The Icelandic government met yesterday about a Supreme Court decision that foreign currency car loans are illegal.
The decision confirms a similar district court decision that loans cannot legally be denominated in foreign currencies when the original amount was paid to the customer in Icelandic kronur and the customer uses the same currency to repay the loan. The district court recommended that all “foreign currency” car loans that people were encouraged to take out before the currency crisis should be transformed into krona loans. This would make a massive difference to people struggling to pay spiralling car loans which rely on strong exchange rates against low interest currencies like the yen and the Swiss franc.
The government decided yesterday it will take no action to interfere with the court’s decision in any way that would disadvantage loan holders.
The ministries of trade and of finance will now clarify their procedures and attempt to iron out problems; because although the ruling was extremely clear, each individual case has the potential to reveal different problems.
Finance Minister Steingrimur J. Sigfusson told Visir.is that he is positive the banks will survive swapping all the foreign loans over to cheaper Icelandic loans and said it will be the job of the banking regulators to ensure that they do.
LOL, WHAT A DISGRACE!!!
Illegal activity is pardon like this?!!
Same outrage as with the banks.
” if we collapse everything will go down, therefore instead of ruling to smash us or bail us out, lest just change it to ISK and lest forget about it.”
O.O
Those loans were illegal, there is no question about that, if the supreme court would have ruled that the loans were leagal they would have been saying to the public, the bankers are exempt to laws, laws only apply to poor mortals, not the elite,
then we would have had a revolution here in Iceland and no one would have been taking any laws into consideration,
what created this problem is basically greed and arrogance of the bankers, and they fully deserve the “kick in the n*ts” they got.
I only hope the 40.000 Icelanders who were cougth in this scam will demand full payment and damages as relentlessy as the bankers did when the shoe was on the other foot.
>I only hope the 40.000 Icelanders who were cougth in this scam
Hardly a scam. They thought they were being clever avoiding the going rate of interest to borrow money in Iceland. They knew that there was risk, even if they didn’t consider the extreme. And they’re getting off on a technicality, in that if those loans were actually FC and then converted, rather than indexed to FC, they would be liable. They are hardly the innocents that you make them out to be.
Why should someone who borrowed normally bail them out?
This was a scam because the banks did everything they could to fork out as much of those loans as they possibly could, and while the ISK got stronger they were betting against it,
the bankers manipulated the exchange rate of the ISK, just like they did with the share prices, everything they did was in one way or another a scam.
The bankers are expecting the government to step in and take the fall for them,
they take all kinds of chances, break laws, steal from people, but when the sh*t hits the fan they walk away in their teflon suits, leaving the taxpayer, who they were trying to rob, to pay for the whole thing anyway.
Some how i dont think the gov will dare to step in that way.
>Why should someone who borrowed normally bail them out?
Indeed. Anybody who didn’t take out one of these loans will effectively be penalised; the banks will get their money back from other customers.
I assume the loans will be converted to stand loans and the higher rate of interest charged but with the fixed principle ?
I agree with Bromley.
These people did excessive borrowing in order to buy luxurious goods. It is never a good idea to borrow to buy a car.
Moreover they chose a financial product with a risk involved that they apparently did not understand.
But they allowed the financial wizzards, the people that gave a.o. Icesave to the world, to talk them into it.
This does not diminish their responsibility. They were grown-up people who should be accountable for their own actions.
It is funny to notice that people who accused Icesave account holders of neglect and naivity now want the icelandic victims of similar dubious financial products to be bailed out.
I also wonder what practical results there will be from this ruling. Does this mean that the banks will be forced to reduce the debts, facing the losses themselves?
Let us suppose an Icelander made a FC loan in EUR, borrowing 20.000 EUR when the rate was 90 ISK to the EUR (as was the case before nov 2008).
At hat point the debt was 20.000 x 90 = 1,8 million ISK.
When the rate went to 160 ISK against 1 EUR the debt became 20.000 x 160 = 3,2 million ISK.
Wil this mean that the bank will skip 3,2 – 1,8 = 1,4 million ISK of this debt?
>I assume the loans will be converted to stand[ard] loans and the higher rate of interest charged but with the fixed principle ?
Not so sure. Now that the contracts have been deemed to be illegal, is it possible (without an act of parliament) to retrospectively attach terms not mentioned in the contract?
IANAL. Scenarios:
1. Contracts illegal, null and void, principal returned to bank and payments returned to customer. i.e. borrower gets off scot free.
2. Linking to FC illegal, interest rate in contract legal. i.e. borrower gets incredibly low-rate loan, although they’ll likely have to repay the principal now (with the bank paying back the excess payments).
3. Conversion to standard ISK indexed loans. Not sure whether the interest rate used would be the FC contract one or a generic local market equivalent.
