Banks have a strong argument to start using a model mortgage agreement [WYWIAD]

We anticipate that a model contract will not require a periodic permanent interest rate, it will also be possible to apply a variable interest rate. In the case of a fixed rate period, it will be determined by the bank with the client and may be gradually extended even for the entire loan period, if macroeconomic conditions allow. Early repayment of the loan at that time would involve payment of compensation to the bank in some cases.

So more than one solution does not exclude the other?

Our project can stimulate other solutions aimed at reducing the legal risk of housing loan agreements. For example, it can become an inspiration for a solution developed by UOKiK. We do not appropriate our ideas, we will gladly share with them. The goal is to create a mechanism that will end up an “epidemic” that is deadly for the financial system, consumers, economy and state. We talk about this subject with the members of the Financial Stability Committee, encouraging them to speak on the proposed solutions. The finished project we presented is a good opportunity for this.

To what extent does the project proposed by EKF experts assume a hard requirement for banks to use this solution? Will it be rather a “soft” recommendation?

We suggest that the model contract should be introduced as part of good practices, which would make this solution more flexible. Good practices are often called “soft law”, but this is still law. This is the introduction of a certain solution to the legal system, not through a statutory order, but by something that we would call a school of law, which in fact means proceeding in accordance with the principles of common sense and equity. According to the principle, which says that based on errors from the past, we draw conclusions for the future, through something that the lawyers call general clauses. The principles of social coexistence, equity and good custom are becoming an element of applicable law.

We adopted the carrot principle, not a stick. Among the incentives is the possibility of BGK buying pledge letters from banks if they needed liquidity, as long as they were secured by loans contained on the basis of a secure model agreement safe for the legal terms.

The order would be to enter the provisions as an attachment to the Act and then the banks would have no other choice and would have to apply a model contract. This solution would be sure that contracts with consumers signed in this way will not be examined by the CJEU in terms of compliance with Directive 93/13, because the Tribunal assumes that the national legislator does not create unfair law. However, this method has two disadvantages: it is debatable in terms of EU compliance in the field of economic freedom and freedom of contracts and in the scope of art. 20 as well as art. 22 of the Polish Constitution, which relate to economic freedom.

However, it seems that banks would like to “hard” to settle the issues of model housing agreements by attaching these provisions to the Act or at least by way of a regulation to avoid legal risks in the future. Even if this would mean a limitation to some extent their economic freedom.

It seems to me that banks are determined to be legal confidence. They want to compete with the price and quality of the product. And they are ready to regulate this case, taking into account the scale of problems that arose in terms of undermining long -term loan agreements. Disputes of this type have been resolved to courts, and those by nature are not able to solve such problems. This systemic issue must be looked at from the point of view of macro, not individual matters. Differently than the CJEU did in the case of franc mortgages, which did not take into account economic issues, but only legal ones.

So you are not in favor of regulating the contract model through the attachment to the Act?

It is worth looking for a solution that will also give adequate flexibility. The world is changing and you have to be ready to make changes to credit agreements if necessary. In the case of an attachment to the Act, such flexibility would be missing: any change of a model contract would mean the need to go through the entire legislative process and engaging legislators in discussion on often very technical provisions, difficult without proper knowledge and market experience.

The attachment to the Act means in a sense the binding of hands, taking into account the slowness and specificity of the legislative process and the fact that decisions are not always made on the basis of purely substantive issues. In addition, it is a deep interference in the principle of state auxiliaryness in relation to the market. In addition, in this case, the state takes responsibility for very technical provisions of contracts, which in the future may result in claims against the state.

It is worth mentioning here that the model contract differs from the named contract. The latter indicates some basic principles that should be met by the sales contract, orders, work, rent or lease, ordering some solutions or indicating exemplary solutions. However, these are not forms of the contract.

But there is also an intermediate path, i.e. the introduction of provisions on a model housing loan agreement by way of a regulation of the Minister of Finance.

It would be a solution on the basis of an input option, the so -called Opt-in In such a situation, the bank would inform clients that it uses the model of the contract introduced by the ordinance of the Minister of Finance, which would protect him by the presumption of honesty referred to in the EU Directive 93/13 regarding the dishonest contractual provisions. It would be a kind of certification from the Ministry of Finance.

This would not be a mandatory solution, and at the same time would remain much more flexible than the attachment to the Act, because the regulation can be changed quickly if necessary. Coffee does not exclude tea and I imagine that in addition to entering a model contract, a regulation can also be applied to good practices.

The question, however, to what extent such a solution would be common in the banking sector, or would it make it difficult to grant new housing loans and sell related products. I am afraid that if any of the banks noticed that the use of model contracts limited ongoing sales, this could inhibit the popularity of this solution.

This is a question about the strategy of individual banks. It is undisputed that there is a risk of mass annulment of housing loan agreements. This is also the reason that the pledge market has not developed with us. If banks want to reduce this risk, they should use “certified” contract templates. Banks themselves must assess what is suitable for them, but the diagnosis seems obvious and is also confirmed by, among others Members of the Financial Stability Committee: Legal risk is currently too high, even difficult to measure, which negatively affects business.

We hope that the market mechanism will work. If only a few banks start using a model mortgage agreement, they will be able to finance with pledge letters a bit cheaper, they will have a lower legal risk and in effect they should offer a safe, more competitive product than other lenders. Other players should see it over time and also start using a model contract.

Maybe it is worth looking at this matter from another party: ask banks that will not start using a model housing loan agreement, why they do not do it, since they convince such a high legal risk.

It will also be important how banking leaders will react. They will have to take a position whether they will agree to voluntarily resign from part of the right to shape contracts and their financial products. Banks have problems even with estimating legal risk, because it is unpredictable to such an extent (one of the heads of risk of the Polish bank said that he did not know whether the cost of legal risk in a few years will amount to PLN 100 million or PLN 100 billion – ed.). This is not even forecasting, but even gambling, so banks have a strong argument to start using a model housing loan agreement. By giving some freedom to voluntarily, the bank gains greater stability and security.

What about consumers, what benefits will they benefit? It should not be that banks will be the main beneficiary of this project and will only focus on limiting responsibility?

Customers will be able to count on a secure contract. The goals of consumers and banks are largely convergent. This is a bit like insurance: first of all, we do not insure ourselves to get a payment for the liquidation of damage, but to have peace of mind. From this point of view, the insurer's goal and the purpose of the insured are the same. Both parties have a risk aversion, they do not want a negative event. According to the Roman sentence To UT des Des (I give you to give – ed.). It's the same with the loan. So everyone should care about discussing the increase in availability and reduction of credit margins. Higher legal security should be fulfilled by both these goals.

However, the question arises whether the consumer wants to receive a loan and honestly pay installments, achieving the main goal in the form of buying an apartment, but they are attempted to challenge the contract by applying instrumental legal provisions to gain a free apartment.

Author: Maciej Rudke, Business Insider Polska journalist