CHAMBER OF DEPUTIES APPROVED POSTPONEMENT OF MORTGAGE AND LOAN INSTALMENTS
On April 7, 2020, the Chamber of Deputies of the Czech Republic approved the Act on certain repayment measures in connection with the COVID-19 pandemic, which provides both natural persons and entrepreneurs with the possibility to suspend their loan and mortgage repayments for the period of three or six months. Applicants will be able to choose the length of suspension.
In the case of individuals, interest and principal instalments will be able to be postponed, but the interest will not cease to accrue in the meantime. In the case of corporate loans, only the instalments of principal will be able to be postponed and the interest will be kept at the contractual level. On the other hand, consumers may be charged only a maximum statutory default interest rate at the Czech National Bank’s repo rate, increased by eight percentage points, i.e. currently nine percent.
Postponement of installments will be voluntary and will not incur any additional charges. However, beware that the postponement of installments requires the activity of the debtor. The repayment may be postponed only after the debtor has notified its creditor of its intention to postpone the repayment due to the negative economic impact of the COVID-19 pandemic on the debtor (but who will not be obliged to prove the actual impact).
Repayments will be interrupted for both consumer and business loans, including mortgages, which were negotiated and drawn before March 26. Mortgage instalments may also be postponed in case that the contract was concluded before March 26, 2020, but the funds were drawn after.
Conversely, the Act does not apply to credit cards, overdrafts, revolving loans, operating leases, or loans related to capital market transactions. Also, instalments cannot be postponed for loans where the debtor has been late in repayment for more than 30 days as of March 26, 2020.
According to the Minister of Finance Alena Schillerová, suspension of loan repayments will not lead to a negative entry in the bank registers, therefore there is no need to worry about complications with any future loan applications. However, in view of the wording of the approved law, we are of the opinion that the potential consequences associated with a request for postponement may occur, as the fact that the debtor has applied for a postponement will be recorded in the bank registers. Although the Act contains a provision that such a fact cannot be taken into account when assessing the debtor’s ability to repay the debt, it cannot be ruled out that in practice certain negative consequences in relation to the requesting debtor may indeed occur.
The Act approved by the Chamber of Deputies will now be discussed by the Senate of the Czech Republic at its meeting on April 9, 2020. The Act should then come into effect on the day of its publication.
For more information on this subject, please feel free to contact:
JUDr. Monika Rutland, partner
rutland & partners, law firm
tel: +420 226 226 026
email: monika.rutland@rutlands.cz
