NEWS

On 4 May 2016 the law of 22 April 2016 amending the provisions on consumer credit and mortgage credit in the Code of Economic Law (the Law) was published in the Belgian Official Gazette. This Law modifies the existing legal regime for mortgage credits for consumers. The amendments are equally important for lenders that currently only grant consumer credits because the Law extends the scope of application of the mortgage credit legislation (and, as a result, narrows the scope of application of consumer credit legislation).

A brief overview of the key changes for lenders introduced by the Law can be found below:

A.     Extended scope of application

  1.     The Law extends the scope of application of mortgage credit legislation. The notion “mortgage credit” will no longer consist of
          credits that are only:

    (a)     Aimed to finance the acquisition or preservation of immovable property; 
             and
    (b)     Secured by a mortgage or a similar security right.  

  2.     Credits that satisfy only one of these two conditions will also qualify as mortgage credits, except for credits that are intended to
          be used to finance renovations by the property owner (such credits will still need to be secured by a mortgage or a similar
          security right in order to be covered by the scope of the Law).

  3.     More specifically, there will be two types of regulated mortgage credits:

    (a)     Mortgage credits “with an immovable purpose”;

    (b)     Mortgage credits “with a movable purpose”.

  4.     These two types of regulated mortgage credits will often be subject to different rules, such as:

    (a)     Right of withdrawal / credit offer:
    
          -   For mortgage credits with a movable purpose that are not secured by a newly created mortgage or similar security right: 
               consumers will have a right of withdrawal during 14 days after having entered into the credit agreement;

          -   For mortgage credits with an immovable purpose and mortgage credits with a movable purpose secured by a newly created 
              mortgage or a similar security right (not by an existing (“all sums”) mortgage): the lender must submit a credit offer 
              to the consumer, which is valid for at least 14 days.

    (b)     SECCI / ESIS

  -   For mortgage credits with a movable purpose: the lender must provide the consumer with the Standardized European 
      Consumer Credit Information (SECCI) (whose form and contents are set out in the Consumer Credit Directive 2008/48/EC) 
      before entering into the credit agreement with that consumer;

  -   For mortgage credits with an immovable purpose: the lender must provide the consumer with the European Standardized 
      Information Sheet (ESIS) (whose form and contents are set out in the Law) before entering into the credit agreemenT
      with the consumer.

   (c)     The legally required minimum contents of the credit agreement is different for the two types of mortgage credits

   (d)     A commitment fee and file-opening charges (‘dossierkosten’ / ‘frais de dossier’) may only be charged to the consumer for a
            mortgage credit with an immovable purpose;

   (e)     The provisions on maximum costs and maximum repayment periods only apply to mortgage credits with a movable purpose.

  5.     The extended scope of application of mortgage credit legislation means that credits that were previously covered by consumer
          credit legislation will be governed by a different legal regime as from when the Law enters into force. For example, a Lombard
          credit, which intends to finance the acquisition of an immovable property but is not secured by a mortgage, will be subject
          to the Law (thus  Chapter II (instead of Chapter I) of Book VII, Section 4 of the CEL).

  6.     Therefore, consumer credit lenders will have to verify whether their product range does not contain mortgage credits in the
          meaning of the Law. If so, they should ensure that:

    (a)     the relevant contractual and pre-contractual documentation for mortgage credits must comply with the Law. In this regard, it
             is important to note that model mortgage credit agreements will have to be approved by the FPS Economy. This is
             particularly important because the FPS Economy traditionally applies a different approach than the FSMA (the supervisory
             authority that was previously competent for approving model mortgage credit agreements);

    (b)     the financial institutions must be duly licensed to offer mortgage credits to consumers in Belgium (and for banks from another
             EU member state, they should have duly notified to the competent authority of their home member state about the granting of
             mortgage credits in Belgium);

    (c)      the persons in contact with the public and the persons responsible for the distribution of the mortgage credits dispose of the
              knowledge and experience on mortgage credits as detailed by the Royal Decree of 29 October 2015. 

  B.     Advertising

  7.     The Law states that the existing rules on advertising consumer credit apply mutatis mutandis to advertising of mortgage credits.
          For example:

    (a)     advertising mentioning the cost of the credit for the consumer or an interest rate should contain all specific legal
             information by illustrating those information in a representative example;

    (b)     advertising may not emphasize the ease and the speed with which the mortgage credit can be obtained;

    (c)     advertising may not encourage consumers to regroup their existing credits;

    (d)     advertising may not mention beneficial rates without emphasizing the conditions thereof.

  8.     Important difference to consumer credit legislation: advertising on mortgage credits should not mention the warning
          “Let op, geld lenen kost ook geld” / “Attention, emprunter de l’argent, coûte aussi de l’argent”.

