The grouping of consumer credits
The provisions of the Consumer Code continue to apply to this type of buy-back even if its total amount (amount of debts + possible contribution of cash) may exceed the regulatory ceiling of $ 75,000.
If a revolving credit (formerly called revolving credit) is among the credits concerned, the lender who grants the loan repurchase is required to reimburse the old creditors. When the repurchase relates to the total amount remaining due under a revolving credit, he has the obligation to inform his client of the possibility of terminating the contract, without costs or indemnities, and send him the termination letter.
The grouping of mortgage loans
For this type of transaction, the real estate credit system applies , even if the total amount of the transaction (amount of debts + any additional mortgage) remains below $ 75,000.
The amount of home loans taken into account must include all costs, namely prepayment penalties, taxes, interest, commissions and other fees that the borrower must pay when repaying these loans .
The lender’s lien and mortgage release fees must also be taken into account in the calculation, if the lender which grants credit retrieval wishes to guarantee the new loan by a mortgage of 1st place .
The consolidation of consumer loans and home loans
Before the entry into force of the Congilaw in 2010 reforming consumer credit, loan repurchase transactions were not subject to any particular obligation. The lender was free to define the nature of the project.
Differences in case law have also been noted in the field. In the majority of cases, the rate used for the new contract was that of consumer loans.
The new regulations have thus brought many clarifications to this legal vacuum:
- When the repurchase of credit relates to one or more mortgages whose cost weighs not more than 60% of the amount to be repurchased, the new contract is subjected to the regime of consumer credits.
- If the amount of home loans is greater than or equal to 60%, the new contract is governed by the provisions of the Consumer Code relating to home loans.
- If the repurchase concerns a significant number of loans (real estate and consumption), the law authorizes the implementation of two different operations (one for each type).
Points common to all credit groupings
Below is a small glossary of terms commonly used when setting up a consumer or real estate loan buyout.
- Overall effective rate
The rules relating to the TEG apply in the same way to credit repurchase transactions, whether it concerns only consumer loans, real estate loans or both.
The rules for early repayment applicable to the new contract differ according to the type of restructuring (consumer credit or mortgage).
- Borrower insurance
Borrower insurance contracts are rarely renewed. Often, the borrower must purchase new death insurance. Its cost must however be included in the overall effective rate of the loan.
- Loan agreement
The clauses inserted in the credit buyback contract must be identical to those provided for each type of grouping (consumer credit or mortgage).
The lender may require guarantees for a redemption (surety, mortgage, etc.). The amount of these guarantees will be taken into account when calculating the APR.
- Loan rate
The rate provided for the new contract must not exceed the rate of wear depending on the type (consumer credit or mortgage).
Depending on the type, advertising will be subject to the same rules as those governing advertising on mortgage or consumer credit.
- Effective date
These regulations came into force in France since 1 September 2010 and in the French overseas departments since 1 May 2011.
Provisions for loan offers issued on or after 1 January 2013
To allow the borrower to better compare the different offers , lending institutions are required to provide them, before the loan offer is issued, with a standardized information sheet which details the characteristics of the loans to be bought back, and which lists the elements of the new loan resulting from the operation.
The lender must also bring to the attention of the borrower the consequences of the operation on the rights which he enjoyed in respect of the credits which will be the subject of the combination, namely:
- The loss of the benefit of guarantees intended to guarantee certain loans;
- The loss of borrower insurance taken out under grouped loans;
- The modifications that may result in the guarantees of the borrower insurance following the subscription of the new contract born from the operation (new waiting periods and new deductibles);
- The obligation to inform co-borrowers of the loans to be grouped;
- The loss of the right to act against the seller of the financed property to request the judicial resolution of the sale contract (if the combination concerns an affected loan).