This newsletter refers to the amendments and additional provisions passed by the Parliament under the Law for the approval of Emergency Ordinance no. 37/2020 on the granting of certain facilities for the credits granted by credit institutions and non-banking financial institutions to certain categories of debtors (“GEO 37/2020”) that was registered with the Secretary General on 23 April 2020 in order to be exercised the right to check the law’s constitutional nature (the “Approving Law”) as compared to the provisions of GEO 37/2020 as published in the Official Gazette no. 261 of 30 March 2020 which continues to be effective until the coming into force of the law.
Although the Approving Law was sent for promulgation to the President of Romania, such law is currently the object matter of an Unconstitutionality Claim (“Unconstitutionality Claim”) lodged by a group of deputies, fact which suspends the promulgation procedure and postpones the coming into force of the law and may even cause the need to amend it.
The debates of the Constitutional Court in relation to the Unconstitutionality Claim will take place on 27 May 2020.
We are therefore in a state of legislative uncertainty that will last for at least 3 months, and such uncertainty is even worsened by the significant differences between the content of GEO 37/2020 and the content of the Approving Law as well as by the fact that on the same topic of the protection of certain categories of debtors in the credit agreements another bill was circulated by the Parliament, namely the Law on the suspension of credit reimbursement, which currently makes the object matter of another Unconstitutionality Claim.
For further details on GEO 37/2020 currently in force as well as on its application norms, please read the following materials. [Ade to add link la news alerts pe OUG 37 si pe normele de punere in aplicare]
Amendments and additions passed by the Approving Law with respect to debtors that benefit from the protection measures introduced by GEO 37/2020
The Approving Law widens considerably the range of debtors that could benefit from payment postponement in relation to their loan instalments, especially by including default debtors in various default or non-performing exposure stages. Furthermore, the Approving Law widens the practical accessibility of the protection request procedure by eliminating the need to present the emergency certificates issued by the Ministry of Economy, Energy and the Business Environment and replacing such certificate with affidavits .
Some of the most important amendments are the following:
- Considering as being eligible default debtors or debtors undergoing enforcement, give in payment, judicial reorganisation or such other judicial procedures that aim at suspending the effects of loan agreements. This amendment makes the object matter of the Unconstitutionality Claim.
- Allowing access to the protection measure even to insolvent debtors, by eliminating the condition that requested the debtor who applied for the suspension of its payment obligation to not be under insolvency.
- The amendment of the main assumption of GEO 37/2020 which required that the debtors’ income be directly or indirectly affected by the situation generated by the Covid-19 pandemic and the insertion of eligibility criteria for legal persons that may be seen as facilitating the access to the protection measure:
- the debtors must have their activity fully or partially interrupted; or
- the debtors must have their incomes or cash-ins diminished by at least 15% relative to their average income over the last two months; or
- in case of local public authorities, the occurrence of unforeseen or out of the budget expenses related to the fight against the pandemic,
in all cases as effect of the decisions issued by the public authorities during the state of emergency, and the certification of such cases must be made based on the debtors’ affidavits. Certain aspects of this amendment, particularly those related to the certification by affidavits, are now the object of the Unconstitutionality Claim.
- The extension of the term by which any debtor may submit the loan payment suspension request, from 15 may (which is 45 days as of the coming into force of GEO 37/2020) to the end of 2020. This amendment makes the object matter of the Unconstitutionality Claim.
- The addition of a special category of debtors vaguely defined as being affected by all types of draught, who will be allowed to request the postponement by 18 months at most (until 31 October 2021), of the payments of their loan instalments. This amendment makes the object matter of the Unconstitutionality Claim.
The expansion of the sphere of creditors to whom the provisions of GEO 37/2020 will be applicable in its amended and supplemented form under the Approving Law
Entities that conduct debt collection activities were included in the definition of “creditors”. Nevertheless, it is not clear whether the definition of these entities is that included in GEO 52/2016, namely entities that recover debts under contracts with consumers and which are registered with NACP or whether this concerns any entity whose object of activity also includes debt collection, in which case debt collectors that recover debts from credit agreements with corporate clients would be also included.
