Bulgarian Parliament passed at second reading on April 9 amendments to the country’s Consumer Loans Act that ban banks from charging customers any fees for early repayment of mortgage loans.
The new provision applies to all existing mortgage loan contracts, not just new contracts that will be signed in the future – thus, bank customers will be able to pay back their mortgages early without any additional charges as soon as the law goes into force later this year, even if their contracts do stipulate an early repayment fee.
The provision does not apply during the first 12 months of a mortgage contract, meaning banks will still be able to charge early repayment fees during that period.
According to socialist MP Roumen Gechev, one of the authors of the amendments bill, an estimated one third of all mortgage contracts in Bulgaria do not contain early repayment fee provisions, but these are mainly older contracts signed before the onset of the global financial crisis in 2008, whereas newer contracts stipulate fees ranging between three per cent and five per cent of the loan principal.
Another socialist MP, Yanaki Stoilov, said that the amendments will have no negative impact on the banking sector and may even give an additional boost to lending, as customers may seek to re-finance existing mortgages with new loans if they get better terms.
The votes on April 9 concluded the debates on the Consumer Loans Act amendments – at the end of March, MPs passed part of the bill, introducing a ceiling on loan interest rates and requiring banks to print the entirety of the loan contracts in at least size-12 font, thus eliminating fine print.
The loan interest rates ceiling provision, tabled during the house debate, is the reason that the final votes on the bill were delayed. The amendment was passed on March 28 but, last week, the socialist parliamentary group reportedly discussed whether to strike down the provision, even though it was one of its own MPs who tabled it. In the end, the group decided to let the provision – which sets the current cap at 50.5 per cent – stand.
(Bulgarian Parliament. Photo: Clive Leviev-Sawyer)