  C.     Pre-contractual documentation and internal procedures

  9.     Currently, mortgage credit lenders are already obliged to draw up a prospectus containing a list of mandatory information. The
          Law extends this list. Therefore, lenders should verify whether their prospectus contains (at least) all mandatory information.   

 10.     Mortgage credit lenders will have to draw up:

    (a)     a credit demand form that should be completed by the consumers containing at least the following information:

  -   purpose of the credit;
  -   income;
  -   dependent persons (‘personen ten laste’ / ‘personnes à charge’); 
  -   existing financial liabilities; and 
  -   the number of on-going credits already granted to the consumer;

    (b)     an ESIS (except for mortgage credits with a movable purpose);

    (c)     a credit offer (except for mortgage credits with a movable purpose secured by a newly created mortgage or similar
             security right);

    (d)     an internal procedure concerning the creditworthiness assessment (1).  Such assessment may not be based primarily on
             loan-to-value, but should also involve a loan-to-income assessment;

    (e)     an internal remuneration policy (2).  Such remuneration policy should reflect the principle that the remuneration of the
             personnel responsible for the creditworthiness assessment may not vary depending on the number of credit requests
             accepted. It should also include the necessary measures for avoiding conflicts of interests.

  D.     Duty to advice and duty of care

 11.     Lenders must act in a fair, equitable, transparent, and professional manner while taking the consumer’s rights and interests
           into account when:

    (a)     developing credit products (a target market and distribution strategy should be identified? cfr. MiFID II);

    (b)     granting credits / accepting credit requests;

    (c)     mediating before entering into a credit agreement;

    (d)     advising on credit products;

    (e)     performing the credit agreement.

 12.    More specifically, lenders must identify the (type and amount of) credit that is most suitable for the consumer while considering
          his or her financial situation and the purpose of the credit. They must inform the consumer whether they are only advising
          on their own product range or a wide range of all other products available on the market.

  E.     Credit agreement

 13.     The mandatory information that must be mentioned in the credit agreement differ depending on the type of mortgage credit.

 14.     Moreover, the possible causes for early repayment ('vervroegde opeisbaarheid’ / 'exigibilité avant terme’) are listed
           exhaustively by the Law

 15.     A funding loss compensation (‘wederbeleggingsvergoeding’ / ‘indemnité de remploi’) may not exceed the equivalent of three
           months of interest.

 16.     For mortgage credits with an immovable purpose, the default interest should be 0.5% annually.

 17.     The security documents will have to mention the minimum legally required information. In order for a lender to benefit from a
           salary transfer, a separate private deed for this purpose must be drawn up.

  F.     Annual percentage rate of charge

 18.    The Law introduces into mortgage credit legislation the concept of “annual percentage rate of charge” (the APRC), which
          currently only applies to consumer credits. For certain costs, it is still unclear whether or how they have to be included 
          in the calculation of the APRC. Such issues will normally be clarified by royal decree.

  G.      Entry into force

 19.     The Law will apply to credits requested as from 1 December 2016 or credits requested prior to 1 December 2016 but granted
           after 1 March 2017.

 20.     With regard to existing mortgage credit agreements:

    (a)     the Law will apply entirely to existing mortgage credit agreements of an indefinite duration and to existing personal guarantee
             agreements (‘persoonlijke zekerheden’ / ‘sûretés personnelles’) within three years from the date the Law is published in the
             Belgian Official Gazette (i.e., by 4 May 2019).

    (b)     However, certain provisions of the Law will already apply to existing mortgage credit agreements 
             starting from 1 March 2017. These include the provisions concerning:

          -   the transfer of receivables resulting from a mortgage credit with a movable purpose;
          -   the obligation to mention the amount of the secured liabilities in security documents;
          -   debt mediation;
          -   the lender’s duty to inform the guarantor or other security providers; and
          -   the processing of personal data for advertising purposes.

    (c)     Other provisions of the Law will apply to existing mortgage credit agreements, insofar as the borrower’s default or the
             termination of the credit agreement as a result of such default occurs after 1 March 2017: the provisions concerning

          -   the amounts payable by a borrower in case of default or termination of the credit agreement as a result of such default; 
              and
          -   the transfer of salary.

  21.     Please note that the model mortgage credit agreements will have to be submitted to the FPS Economy for approval within
            three years from the date the Law is published in the Belgian Official Gazette (i.e., by 4 May 2019).

The contents of this news alert is no legal advice. If you wish to receive more information on the subject, please contact Bart Garré (b.garre@liedekerke.com), Jan Vincent Lindemans (jv.lindemans@liedekerke.com), or Tom Van Dyck (t.vandyck@liedekerke.com)

 ¹ This requirement also applies to consumer credit lenders.
 ² This requirement also applies to consumer credit lenders.