Latvia's 4 largest banks undecided about appealing bill on support to mortgage borrowers

RIGA - Latvia's four largest banks are still undecided whether to appeal the recently adopted amendments to the Consumer Rights Protection Law aimed at supporting mortgage borrowers who have been hit by high interest rates, a LETA survey of the banks shows.

Representatives of Swedbank told LETA that the bank will comply with the new legislative requirement but that its lawyers are currently assessing the legal aspects of the new regulation. Decisions on how to proceed with possible legal steps are still being assessed, the bank's representatives said. 

They added that once the new regulation comes into effect, customers with mortgage contracts will not need to do anything about them - the amendments to the law provide that, on a quarterly basis, customers will receive a discount on their mortgage interest, which will be paid into their account.

According to the Swedbank representatives, the new regulation is quite chaotic and will require a fast adaptation of the banking sector. 

Swedbank also warned that at this stage scammers can take advantage of the regulation. The bank therefore warns customers to be vigilant and to never disclose their data to suspicious callers promising them to recover their interest payments.  

SEB Banka CEO Ieva Tetere also told LETA that the bank has yet to decide how to react to the amended Consumer Rights Protection Law. 

According to Tetere, the bank will be providing the required quarterly support to the mortgagors automatically. Since the amendments are due to take effect on Januaru 1, 2024, the bank's customers will receive the first support payment in April 2024. SEB Bank will inform each individual customer about the size of the support and the customers will not need to do anything. 

In Tetere's view, the amendments are a populistic short-term measure, which will definitely not improve Latvia's competitiveness, investment and lending environment. 

Representatives of Citadele Bank told LETA that there is still a lot of uncertainty about these amendments, so it is too early to talk about the next steps.

As for the practical aspects, the bank's representatives said that the customers will not need to apply for the bank and that everything will take place automatically. At the end of each quarter, the bank will calculate the rebate the customer is entitled to for the interest actually paid and will submit this calculation to the Revenue Service, which will then make the compensation payment accordingly.

Citadele has no plans to provide a special tool or calculator for the customers to calculate the size of the support.

Kaspars Lukacovs, Lumonor Bank's retail banking head in the Baltics, told LETA that the bank's lawyers will consider a possible appeal against the support requirement once the regulation comes into effect. 

After each quarter, the bank will calculate the compensation amount for each eligible mortgage borrower individually and report it to the Revenue Service, which will transfer the money to the borrower's account during the month following the quarter. Borrowers will not be required to submit applications or otherwise apply for the support. The support will be paid out of the government's budget revenue generated by the mortgage protection levy paid by the banks.

As reported, the Saeima at the beginning of December passed in the final reading amendments enabling the provision of state support to mortgage borrowers in the amount of 30 percent of their interest payments, but not exceeding two percentage points of the interest rate set for the period.

To provide this support, which was proposed by the Budget and Finance (Taxation) Committee, credit institutions will be obliged to pay a levy "in order to protect public welfare, taking into account the burden of payments on households".

Banks as the payers of the levy will have the obligation to calculate a 30 percent compensation on each mortgagor's interest payments for each given quarter, but not exceeding two percentage points of the interest rate set for the period.

Borrowers whose mortgage loans have a fixed interest rate will not be eligible for the compensations.

The State Revenue Service would be tasked with administering the levy.

The levy would be paid by Latvia-registered credit institutions, consumer loan providers, as well as Latvian branches of foreign credit institutions and consumer loan providers.

The compensations would be granted to those mortgage borrowers whose mortgage agreements have been concluded by October 31, 2023 and whose loan balance does not exceed EUR 250,000.

The law would provide that such payment of compensation for interest on loans will be neither an administrative act nor a de facto action and will not be subject to challenge or appeal under the Administrative Procedure Law. Disputes between the consumer and the levy payer in relation to the calculation of the credit interest compensation will be settled in accordance with the Civil Procedure Law.