Credit Card and Current Account Debts in Light of the Loan Repayment Moratorium
The moratorium on loan repayments introduced as a result of the coronavirus pandemic essentially ‘reversed’ regulations on payment obligations arising from credit and loan agreements. With regards to the moratorium, the question of how the payment of debts from credit cards and overdraft facilities are affected arises. These credit products are revolving (i.e.: they do not have maturity date) and unsecured (i.e.: there is no mortgage collateral behind), however, the government decree on the repayment moratorium lays down provisions for credit facilities with a maturity date only. The issue was examined by Kapolyi Law Firm’s experts.
According to the Hungarian National Bank’s (MNB) interpretation published last week, the repayment moratorium enacted by the government also applies to credits with no maturity dates, such as credit card and overdraft facility products, provided that the credit amount was drawn down by the 18th of March 2020. Pursuant to the general rule of the repayment moratorium, debtors of these facilities can defer repayments until the 31st of December 2020, too. But what does this mean for loans withdrawn after the 18th of March 2020 under the same agreements?
- If the customer drawdown loan after the 18th of March 2020under these products, neither the capital nor the interest debts are covered by the repayment moratorium, resulting in, that these amounts must be repaid to the bank under the original terms set out in the applicable facility agreement (in other words, in these cases the loan functions as it usually does);
- the same applies to loans drown dawn before the 18th of March 2020, if they are repaid (at least partially) by the customer to his credit account after the 18th of March 2020. The repaid amount in those cases becomes withdrawable again, but it is no longer covered by the repayment moratorium. They are to be repaid to the creditor according to the original provisions of the relevant contract.
It is important to underline that for purchases made with a credit card during the moratorium, interest-free repayment is only available if the amount of the closing balance is repaid to the credit account by the preferential repayment deadline specified in the relevant contract. If the debt is repaid later, the higher interest amount specified in the relevant contract will be charged by the bank instead of the reduced interest rate.
The repayment moratorium is applicable for all credit and loan agreements by the force of the law, automatically. However, its use is not mandatory, therefore customers, opting to repay debts from credit cards and overdraft facilities during the moratorium should notify their creditors accordingly. It is important that the debtor is aware of how his/her/its bank – for credit card and/or overdraft facility products – expects him/her/it to inform of their intention to repay (in the most general case it is not necessary to make a separate declaration, for amounts appearing on credit accounts are automatically used to repay loans).
When the repayment moratorium expires, unpaid capital, interest and fees become due pursuant to the original rules of the credit facility agreements. According to MNB, the timeframe for debtors to repay the relevant amount to the creditor must be based on a mutual agreement between the parties. Although for credit card and current accounts products the outstanding obligations usually relatively low, MNB expects – in harmony with the legislator’s objectives – that payment for products without maturity dates, instead of bullet, should take place in equal portions divided over a twelve-month period (in line with the banking sector’s proposal), in order to avoid repayment obligations becoming disproportionate burden to debtors.
Concerning unpaid interest during the moratorium, it is important to emphasise that for credit card and overdraft facility products, alike in case of non-recurring debts, no additional interest can be charged either, i.e.: no compound interest can accrue if the customer pays his/her/its debt to the creditor within the agreed timeframe and instalments. If the customer fails to meet its interest payment obligations within the deadline set for a date falling after the moratorium’s final deadline (which is 31st of December, 2020, as of today), interest may be charged on these amounts too.
Furthermore, with regards to the APR ceiling of 39.9% for unsecured consumer loans prior to enactment of the repayment moratorium, the APR following to that date may not exceed the central bank’ base rate by 5 percentage points, which could prove sensitive to the market. In the short run, this may lead to a decrease in the number of unsecured retail consumer credit products.