Furthermore, specialised financial institutions through which the financing of certain strategic importance projects are carried out in accordance with the governmental policies that support the Romanian business environment were also included in the definition of the term “creditor”, but without having a clear definition of these “specialised financial institutions”. We can think of institutions such as those specialised in savings-crediting in collective system or for real estate sector, however it would have been adequate for the law to be clear and precise in order to be applicable by those who it targets.
Less transparently still, the Approving Law appears to extend the sphere of creditors with the operational leasing companies that are neither banks nor NBFIs, when it includes within the purpose of protection, debtors that concluded operational leasing agreements. This indirect amendment is potentially discordant with the definition of “creditor” given that the definition was not updated so as to include specifically those operational leasing companies that are not banks or NBFIs. This potential inconsistency could be overcome by combining certain legal rationales because, on the one hand, the legal provisions must be interpreted so as to be able to generate consistent and not discordant or paradoxical effects and, on the other hand, there can be no right to a protective option without a corelative obligation to observe such option. It would have been adequate for the law to be that clear and consistent so as for a regular reader to be able to extract the direct and express meaning. The expansion of the object of GEO 37/2020 to include operational leasing agreements makes the object matter of the Unconstitutionality Claim.
Suspension under the Approving Law of enforcement proceedings
The Approving Law has tackled a topic that was not subject to the measures introduced by GEO 37/2020, i.e. enforcement proceedings, including the seizure of movable property, the seizure of real estate property or garnishments of any kind.
Thus, according to the generous wording of the legislator, it seems that the suspension by 31 December 2020 of all enforcement proceedings started until the date on which the Approving Law came into force (which occurred much later than GEO 37/2020) is expected to take place, and not just of those proceedings related to debtors that are eligible for protection and request the suspension of loan instalment payment obligations. Thus, it seems that the scope of the measure regarding the suspension of enforcement proceedings is wider than that of the moratorium itself.
These supplementations are the subject of the Unconstitutionality Claim.
Amendments under the Approving Law concerning the postponed interest rates and fees
As regards the interest rates and fees corresponding to the due amounts whose payment was suspended, the Approving Law stipulates that they will not be capitalized on the balance of the existing loan at the end of the suspension period in any situation, as opposed to the current form of GEO 37/2020 according to which interest may be capitalized on the balance of the loan, except for mortgage loans concluded with natural persons.
Moreover, the Approving Law stipulates that this measure will also be applicable to the suspension applications submitted after the entry into force of GEO 37/2020. Although loosely expressed, it seems that the intention of the legislator is that the non-capitalization of interest be also applied to the suspension applications submitted between 30 March (date of entry into force of GEO 37/2020) and the date on which the Approving Law will enter into force, which can generate an effect of retroactivity of the law and uncertainty regarding the amount of the loans whose payment was suspended before the entry into force of the law.
These amendments make the object matter of the Unconstitutionality Claim.
Other relevant amendments
The Approving Law also brings a series of amendments and supplementations among which:
- the removal of the guarantee provided by the Romanian State, through FNGCIMM, regarding the payment by debtors of the interest on mortgage loans payable by natural persons;
- the possibility to exceed the age limit provided in the internal regulations of the creditor by postponing the payment and rescheduling the loan. This amendment makes the object matter of the Unconstitutionality Claim; and
- the repeal of the article that concerned the adoption of application rules for GEO 37/2020 and this fact, corroborated with the substantial changes generated by the Approving Law, leads to a tacit repeal of the provisions of the application rules of GEO 37/2020 that are currently in force.
The provisions of the Approving Law bring a fundamental change to the principles of Emergency Ordinance no. 37/2020 as currently in force, by clearly expanding the sphere of debtors and benefits granted and weakening the cause-effect relationship between the deferral of instalments payable to creditors and the Covid-19 pandemic. We are wondering to what extent these amendments and supplementations brought by the Approving Law will be censored by the decision of the Constitutional Court.
We will revert with some considerations on how the Romanian legislative interventions for the protection of debtors experiencing financial difficulties as a result of the Covid-19 pandemic are compared to the regulations in other Member States, and the indications of the European Banking Authority (EBA), but also to the Romanian general legal framework, taking into account the legal institutions applicable to deadlocks in the execution of contracts, but also the Romanian constitutional framework, given the constitutional controversies that arise around the elements related to the scope of law (both the sphere of creditors and that of debtors involved), the differentiation of debtors, the protection of the ownership right, but also the principles of clarity, stability and predictability of the law.