straight to the point – from different points of view

Payment deferral blues

Payment deferral blues

In the face of the devastating COVID pandemic, many citizens found themselves in financial difficulties due to unplanned and unexpected loss of income. The government implemented many plans to alleviate the suffering, providing welcome relief in a time of hardship. Here is a short list of some of the more notable efforts

Here are just a few items of financial support offered:

1. The reserve requirement for banks has been lowered from 17 percent to 14 percent. This is expected to result in reduced interest rates at commercial banks.

2. The Central Bank of Trinidad and Tobago (CBTT) has reduced the repo rate (lending rate) from 5 percent to 3.5 percent. This is expected to result in prime lending rates of banks being reduced from 9.25 percent to 6 percent.

3. “Skip a payment.” Following discussions with commercial banks, all customers will have the opportunity to defer loans and mortgages for one month, in the first instance. The Finance Minister indicated that penalties on non-payments will be waived during this period of uncertainty.

4. Interest rates on credit cards will be reduced to 10 percentage points.

These are all commendable and welcomed by many. It is estimated for example, that tens of thousands of people who were having difficulties in meeting their monthly mortgage payments obtained much needed relief and peace of mind, albeit for a maximum period of six months. Besides being a laudable and compassionate act, this decision surely avoided a crisis for the financial institutions via an inevitable upsurge of defaulting loans.

While the policy achieved its short term objective, we now face a new troublesome reality as a consequence. Many borrowers who availed themselves of deferrals are now discovering that they have merely kicked the proverbial can down the road. I’m referring to the demands of the financial institutions now that the deferral periods have come to an end.

I have been approached by several persons for advice about demands being made of them by the institutions. I must state up front that there is a gulf in the way different institutions are dealing with the end of the arrangement and what they expect from their clients. The approach of staff in various institutions appears to vary dramatically with some managers taking a more hands on and conciliatory stance than others. How much this reflects policy from above is unknown.

In the most egregious cases, borrowers have been presented with a demand for all the deferred payments immediately. If the borrower had been paying 2,000 dollars per month and had deferred for the full six month period, they were being told that they had to pay 12,000 dollars immediately. To make matters worse in some instances, there was no notification given to the borrower at the time of the deferral that these were the terms. I have more to say about that below.

In the best case, one institution appears to have provided a deferral in the true sense of the word. The borrower would simply resume their monthly payments at the end of the deferral period. Using the 2,000 dollars per month example and assuming that they were due to complete their loan repayments in December 2021, they would now complete their payments six months later i.e. June 2022.

As said above, some institutions are asking for the entire backlog to be paid immediately. Other options being offered include-

  • Increased monthly payments for a defined period
  • Increased payments for the remaining duration of the loan
  • Replacement of existing loan with new, more onerous loan

Such institutions are in flagrant violation of the directive of the Central Bank dated March 24th, 2020, a short passage of which now follows –

c. Disclosures In accordance with section 7.4 of the Market Conduct (Customer Notification of Material Modification to, or Temiination of, Products or Services), fmancial institutions are required to provide borrowers with accurate disclosures when offering “skipped payments” and/or rate reductions, which will alleviate any misunderstandings relative to the changes in the tenns and conditions of the loan contract. The financial institution must provide customers with adequate information to understand the implications of a “skipped payment” or payment deferral, including the consequences (if any) for the total amount payable under the loan contract, the term of the loan, and the amount of contractual monthly instalments. The customer should also have no liability to pay any charge or fee associated with the granting of the “skipped payment” or deferral arrangement.

My first advice to you if you find yourself in the unfortunate position described is that you immediately contact an attorney, an accountant or other financial adviser to determine the best way forward. You can see from the extract that you should have been given full understanding of the consequences for the total amount payable. You should also note the last sentence whereby the customer should have no liability to pay any charge or fee … You should verify that no such fee has been charged. Seek advice as before if you are unable to ascertain yourself whether such is the case.

Additionally, you may seek the help of the Office of the Financial Services Ombudsman (OFSO). Details can be fund at www.ofso.org.tt. OFSO is the Regulator of Financial Institutions in T&T and they report directly to the Governor of the Central Bank.

From speaking with a few clients I know the distress that this has caused. The Central Bank has made clear what it expects from institutions that participate in such arrangements. They ought to be commended for it. Where I am unhappy with them is with regard to any follow up. Can they require all institutions to advise clients with questions about repayment terms of their right to consult with OFSO at a minimum?

Beyond what the Central Bank and OFSO could do, there is much that you the borrowers can do. I have already suggested seeking professional advice. I have shown you that the Central Bank has published regulations that remove doubt about what is allowed and what is not. I have directed you to the OFSO as a viable optin.

If you were not advised in writing about the full terms of the deferral, then it appears that the institution is in breach of the Central Bank directives. They should not now be permitted to impose onerous terms. You could well argue that they have forfeited the right to anything other than the vanilla deferral f payment dates described above.

Finally, I wish to close with a call to all of you who feel that you have been badly treated by your institutions. We need to get to the big picture. How many people have been adversely affected by the behaviour of the banks and other institutions and what types of mistreatment did you encounter? Building the big picture of how people have been treated will strengthen and amplify the range of options available to you all. I and other professionals will be better placed to offer professional advice both to the general public and to our clients.

Tell us your story at d.walker@alcindorwalker.com. If enough of you respond I will publish a report and start an online discussion on this most important matter (always observing absolute confidentiality). I will also share generic advice from myself and our attorneys by email with those who make contact and relate their experiences.

David Walker

d.walker@alcindorwalker.com

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