Information, explanation, verification: lending institutions have been subject to these three obligations since the Cogilaw Company of 2010, in order to protect borrowers and reduce the risks of over-indebtedness. However, organizations that offer loan consolidations are not subject to a warning requirement in the same way.
New case law
In law, there is the law and its application, which very often also (and above all) refers to case law. The case arose last spring for a credit institution, which was criticized for not having warned a couple in connection with a repurchase of credit to restructure their debts.
The Court of Appeal considered that by announcing only a reduction in monthly payments of $ 1,400 with this loan consolidation operation, the establishment did not fulfill its role in the face of the risk of debt that it must fight as required by the 2010 Cogilaw Company.
Credit repurchase reduces debt ratio
Except that the Court of Cassation was not of this opinion. On April 17, 2019, it censured the judgment of the court of appeal, considering that the repurchase of credit, by essence, is not source of additional risk of indebtedness.
It is even the opposite: debt rescheduling following the consolidation of several loans makes it possible to reduce the amount of monthly payments by lengthening the repayment period. The direct consequence – and the aim sought – for the borrower is the existence of a single monthly payment, lower than the addition of the previous ones.
This operation, therefore, gives purchasing power to a household by bringing a breath to its monthly budget. The repurchase of credit indeed contributes to decrease the rate of debt, which sometimes making it possible to add a sum to the operation in order to finance a new project.
An information file is still necessary
Whether it is a mortgage loan repurchase or a consumer loan repurchase, it should, however, be noted that an organization that sets up credit consolidation must deliver an information document to the borrower, and this since January 1, 2013.
This pre-contractual file must notably indicate the new amount of the monthly payments, its capital and its duration, as well as the possible date from which it is possible to make an early repayment. To be supported and informed in this process, it is possible to contact a credit repurchase broker.