Foreign currency car loans confirmed as illegal in Iceland

saabThe 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 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.

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