On Tuesday, the 3rd of October, Saeima’s Budget and Finance Committee conceptually agreed on a 50% discount for mortgage loan interest rates for one year. The committee’s head said he “does not trust banks”.
The budget committee plans to meet on Wednesday, the 4th of October, and vote on the legislative draft on the protection of borrowers to later submit it to the Saeima for review. At the same time, the text of the legislative draft is not even put to paper, nor is there any real agreement on whether it will be a separate law or take the shape of amendments to an existing law.
The committee’s chairman Jānis Reirs explained at the meeting that it is necessary to establish a crisis period for two years and set a reduced consolidated interest rate for one year. The budget committee will wait for a report on this measure’s efficacy in a year from now and will look if there is any point to maintain the reduced rate for one more year.
The budget committee also proposes applying this support to borrowers
whose maximum remaining loan amount is not larger than EUR 250 000.
Reirs also stressed that support for standard loans is to be provided without delays, and the amount provided should not affect the borrower’s reputation.
“Support should be both focused and as simple as possible.
I don’t trust banks.
If there are complicated criteria, banks will use every loophole and interpretation to their advantage, which will no benefit borrowers,” said Reirs. The head of the committee stressed that people and their future need saving – Latvia cannot afford to repeat the situation of 2009-2019, when the government had to step in to bail banks.
Reirs also said that banks were bailed in 2018-2019, when Latvia was battling the consequences of the Moneyval report. He reminds that ABLV was not the only bank with money laundering problems.
The amounts laundered in other banks were even larger.
Director of Ministry of Finance Department of Finance Market Policy Aija Zitcere told the committee that a EUR 250 000 threshold would help cover 97.6% of mortgage loans size-wise and 99.8% number-wise. According to the ministry, support needs to be focused, and it is necessary to look if borrowers are not burdened with an excessive loan burden.
Zitcere also turned the committee’s attention that a 50% discount for all borrowers could be interpreted as the state interfering with the market. It could have a negative impact on the market and future investments.
Reirs stressed that the objective of the legislative draft is exactly the opposite: “We bailed the marked in 2009, losing 180 000 residents in the process. We bailed the market in 2019. We won’t do it again.”
Zitcere added that there are also risks to the Constitutional order – the lenders’ rights to private property, as well as the risks of potential lawsuits.
Minister of Justice Inese Lībiņa-Egnere’s advisor Kalvis Engīzers admits that lenders have the rights to private property, rights to performed licenced entrepreneurship, as well as the principle of legitimate expectations, which creates constitutional risks. At the same time, Engīzers notes that the law’s legitimate goals could be consumer protection and protection of public welfare, which could potentially override the rights of lenders.
Members of the committee conceptually agreed on a 50% discount on mortgage loan interest rates. At the same time it was decided to continue the discussion on the 4th of October.
A week ago the committee invited the Ministry of Finance to work with experts and prepare a legislative draft to protect borrowers, as confirmed by Reirs. According to him, the best solution would be a separate law with several sections instead of amendments to the Consumer Rights Protection Law or Law on Credit Institutions. The Ministry of Finance and the Saeima’s Legal Affairs Office approve of a solution.
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