Rinkevics promulgates amendments on support for mortgage borrowers

RIGA - President Edgars Rinkevics has promulgated amendments to the Consumer Rights Protection Law, intended to support mortgage borrowers.

Rinkevics earlier said that the scale of support for mortgage borrowers would be a political decision taken by Saeima. He believes that the support measure is targeting the right recipients, however, it could have been better targeted still. The president emphasized that he saw no reason not to promulgate the law.

On the other hand, organizations representing lenders criticized the amendments and called for the bill to be revised. They believe that the support mechanism should have been developed in consultation with the financial industry to provide better targeted support for borrowers, with a positive impact on the state budget and development of the business environment in Latvia.

In the meantime, the European Central Bank has recommended supplementing the amendments to the Consumer Rights Protection Law with a thorough analysis of potential negative consequences the measure might have on the banking sector.

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.