On the surface of it, it would be hard for most people to argue against (3) being the “fair” solution. But is it a legal one? The government could have solved all this a year ago, got some political capital for errecting a fortress around homes and the people with the FC loans would have been pathetically grateful. Now? Would you accept a high interest loan (once indexation is added in) when you may well not have to pay interest at all? Would you thank the government if it introduced a law that forced you to?
“Why should someone who borrowed normally bail them out?”
No one is being bailed out, laws were broken and this must be corrected, the banks were happy to strangle the life out of people. litteraly in some cases, so they should expect to get a taste of their own medicine.
“I assume the loans will be converted to stand loans and the higher rate of interest charged but with the fixed principle ?”
The loan deals are perfectly leagal except they are indexed to foreign currency so the rest of the deal stands,
“These people did excessive borrowing in order to buy luxurious goods. It is never a good idea to borrow to buy a car.”
Its mostly young people with families and kids at school age that took those loans, people who had good jobs and worked hard to pay their debts.
“Moreover they chose a financial product with a risk involved that they apparently did not understand.”
When a 20 year old kid i know bought a car he was asked what kind of basket do you want ?, Yen/Swiss fr or Dollar/Euro, no one suggested any other form of loan, i wonder how many loan contracts were made by the car loan companies in ISK, probably not many, but of course they were all paid out to the customer in ISK.
“2. Linking to FC illegal, interest rate in contract legal. i.e. borrower gets incredibly low-rate loan, although they’ll likely have to repay the principal now (with the bank paying back the excess payments).”
This is the current status, plus law suits against the banks because of damage caused by very agressive debt collection,
1 and 3 are not a option, laws to override this somehow in favor of the bankers would not be a smart move for the government.
“On the surface of it, it would be hard for most people to argue against (3) being the “fair” solution. But is it a legal one? ”
In a normal legal system I cannot see how you could change the terms retrospectively; a contract was signed and what is done is done. Future loans would be banned and existing loans converted into normal loans.
But I suspect that politics will decide it and Iceland is a not a normal country with a normal legal system,
“On the surface of it, it would be hard for most people to argue against (3) being the “fair” solution. But is it a legal one? ”
One member of parliament has mentioned this idea, Mördur Arnason, who replaced social democrat Steinunn Valdis, vho was run out of parliament recently because of corruption,
the word Mördur means Weasel :)
@Axel,
thx for your additions. I must say however that I find it a bit strange that a 20 year old kid could get a loan from the bank to buy a car (off course I do not know the details about this particular case).
Did he have an income or was he just a student?
I heard that in iceland it was perfectly normal for students without any income to take large loans in order to buy a cool car.
In western Europe the bank would laugh at you and kick you out if you tried to get such a loan without any income or security.
“Did he have an income or was he just a student?”
He is a seaman, on a trawler, not a student.
“I heard that in iceland it was perfectly normal for students without any income to take large loans in order to buy a cool car.”
Not all the the car purchases by the younger people were carefully thought trough, but the banks demanded guarantee, usually provided by parents, or someone who owns realestate,
most students work with school, we had 1% unemployment before the crash, plenty of work for those who wanted to work.
“In western Europe the bank would laugh at you and kick you out if you tried to get such a loan without any income or security.”
This is how it should be,
if only there would be a seperation between commercial banking and casino banking, unfortunetly thats very unlikely to happen,
in Iceland we only have casino banking, and all customers are marks,
if you buy a finacial product from them you become a part of a carefully plotted scheame, where the goal is to rob you of your propery and your life income, using all methods possible, leagal or not, they had the media, parliament, central bank and justice system under their control, so laws were not a issue for them.
I thought you had scrapped your Iceland holiday because of the volcano, how did you like Iceland :)
“When a 20 year old kid i know bought a car he was asked what kind of basket do you want ?, Yen/Swiss fr or Dollar/Euro, no one suggested any other form of loan, i wonder how many loan contracts were made by the car loan companies in ISK, probably not many, but of course they were all paid out to the customer in ISK.”
He made a decision to buy a car, he’s an adult he is entitled to make a stupid mistake. Another 20year old could have taken a loan in ISK (paying much higher interest) but he would have been dumb because a smart 20year knows how to speculate on the currency market for a cheaper loan.
Its funny how the fact that the driving force behind FC loans was that they were much cheaper is ignored. ISK loans were available but very few people wanted them. if car dealers only offered ISK loans you can be damn sure the majority of borrowers would have sought out a cheaper FC loan instead.
@Axel,
Ok, I see, he had a job with an income. In that case it would be normal to get a loan (albeit a dubious one).
