04/04/2008 - New Risk Limitation Act for more transparency:
The sale of loans has been an integral part of modern banking culture for a long time. It mainly affects non-performing loans. For banks and savings banks it serves for refinancing and risk control, since every bank is to back a granted loan by equity. With the loan sale the bank acquires liquidity scope, increases its competitiveness and improves the loan conditions for its clients. With the loan sale the purchaser acquires the rights and duties of the primary bank, no matter if it is a performing or non-performing loan.
The German Government plans a new Risk Limitation Act (act on the limitation of risks related to financial investments) to be passed within the next months. The draft version by the Department of Justice provides for banks and savings banks offering loans that are not allowed to be sold.
Before a loan agreement is concluded, the bank will have to inform its customers about this alternative and the related conditions. Banks may offer these non-assignable loans at a higher interest rate.
The new law obliges banks and savings banks to separately inform their customers about upcoming changes in the loan agreement with a lead time of at least three months prior to the expiry of the fixed interest period or the maturity of the loan. The customer will have to be informed about a loan sale immediately as well. Furthermore, non-performing real estate loans will only be allowed to be terminated when the borrower has been delinquent for six months. Servicing Advisors will prepare for the new provisions resulting from the Risk Limitation Act. As regards the planned changes in transparency or rather the necessary information duties, Servicing Advisors already have procedures that are in line with the new law.
Eckhard Blauhut, Managing Director of Servicing Advisors, explains: “Together with the Federal Association Loan Purchase and Servicing [Bundesvereinigung Kreditankauf und Servicing e.V.] we work on harmonized market standards for the workout of distressed debt. It is planned that the association introduces ombudsman proceedings. This way we support a strengthening of the consumer rights as demanded by the politicians and through the ombudsman we create a low-threshold offer for debtors who feel they have not been treated right during the loan processing.”
