Debate intensifies over financial commissioner powers and foreclosures

The House finance committee has examined significant legal and substantive changes to a proposed law concerning the financial commissioner and procedures for complaints and foreclosures, with the binding nature of the commissioner’s decisions at the centre of debate.

The discussion focused on amendments presented by the Finance Ministry, which stated that most changes involve technical legal corrections and revised definitions, alongside more substantive interventions relating primarily to timeframes.

Among the proposed changes, the deadline for submitting an appeal to the commissioner after receiving notification is extended from 21 to 30 days, while the period for the parties to seek a resolution is increased from 15 to 30 days.

Moreover, a 60-day protection period from foreclosure is also introduced, during which the borrower will have the option to consult an insolvency adviser.

At the same time, a request to the commissioner may be submitted as soon as the borrower receives the Type I notification letter, bringing forward the point at which borrowers can seek recourse.

A further provision states that if an eligible debtor breaches any term of a restructuring agreement, the licensed institution may proceed with the sale of the loan.

The revised draft also introduces references to the grounds on which decisions of the financial commissioner may be appealed, particularly in relation to financial institutions.

The law is set to come into force on June 1, 2026, with the Finance Ministry stating that its core aim is to provide more time to the parties involved and to create a more flexible process compared with court proceedings.

A key issue in the debate was the proposal for the binding nature of commissioner decisions when accepted by the consumer.

“This proposal, which would make decisions binding when accepted by the consumer, seeks to address the existing imbalance between citizens and financial institutions,” said financial commissioner Valentina Georgiadou.

“This possibility substantially strengthens the position of the consumer, as financial organisations currently possess significantly greater negotiating and economic power,” she added.

“A framework should be established in which the commissioner’s decisions become binding when accepted by the borrower, and not only when both parties consent, as this in practice undermines the usefulness of the institution,” she explained.

“This arrangement is in line with the European directive on alternative dispute resolution, which allows member states the discretion to determine whether such decisions should be binding,” she said.

She clarified that these provisions relate exclusively to the examination of complaints and disputes and are not connected to foreclosure procedures.

“Clear limitations should be set on the grounds upon which a party may challenge a decision, in order to protect the institution from the risk of being undermined,” she stated.

“The aim is for the financial commissioner’s office to function as a meaningful first stage of dispute resolution before court proceedings, rather than merely an intermediate step without practical impact,” she added.

“When parties choose to challenge before the courts the amount of compensation awarded, the substance of the case is effectively re-examined,” she noted.

“This distorts the mediating character of the institution and turns the process into a parallel judicial review,” she warned.

“The core role of the institution is mediation and the achievement of compromise solutions,” she said.

“Courts, due to the strict evidentiary and procedural rules that govern them, often lack the flexibility to determine compensation or arrangements with the same practical approach that the commissioner can adopt,” she added.

“If courts are allowed to fully re-examine the substance of the commissioner’s decisions and not only procedural aspects, there is a serious risk of weakening and ultimately dismantling the institution, as citizens will cease to view it as an effective means of dispute resolution,” she further stated.

In contrast, the legal service stressed that the constitutional right of access to justice cannot be removed from any party, emphasising that while the institution aims to resolve disputes out of court, judicial recourse must remain available.

The chair of the committee and Diko MP Christiana Erotokritou proposed that for disputes up to €20,000, decisions should be binding on financial institutions, with appeals limited to procedural matters rather than substance.

From the Cyprus Bar Association, Christos Karas argued that it is legally unnecessary for a matter to be examined twice and that parties who choose to use the institution should accept the binding nature of its decisions, with court challenges restricted to legal error or procedural issues.

Reference was also made to practices in other countries, where appeals against such decisions are examined at a higher judicial level rather than by district courts.

The Association of Cyprus Banks, meanwhile, expressed disagreement with the binding nature of decisions, stating that credit institutions must retain the right to challenge both the procedure and the substance of decisions before the courts.

A similar position was expressed by the association of credit-acquiring companies.

On the other hand, borrower protection organisations supported binding decisions, at least where accepted by the borrower, noting that most disputes exceed the €20,000 threshold and that the routine challenging of decisions undermines the effectiveness of the institution.

“The effectiveness of any legislative framework also depends on the existence of adequate infrastructure and supervisory mechanisms,” said insolvency service director Silia Irakleidou.

“In cases of non-compliance by financial institutions, supervisory tools already exist through the central bank and other mechanisms, and legislative binding force is not necessary,” she added.

The Finance Ministry reiterated that submitting a complaint to the commissioner remains a more flexible and less time-consuming process than filing a court case, while maintaining the right to judicial recourse.

At the same time, members of the committee discussed the future of legislative proposals on foreclosures, which are expected to be brought before the plenary session on April 6, 2026.

“For Akel, the priority remains the promotion of the legislative proposals submitted by the party, which address the core of the foreclosure problem,” said Akel MP Aristos Damianou.

“These proposals focus on restoring the unrestricted right of borrowers and guarantors to access justice, enabling them to secure court orders to prevent foreclosures they consider unfair,” he added.

“At the same time, there are proposals to strengthen the protection of guarantors and to prohibit the more than doubling of loan capital,” he said.

He also stated that the party will assess the government bill once finalised, noting that outstanding issues remain.

“The legislative proposals on foreclosures should be brought before the plenary no later than April 6,” he said.

Dipa MP Alekos Tryfonides described as positive the inclusion of provisions on the binding nature of decisions in the government bill, while stating that his party will seek an amendment to increase the threshold from €20,000 to €50,000.

He added that most cases examined by the commissioner involve amounts up to this level and that his party is also promoting proposals such as suspending foreclosures until the end of the year and temporarily restoring access to justice for one year.

He further referred to proposals to terminate loans when the capital is more than doubled or when the mortgaged property is sold.

In addition, he expressed optimism that the government’s positions will become clearer in upcoming committee meetings and that a comprehensive legislative package may be submitted to the plenary either on April 6 or by April 23, 2026.

Greens president Stavros Papadouris stated that a significant portion of his party’s proposals has already been incorporated into the government bill or has received a positive response from the ministry of finance and the insolvency service.

He highlighted provisions on the binding nature of decisions and the ability to appeal to the commissioner from the stage of the Type I letter as key elements now included in the bill.

Papadouris also referred to positive feedback on other proposals, including abolishing the practice of selling property without a reserve price after a second auction and changes to the insolvency framework, including increasing the primary residence value threshold to €400,000.

He said that the only remaining and politically sensitive issue is the restoration of borrowers’ access to justice, which the movement intends to support.

Finally, he said that the matter is now political rather than constitutional, as clarified by the ministry, which confirmed that there is no issue of unconstitutionality.