Penalties on early payment deemed illegal

Consumers who have made purchases in installments will no longer be penalized by financial institutions or car dealers for paying off ahead of the agreed time period. Deputy Development Minister Christos Theodorou has warned the Hellenic Banks’ Association, the Association of Cooperative Banks, the Association of Automobile Importers and Dealers, the Automobile Retailers Association and a couple of electrical appliance retail chains that imposing a penalty on consumers or debtors for making good on their debt ahead of time was illegal and he threatened to slap fines of up to 58,694 euros for each reported case. Theodorou also called on bankers and retailers to clearly indicate to consumers the amount of interest they will pay annually if they choose to make any purchase in installments. Bankers and retailers typically penalize those who choose to pay up ahead of time. Their reasoning is that, by agreeing to let the client, or consumer, to pay in several installments instead of immediately, they expect, in turn, to make money out of the deal: A sooner-than-expected payment deprives them of their rightful gain, they argue. The ministry takes an opposing view. It concedes that the consumer has voluntarily entered into this type of agreement, but says that he or she may unilaterally choose to pay up the owed amount sooner. According to the ministry’s consumer policy division, the practice is «contradictory, abusive and unfair, since it penalizes those consumers who pay off early.» The ministry goes on to say that the consumers who settle early deserve a lower credit cost. The ministry also requires that retailers clearly display the total cost incurred if any goods are bought on credit and/or in installments. The reason the ministry has issued this decree is the recent fast expansion of credit. It can also be seen as a populist measure that will appeal to those consumers, including house purchasers, who do pay off early. The real problem, however, lies with those in arrears in their payments. With many retailers, especially auto dealers, advertising their wares, offering consumers to buy now and begin payment, in installments, after two or three years, authorities fear that the problem of defaults on debt will reach a peak after 2004, since it is only from last year that consumers were given this type of choice. In fact, early repayments of debt are quite rare, although they may increase now that they can be made at no extra cost.