Mortgage contracts leave customers uneasy in Turkey
Posted by meb at February 15th, 2009
As recent declines in mortgage interest rates have attracted borrowers, banks have seen a slight increase in the number of mortgages extended, leading politicians and consumers unions to accuse the banks of being opportunistic and of misinforming customers.
Under the strain of the ongoing global financial turbulence, people have delayed their expenditures, waiting for a better time to meet some of their demands, such as buying a house. At the same time, in such a volatile market environment, consecutive declines in mortgage interest rates by four major banks in Turkey — Yapı Kredi, Ziraat Bankası, Halkbank and HSBC — paved the way for a slight increase in loans. But some claim that this process poses critical problems for customers in the long run and suggest that banks are attracting customers, introducing to them seemingly low interest rates and then adding extra charges without giving borrowers the necessary information.
The focus of the criticism is that banks introduce low interest rates for mortgages but customers are not informed about extra expenditures, which include credit life insurance, earthquake insurance, payments to appraisers, commissions and other service charges that significantly increase the amount of money that customers must pay the banks. The main problem stems partly from the fact that most customers are unaware of the conditions in loan contracts and the banks don’t give detailed information. By law, a customer has the right to be informed about all details concerning a sale.
Politicians take on the issue
Republican People’s Party (CHP) İstanbul deputy Esfender Korkmaz was one of the critics. Korkmaz said last week that some banks were making illegal profits, and he accused them of cheating their customers. “They are putting extra burdens on the customers without informing them. This is not right,” he said. Korkmaz added that monthly interest rates for mortgages are around 1.5 percent on average but that the annual rate is 25 percent. “The annual rate for loans can reach 28 percent. This is called ‘hidden interest’ and is unacceptable,” he said, noting that banks are responsible for informing customers about any details.
“For instance, if a customer applies for a TL 100,000 loan, s/he can get only 70 percent of this amount and also has to pay TL 5,000 for appraisal and insurance expenses. People should not be fooled by low interest rates. The banks impose at least 3 percentage points more than the rate of interest rate at which they market mortgages,” he added. Korkmaz asserted that his party expects to propose a bill in Parliament soon to avoid these problems and unfair applications related to the mortgage issue.
‘Consumers fall for ‘tricks’
Consumers Union President Nazım Kaya said people lack information about their rights and that they can easily fall for “tricks.” Speaking to Sunday’s Zaman about the issue, Kaya noted that banks introduce low interest rates for mortgages but that they make huge profits at the end. “We warn the banks and the consumers constantly,” he said, noting that this issue causes serious financial problems for customers. “We called on all customers to be aware of their rights and learn every detail before taking out loans,” he said. “Banks do everything to attract customers, but they are reluctant to make it clear to them. Many consumers have no idea even about the smallest detail of a loan contract.”
Kaya emphasized that borrowers take out loans without calculating the payments in the long run and that this causes serious problems. Explaining that they had received numerous complaints from customers about problems with banks, he said many people could not pay their debts and their property was eventually seized. “The debt burden increases slowly and leads to a tragic end, leaving the consumers helpless,” he said. “We receive numerous complaints from consumers every passing day. I know people who took out loans with the hope of having an apartment in the end, but they finally failed to pay their debt and gave up.”
Kaya stressed that the main problem stems from a lack of supervision of banks vis-à-vis this issue. “Both the government and the Banking Regulation and Supervision Agency [BDDK] failed to take effective steps, and the problems remain,” he said, adding that their warnings were neglected. “We need a determined and strong control mechanism. Banks cannot continue to act arbitrarily like this.”
“The ‘decision-makers’ do not listen to us. The BDDK said there were no problems concerning mortgages, and the government said interest rates were lower than in Europe and the US. But this is not the problem we are talking about here,” he said, noting that everybody should be responsible.
Touching upon criticism that some banks require borrowers to take out credit life insurance, he said banks did not have the right to do this. “Customers do not have to take out policies from the banks,” he said. “They can do it with any other life insurance company.”
‘Banks must inform borrowers’
The Turkish Banks Association (TBB) told Sunday’s Zaman that the banks are free to define the interest rates for mortgages themselves as part of a free market but that they had implemented standards that their member banks must comply with when extending loans. “The TBB has prescribed the standards that the member banks should comply with and conveyed the conditions to the banks by Feb. 1,” the TBB said in a statement, adding that there were commercials in the media about this.
“Before they extend loans, banks may ask the customer to take out insurance against any sort of possible accident or problem that might occur during the term of the loan. The customers are free to get the insurance from any other company,” the TBB statement noted.
“The customers should be informed clearly; commissions paid and other service charges should be explained to the customer,” the TBB stated. “Banks also are responsible for providing a loan contract letter to customers that includes details about loan conditions along with variable interest rates, before signing the contract.”
The association emphasized that borrowers who have complaints regarding loans may take the bank to court or direct their complaints to bank unions and to the bank from which they had received the loan.
source: Today’s Zaman
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