Brinek: Selling of non-performing loans turns into a heavy burden for the borrowers

The selling of non-performing loans turns into a heavy burden for the borrowers

ORF-Series „Bürgeranwalt“ („Advocate for People“) – Broadcast of December 5th, 2009

The 5 December broadcast dealt with the problem of selling non-performing loans and the resulting disadvantages for the borrowers. The Austrian bank chain Bank Austria has sold thousands of loans with a total capacity of about 850 Million Euros to private equity investors. In case of selling loans the bank does not have to obtain prior approval from the borrowers thus leaving them with no possibility to object this sort of transaction.

To achieve immediate profit-making, the new loan holders entrusted an Austrian dept collecting agency with the collection of the pending payments. Since then, numerous complaints have been filed with the Austrian Ombudsman Board. One case conclusively demonstrates the severe consequences of such financial transactions: Ms. Z. took out a foreign currency loan from the Bank Austria to open a small business.

The apartment of her aged mother served as security. Ms. Z. and the Bank Austria negotiated a limited payment plan agreement. After the time limit agreement had expired, Ms. Z. continued to pay her monthly instalments and the bank continued to accept her payments. Ms. Z. was not aware of the fact that following the expiration of her payment plan agreement, the bank considered her loan to be non-performing and consequently decided to sell it. The new holder increased the interest rate to 16,5% and demanded a more or less immediate payment of the total amount. Her mother might now loose her apartment, as Ms. Z.’s monthly salary of 1000 Euro can not cover the expenses.

Even though this case does not fall directly within the field of responsibility of the Austrian Ombudsman Board, Ombudswoman Brinek took the opportunity to call upon the banks to provide future borrowers with utmost transparency and comprehensive information. She also appealed to the consumers to act with caution: “I am aware of the fact, that banks selling non-performing loans do not act against the law.

However, the consequences for individuals should also be taken into consideration. Finding a satisfactory solution becomes even more difficult, when the familiar contact person at the former bank is suddenly no longer responsible and available.”