The Constitutional Court, at the request of SEB Banka, has opened a case and will assess whether the introduction of a duty last year to protect mortgage borrowers is in accordance with the Constitution, LETA reported. Banks pay the duty to the state budget, and then the State Revenue Service, once every three months, transfers partial compensation for increased interest payments to the borrowers themselves."SEB Banka" asks the Constitutional Court to evaluate the compliance of the amendments to the Law "On Protection of Consumer Rights" with the 1st article and the first three proposals of Article 105 of the Satversme. The first article states that Latvia is an independent democratic republic. In turn, Article 105 of the Satversme stipulates that everyone has the right to property, property cannot be used contrary to the public interest, and property rights can only be limited in accordance with the law. The controversial provisions of the Law “On the Protection of Consumer Rights” determine the payers of the duty to protect mortgage borrowers, the amount of this duty, the procedure for submitting a declaration of the duty and transferring the duty to the state budget. The bill also stipulates how disputes about the amount of compensation between the consumer and the duty payer are resolved. The law also determines borrowers entitled to receive compensation, which will be paid from income received by the state in the form of an appropriate fee. As the Constitutional Court explains, it follows from the application and the documents attached to it that the bank, in accordance with the contested norms, is obliged to pay a fee and calculate the corresponding compensation for interest on the loan to be paid to the mortgage borrower. From the bank's point of view, the obligation to pay the fee, as well as other obligations associated with it, requires additional labor and information technology resources. In addition, the bank is responsible for the correct calculation of compensation. According to the bank, these norms contradict Article 105 of the Constitution, which stipulates the right to property, and also violate the principle of protecting legal trust contained in Article 1 of the Constitution. The Constitutional Court calls on the Seimas to submit a response letter by August 28 outlining the factual circumstances of the case and the legal justification. The deadline for preparing the case is November 28. The court will decide on the form and date of consideration of the case after its preparation. Representatives of SEB Banka told LETA that, in the bank's opinion, the controversial amendments to the Consumer Protection Law can be characterized as a very hasty decision without a clear goal, which was taken without serious data-based assessment and industry participation. Legal regulations create a dangerous impact on the reliability of Latvia's business environment, the investment climate and the country's long-term growth, making any industry vulnerable, the bank believes. SEB Banka emphasizes that this trial will not affect the recipients of support in any way – the transferred compensation will not have to be returned, and subsequent payments will also go according to plan. The bank's sole purpose is to uphold principles and the right to a predictable business environment. By submitting an application to the Constitutional Court, the bank wants to have these changes in the law declared inconsistent with the Constitution. According to the bank, the introduced regulation does not comply with the principles of legal trust and good legislation, and also contradicts the general monetary policy of the European Central Bank (ECB) and the basic principles of a free market economy. Ieva Tetere, head of SEB Banka, argues that in this matter the bank has a different vision of what is fair and appropriate in a democratic, rule-of-law country. “We therefore want to exercise the right to oppose regulations that, in our opinion, cause long-term damage both to the business environment and to development and trust in the state as a whole,” Tetere emphasizes. She adds that SEB Banka wants to uphold the principle that in a democracy the state does not interfere disproportionately in private business. Tetere emphasizes that with each such precedent, businessmen and investors are increasingly reluctant to work in an unpredictable country where there are attempts to interfere with the free market economy. “These amendments destroy trust in the state and make almost any industry vulnerable – no one can be sure that in the future he will not be punished for too good results and the desire to build a growing business in Latvia,” says Tetere. Tetere also notes that with this step, SEB Banka wants to stimulate reflection on the quality of the legislative process. Tetere emphasizes that the process must be transparent and based on data rather than emotions, as well as due participation of stakeholders. “We need to build confidence that policymakers in our country make decisions responsibly, based on analysis and are able to demonstrate the connection of each decision with our common long-term goals, rather than short-term gains,” explains Tetere. With euro area inflation reaching record levels in 2022, the ECB, in line with its core objective of maintaining price stability, has taken action to ensure inflation returns to its 2% target in a timely manner over the medium term. Tetere emphasizes that the amendments adopted by the Seimas contradict the general monetary policy of the EU since the decision stimulates consumption and prolongs the process of reducing inflation. The amendments to the law were adopted without taking into account the negative opinion of the ECB, which, among other things, concluded that the eligibility criteria were too broad and applied to the majority of borrowers. The ECB also indicated that the full business cycle context had not been taken into account. In his opinion, the ECB also concluded that the legislator did not consult with the ECB in time before adopting amendments to the law. “Unfortunately, we see that new initiatives to regulate the business environment, replenish budget revenues and introduce new obligations for entrepreneurs continue. A good legislative process is a prerequisite for the rule of law, and there is still room for improvement in respect of this. Therefore, the vision and conclusions of the Constitutional Court will certainly contribute to the development of Latvia’s rule of law,” Tetere believes. On December 6, 2023, after exhaustive and months-long discussions, the Sejm, in its final reading, introduced amendments to the Law on the Protection of Consumer Rights, which provide for a number of changes to help those who suffered from a sharp jump in interest rates on mortgage loans. 81 deputies voted in favor, two abstained, and no one was against it. From January 1, 2024, the amendments introduced a new duty to protect mortgage borrowers for a period of one year. It is thanks to this duty that a “budget” of assistance to borrowers will be formed, which will subsequently, through the mediation of the State Revenue Service, be distributed among mortgage recipients in need of support. That is, banks will pay a fee, and the State Revenue Service will pay compensation to borrowers from this money. Moreover, banks will have to provide the State Revenue Service with accounts of such borrowers. In fact, the credit institution (bank) must compensate the interest on the loan in the amount of 30% of the quarterly interest payments calculated in accordance with the relevant mortgage loan agreement, but not more than 2 percentage points of the interest rate for a certain period (total interest rate). That is, the interest rate in the end cannot be lower than what it was initially. Assistance is received by those borrowers who took out a loan no later than October 31, 2023, and provided that the loan balance does not exceed 250 thousand euros. Compensation is paid quarterly; the State Revenue Service made the first payments in April.
