Out-of-Court Settlement of Borrowers Dealing with Financial Difficulties

By decision of the Credit and Insurance Committee, the Code of Conduct for Banks for the out-of-court management of non-performing loans was established pursuant to Law 4224/2013, it was published in the relevant Official Gazette (΄b 2289/27.08.2014) in August 2014 and is in force as amended on 31 March (Government Gazette ΄b 486/31.03.2015) and on 15 October 2015 (Government Gazette ΄b 2219/15.10.2015).

This Code establishes the general principles and rules of conduct of institutions and borrowers, so that they can jointly reach, through the exchange of information and consultation, either an alternative settlement solution, i.e. amendment of the contract with new terms, or a final settlement solution, i.e. agreement for the final repayment of debts under conditions. With the aim of achieving the above agreements, the Default Resolution Procedure (D.E.K.) was established, which concerns not only borrowers who are unable to meet their debts, but also those who are reasonably estimated, based on the change in their financial situation, that they will not be able to meet them in the future. Debts that may be subject to the above procedure concern:

• Consumer Loans
• Mortgage Loans
• Credit Cards
• Corporate Loans
• Professional & Individual Business Loans

This process involves five stages and concerns borrowers, both natural and legal persons:

1. Contact with borrower - bank
2. Collection of financial and other information
3. Evaluation of financial data
4. Proposing appropriate solutions to the borrower
5. Complaints review process

The borrower can contact the service outlet designated by the relevant bank, which, for individuals, is usually all its local branches. In the second stage of the D.E.K., he completes the "Standardized Financial Information Statement", which is provided to him by the credit institution, as well as providing any necessary clarification or additional information that may be required regarding his financial and property situation.

The types of regulation and the proposed solutions are at the discretion of the credit institution and depend on the specificities of each case. Some of the regulations may relate to:

• Interest payments only for a specific period.
• Reduced installments with an extension of the loan term.
• Granting a grace period.
• Transfer of one or more loan installments.
• Settlement of Overdue Balance.
• Capitalization of overdue debts
• Change interest rate type (fixed or floating)
• Reduced dose which is gradually adjusted.

The arrangements may, on a case-by-case basis, also concern the sale or rental of the property or even, in some cases, even a partial debt write-off. Also important from a legal perspective is the classification of the borrower by the institution as “cooperative” or “non-cooperative”, which will be a function of the behavior that the former demonstrates towards the Bank during the conduct of the procedure, and, in particular, the timely provision of any necessary information and briefing that may be requested.

Finally, during the evaluation stage of the borrower's financial data, the concept of "reasonable living expenses", as specified by the data of the statistical Household Budget Survey (HBS), is taken into account. The basic expenses included are indicatively:

• Food, clothing and footwear.
• All expenses related to housing.
• All transportation costs, maintenance and repair of means of transport as well as car-motorcycle insurance premiums.
• Expenses for the use of urban and interurban public transport.
• Expenditures related to the repair and maintenance of household durable goods, as well as all goods for normal household consumption.
• Expenses for personal cleaning and grooming goods and services and other personal items as well as expenses related to pets.
• Expenditures related to information and education.
• Expenses for telephone and postal services.
• Expenditure on health goods and services.
• All education service costs.
• Social protection services expenses.

Each institution must provide the interested borrower with an "Information Brochure for Borrowers with Financial Difficulties", which, in fact, must be made available in both printed and electronic form on its website.

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Thomas Steph. Summer

Lawyer