifications. What is common for all credits (and loans, deferred payments and similar financial services) is that the lender must be an entrepreneur (typically banks or non-bank credit providers). The law should thus not apply to, e.g., intra-group liabilities.

The legislation should cover loans arranged and utilised before 26 March of this year. There is an exception for mortgages, which have to be arranged, but need not be utilised, before the proposed deadline. However, some types of loans are expressly excluded from the deferral of instalments: for example, yield on bonds and instalments on various credit facilities (i.e. credit cards or rollover loans) must be paid according to schedule.

In order to obtain a deferral, the borrower must pro-actively notify the lender. The protection period runs from the first day of the first calendar month following the date of delivery of the notice until 31 October 2020. At the same time, the lender is obliged to establish a remote communication channel enabling easy submission of such notifications. The lender has to confirm acceptance of a notification and inform the borrower of the date of commencement and end of the protection period, and of the amount, number and frequency of payments to be made by the borrower and the total amount to be paid by the borrower.

During the protection period, natural persons (we assume that not only consumers, but also natural persons operating a business) are relieved of the duty to pay both instalments on the principal and interest; legal persons need not make payments towards the principal amount. Moreover, lenders are not entitled to any other fees from consumers (such as various service and administrative fees for loan management and servicing) during the protection period, and the suspension of payments must not have a negative impact on the debtors (in payers’ registers, etc.). We can only hope that credit providers will comply with this requirement and will not penalise the debtors in other ways, e.g. by reflecting the suspension of payments in future assessment of their solvency.

The maturity of the loan is to be extended by the protection period. Debtors who are natural persons will also not be subject to any penalties for delayed performance of their contractual obligations during the protection period (this does not apply to legal persons). The utilisation of the protection period and the related steps taken by the lenders (e.g. the communication requirements specified above) may not be subject to any fee.

The ball is in the legislator’s court now. It is possible that the bill will be enacted in a different form but no fundamental changes are likely. It can be expected that banks with high capital reserves will be able to deal with this state intervention; however, the impact on the market for non-banking loan providers and brokers of financial products and services can be dramatic.