Prevention of Excessive Interest Charges on Regulated Loans under Article 9 para. 2 of Law 3869/2010
Ioanna Gkliva, Lawyer
During the recent period, debtors who have been included in the beneficial provisions of Law 3869/2010 for overindebted households have been facing the excessive increase in the installments of the arrangement specified in Article 9 para. 2 for the rescue of their primary residence. This is because banks and debt servicing companies (servicers) calculate the interest of this arrangement based on the total capital defined by the court decision to be paid for the exemption from the liquidation of the primary residence. This fact, combined with the significant increase in the European Central Bank’s interest rates, results in the inflation of the monthly installments of Article 9 para. 2 of Law 3869/2010.
II. Provision of Article 9 para. 2 of Law 3869/2010
The repayment of the debt is done with an interest rate that does not exceed that of the initial, non terminated debt or the average interest rate of a housing loan with a variable interest rate that was valid according to the statistical bulletin of the Bank of Greece during the last month for which statistics exist, adjusted with the reference interest rate of the Main Refinancing Operations of the European Central Bank, or in the case of a fixed interest rate, the average interest rate of a housing loan for a corresponding period of the arrangement, also derived from the statistical bulletin of the Bank of Greece, without compound interest.
From the wording of the law, it is not clarified how the provision will be applied, whether the interest will be calculated on each installment or on the total amount payable within the framework of the arrangement defined in Article 9 para. 2 of Law 3869/2010, as specified by the court decision.
III. Recent Judicial Decisions
Recent judicial decisions establish that the interest will be calculated on the monthly installment imposed by the court, not on the total capital specified to be paid within the framework of the arrangement of Article 9 para. 2 of Law 3869/2010. It is a fact that recent case law accepts that the interest will be calculated on the monthly installment imposed by the court, not on the total capital specified to be paid for the exemption from the liquidation of the primary residence, because this way the purpose of Law 3869/2010 is served.
Indicatively, the reasoning of the decision no. 103/2023 of the County Court of Alexandroupolis is mentioned: “Undoubtedly, the main objective of Law 3869/2010 was the rescue of the debtor’s primary residence, where it exists. Furthermore, the choice of voluntary jurisdiction, with its broad regulatory scope and the powers beyond the argumentative system that it grants to the judge, clearly indicates that we are moving away to some extent from the banking terminology in the narrow sense. But even the law itself states that non-commercially secured debts cease to accumulate interest, which is inconsistent with the currently applicable banking standards. It should, therefore, be accepted that the legislator, by defining the above-mentioned interest rate, essentially had in mind the changing over time value of money, i.e., the value that the defined monthly installment would have over the years during which the obligation to pay Article 9 para. 2 of Law 3869/2010 lasts, i.e., after 20 to 35 years, depending on the case. Therefore, taking into account the general purpose of Law 3869/2010, as reflected in its explanatory report, the above-mentioned, which is primarily the reintegration of the over-indebted citizen into economic and social life by regaining the economic freedom implied by the elimination of debts he/she cannot repay, it should be clarified that the interest will be calculated on the monthly installment imposed by the Court, because only in this way the above purpose of the Law is served. Moreover, since the legislator now explicitly states that the debtor is obliged to pay the maximum of his/her repayment capacity, the provision of Article 9 para. 2 of Law 3869/2010 constitutes the ceiling and not the basis of calculation. The opposite interpretation would result in the re-entrapment of the over-indebted debtor in a situation from which he/she could not escape, by paying excessive installments beyond his/her financial abilities and undermining the purpose and spirit of the Law…“
IV. As an example: implication of the Two Calculation Methods of Interest
For example, if the total capital that must be paid according to the court decision amounts to €50,000.00, with a repayment period of 20 years, i.e., 240 months, thus with a monthly capital installment of €208.33, and with an interest rate of 5%:
A. If the interest of the arrangement of Article 9 para. 2 of Law 3869/2010 is calculated on the total capital specified by the court decision that accepted the debtor’s submission to the provisions of the above law, then the debtor would have to pay a monthly interest-bearing installment of €330. The total amount of interest that will be paid during the arrangement period will amount to €29,195.00.
B. If the interest of the arrangement of Article 9 para. 2 of Law 3869/2010 is calculated on the monthly installment imposed by the court, then the debtor would have to pay a monthly interest-bearing installment of €218.74. The total amount of interest that will be paid during the arrangement period will amount to €2,496.00.
In order to avoid the risk of paying excessive interest within the framework of the judicial arrangement of Article 9 para. 2 of Law 3869/2010, the only appropriate solution is to file an application for interpretation of the court decision by the debtor, so as to clarify that the interest will be calculated on the monthly installment imposed by the court, in accordance with the purpose of Law 3869/2010.