UPDATE: Law on debt discharge passed by Parliament. ARB warns on negative impact

Law on debt discharge was adopted on Wednesday by the Chamber of Deputies with a majority of 207 votes “pro”, 1 vote “against” and 1 abstention.

Thus, MEPs agreed that the law on debt discharge will not apply to First House program and increased the loans limit falling under this normative act from EUR 150,000 to EUR 250,000. Also, deputies established that the law will apply to those who are in the process of enforced execution.

The law, which is already in the reexamination phase, will be sent to President Klaus Iohannis for promulgation. The only law remedy would be the contesting on the Constitutional Court.

Liberal MP Daniel Zamfir said in the Chamber of Deputies, that law on debt discharge was not intended as a law against banking system, stating that the draft aims “to bring a balance between customers and the bank.”

According to a survey ‘Romanians’ Opinion on law on debt discharge’ conducted by IRSOP Market Research & Consulting and released last week, more than three quarters of Romanians (77 percent) said that only those who cannot pay should benefit from any law on debt discharge and not those who can pay but do not want.

The current draft of the law allowing retail mortgage borrowers to return real estate collateral to banks in exchange for writing off their loans could disrupt the Romanian banking sector’s improving performance, Fitch Ratings warned couple weeks ago.

ARB: It will have a negative impact on financial stability

The law on debt discharge will have a negative impact on financial stability and there are interpretations from the financial industry, from the ECB and from other institutions on the possible elements of unconstitutionality and moral hazard, the Romanian Banking Association (ARB) has warned on Wednesday.

“The banking community maintains the same viewpoint that the law on debt discharge will have a negative impact on financial stability, as the National Bank of Romania warned from the very beginning, pointing to the identifying of a severe systemic risk determined by the uncertain and unpredictable legal framework in the banking and financial field,” ARB said on Wednesday.

“These elements of unconstitutionality along with the changing or the affecting of legal contracts with the banks in the past will be taken into account by credit institutions on how they will react to the impact of this law,” the ARB said.