About a month ago, I mentioned that a ruling had been passed in a district court declaring that all Icelandic car loans tied to foreign currencies were [are] illegal.
As many readers will know, these loans are among the most serious consequences of the kreppa for normal citizens in Iceland. Car dealerships pushed them incessantly [one woman I talked to said that the dealership had strongly advised her to take a foreign currency loan, even though she planned to buy her car outright, because she could earn more interest by keeping her money in the bank] — and thousands of Icelanders went for it. I venture to say that almost all car loans issued in 2006-2008 were tied to foreign currencies.
Of course, when the króna plummeted by around 100 percent virtually overnight in October 2008, those loans shot up. In some cases they even tripled or quadrupled [depending on the currency in which they were issued].
Anyway, obviously the district court ruling is highly significant. It was appealed to the Supreme Court and a ruling is pending [but probably won’t be delivered until sometime this autumn].
HOWEVER, it has now transpired that the Icelandic Financial Services Association apparently KNEW that the loans were illegal as early as 2001.
Channel 2 news last night reported on a commentary prepared in 2001 by the head of the Association, Guðjón Rúnarsson, in response to a proposed parliamentary bill on interest rates and indexing. In the commentary, he writes:
As the law is today (and will be unless the bill is changed) it is illegal to issue loans in Icelandic krónur that are tied to a foreign currency.
The bill was subsequently passed – unchanged – meaning that it remained illegal to issue those sorts of loans. Nevertheless Icelandic financial institutions gleefully continued to do so over the subsequent seven years.
And now? If they are forced to make corrections [as it seems the government is planning to make them do] they will most likely go bankrupt. Meaning we, the taxpayers, have to foot [yet another] bill.
Helvítis fokking fokk.