As we reported a few days ago, the Icelandic Supreme Court passed a ruling last week that loans indexed to foreign currencies are illegal in Iceland.
For anyone unfamiliar with the concept, Sigrún Davíðsdóttir explains over on her blog [also exposing the further incompetence of the Icelandic bankers, as if we didn’t have overkill on that front already].
The significance of this ruling is colossal. It means that thousands of people are now cut down from the noose in which they have been hanging since the economy melted down. Fréttablaðið quoted a social worker today who has been working with people who have had nothing left over at the end of the month when their loan payments are made — all because of the massive weight of the foreign currency loans.
It also means that the lenders are now being forced to take a share of the responsibility for making the loans — something which was previously the full responsibility of the loan taker.
One of the best discussions I have seen on the subject is in a post written by one Helgi Jóhann Hauksson, whose blog I was reading for the first time. He writes:
The loan agreements between the public and loan or credit institutions are never close to being an agreement between two equals, as representatives from those companies like to maintain. If conflict arises due to default, the debtor cannot afford to hire legal counsel due to lack of funds. The legal profession essentially operates to serve the wealthy and powerful who pay the lawyers’ fees, and therefore all legal precedents and judicial settlements on loans and credit-related matters are completely one-sided.
The credit institutions draw up the loan agreements and inherent terms with the help of an army of the most expensive lawyers, and the loan takers are then presented with those predetermined conditions.
Debtors must trust that the general terms of such contracts have been carefully thought out and are both legal and fair, and have been supervised and approved by the government before they are presented and printed. After all, standard contracts are subject to laws designed to protect consumers, as well as laws that apply to credit institutions and terms of loans.
It is only when people do not have adequate funds to meet their payments (or to hire legal counsel) that they are faced with the fact that the credit institutions hold all the power and show no mercy if people have not met the criteria of the contracts, as assessed by the credit institutions themselves.
He goes on to describe some of the brutal ways in which people have had their homes or cars repossessed, and finishes by saying:
The full posse of the legal profession [in Iceland] has, for 100 years, since the founding of the University of Iceland, exclusively served the creditors and capitalists in their purest form. All legal precedents are on that side, on the side of the creditors and capitalists, because the others hardly ever get a chance to plead their cases. On top of this, attorneys have been granted exclusive rights to legal proceedings, so people cannot even enjoy the assistance of more knowledgeable or experienced friends or relatives to plead their case, since they are simply turned away from the defendant’s table by the judge, and forbidden from speaking.
What is unusual now is that the economic collapse has put so many people unexpectedly in the position of feeling on their own skins the modus operandi of the credit institutions and university-educated debt collectors, that many others have had to experience after being hit by illness or personal trauma. However, their complaints have never been heard.
This new situation is currently being discussed at ever level of Icelandic society, from the government to the credit institutions to debtors’ associations to water-cooler gatherings. The actual implementation of the law is yet to be determined, i.e. how the changes will be carried out, the loans calculated, repayments made, whether or not people should make payments if bills arrive next month, etc. etc. One thing is sure, though — if anyone tries to meddle with this ruling, there will be hell to pay.