Yes I first thought about skipping my holiday to Iceland but finally I decided to go and we liked it A LOT, driving all around the country, including the western fjords (IMO the most beautiful part of the counry). The weather was fine too and the people were OK. Would recommend it to anyone :-)
Good article for anyone following this:
http://www.businessweek.com/news/2010-06-24/iceland-s-creditor-risk-grows-as-banks-face-losses.html
“No one is being bailed out, laws were broken and this must be corrected, the banks were happy to strangle the life out of people. litteraly in some cases, so they should expect to get a taste of their own medicine.”
Well, all of Iceland will be paying the price, from Bromleys link..
“Credit default swaps on Iceland’s five-year debt rose 5 basis points to 322, the first increase this week and the biggest jump since June 4, according to CMA DataVision prices. The rise indicates a perceived deterioration in the country’s credit quality. The krona dropped 0.4 percent against the euro, its biggest loss since May 12.”
It also says the banks cannot survive this, so another crash is probably forth coming. The billions the government gave to the New banks will be lost.
“Well, all of Iceland will be paying the price, from Bromleys link..”
I think we may see somkind of a temporary correction of the loans, it may take a few months to finish this,
i bet the IMF are not too happy, the public is supposed to be starving in austerity, not suing banks becsause of dodgy deals
and winning.
Maybe we should sue Britain next, Britain plays a key role in supplying taxhavens for finacial criminals, if you compare this to a bank robbery, Britain is the guy in the gettaway car.
All 3 banks have issued a statement saying they can handle this, no one is withdrawing funds from the banks, so no one expects any problems, it will be interesting to see how this evolves.
Peter – London/Krakow says:
June 22, 2010 at 10:30 pm
In a normal legal system I cannot see how you could change the terms retrospectively; a contract was signed and what is done is done. Future loans would be banned and existing loans converted into normal loans.
A “normal” person can appreciate that some of the terms of the Loan Contract broke the law. A “normal” person should be able to appreciate that when some the terms of a contract break the law, it is illegal. In this case, some of the terms of the Loan Contract were challenged and deemed illegal by the Courts. When the Court deems the contract illegal it is doing so according to the law of the land.
“But I suspect that politics will decide it and Iceland is a not a normal country with a normal legal system”
What a typically ignorant statement from you. The Banks/Financial institutions broke the laws and are being brought to task. Sounds very normal to me and clear evidence of functioning rational judiciary.
“Maybe we should sue Britain next, Britain plays a key role in supplying taxhavens for finacial criminals, if you compare this to a bank robbery, Britain is the guy in the gettaway car.”
Why doesn’t Iceland simply issue an European arrest warrant?
Pretty easy, even if you only have any suspicion of a crime.
More about this over in this article :
http://www.icenews.is/index.php/2010/07/01/cbi-and-fme-announce-new-iceland-foreign-currency-loan-interest-rules/
Well, apparently if the banks lose out, the Icelandic taxpayer will have make good their loss, otherwise the banks will crash again.
Bravo Island! Well done. It will be fun to see how the government tries to squirm out of this.
“It will be fun to see how the government tries to squirm out of this.”
Increasing taxes, closing down services, penalising Icelandic citizens who didn’t take the loans. Great.
How useless useless Red-Green coalition should have handled the announcement from the Court :
http://www.jondan.org/2010/06/a-whiff-of-bananas/
” Here is a partial list of questions questions the government should have answered on the day of the Supreme Court decision:
1. What does this mean for the split of the fallen banks into “new” and “old” banks?
2. will this derail the sale/transfer of the “new” banks to the creditors?
did the creditors and now owners of the “new” banks do due diligence?
3. will the government have to re-capitalize the “new” banks (at least Landsbanki) and can it afford it?
4. Are the “new” banks in danger of failure?
Impact on borrowers
5. Who exactly is affected? (the verdict was only about car loans)
6. What is the interest rate that should have been payed and will be payed on those loans?
7. How to deal with the next loan payment?
8. How will the those who have payed too much be compensated?
9. Will those who benefited before the crisis have to reimburse the lenders?
10. How does this affect the IMF program? ”
Over to you Mike UK Nordic analyst and Bjarni. Do some heavy lifting for us.
Jóhanna off to Canada and US. As usual leaving things undone.
Not that I am sure Moodys has a clue, why are Steingrímur J. and she not doing they jobs to clarify all this LAST month?
Still it is not clarified !!
http://www.bloomberg.com/news/2010-07-29/iceland-debt-rating-outlook-revised-to-negative-by-moody-s-on-bank-ruling.html
“The magnitude of the banking system losses that will result from the recent court ruling is not known at this time but it is clear that Iceland still faces significant risks to its economic and financial recovery,” said Kathrin Muehlbronner, a Moody’s vice president and lead analyst for Iceland, in the statement.
So sadly predictible because Steingrímur in particular not doing his job as thank less as his job may be he did take it in his lust for power to sit in the govnerment chair !