Guarantor wants off the hook over old bad loan

Cyprus’ financial commissioner came to the rescue of a loan guarantor who says he should not have to pay anything because a former credit union had failed to send him default notices “without delay” concerning non-payment by the primary beneficiary.

Financial Commissioner Pavlos Ioannou has issued a statement about a bad loan that former Strovolos Credit Union gave out in July 1995, saying “gross oversights” by the now-defunct financial institution as well as subsequent steps taken by the asset management company were “highly burdensome” on the guarantor who has complained he no longer can get a loan from a commercial bank because he has been flagged in the system.

Ioannou, a financial analyst who has been appointed to oversee the financial ombudsman’s office, said failure to follow up on an administrative decision that was taken 25 years ago now meant that the financial obligations on the guarantor had multiplied due to accrued interests and fees.

“Today the complainant is a 71-year-old pensioner. He must not suffer the taxing consequences of a suspicious negligence and delay on the part of the former credit institution,” Ioannou said.

KEDIPES, an asset management company established in 2018 to sort out the non-performing loan mess in Cyprus, had sent notifications to the complainant since December 1995, while notice for legal action was relayed in November 1997.

But the case was never registered for adjudication until last week, leaving the pensioner responsible for paying €1,158,629.38 on a loan principal that was €138,716 back in 1997.

Ioannou says he sided with the guarantor, arguing the letters were no proof of a timely notice because no supporting documents had been provided.

“I am forced to conclude that the Financial Institution had never sent out those notices and therefore failed to comply with Article 12.(1) of the Protection of a Specific Category of Guarantors Law,” Ioannou wrote.

Article 12 states that creditors are “required to notify without delay” and in written form regarding “any late payment” or “default” on the part of the loan beneficiary. The letter must also be mailed to the address that was last provided by the guarantor.

“I wonder based on what reasoning could KEDIPES go after any payment in a fair and reasonable manner,” Ioannou said.

The chief financial ombudsman said his office received frequent complaints about cases that were never registered in court for decades, “so they are not being dealt with in a timely manner.”

Ioannou said he was calling for the entire amount owed, including the principal, to be canceled, a decision that could remove the red flag on the guarantor’s creditworthiness within the Artemis database that is accessed by commercial banks.