Interest rates, which have held steady in recent years, have seen significant increases each month since the fall of 2021. The level of these rates has a direct impact on the amount of credit installments on all financial instruments: loan contracts, cash loans, mortgages or leases.
It is common in Poland for this type of contract to have a WIBOR factor based on which the final loan installment is determined. The WIBOR is defined by banks as the cost of raising money by a bank in the interbank market, determined as an arithmetic average based on the quotes of FIXINg participants.
So what is everyone’s problem with WIBOR?
The main objection to this indicator, is that it is determined based on virtual transactions, calculations that have nothing to do with reality. The WIBOR calculation is based on averaging the offers of the indicated banks for what they would offer cash to other banks. These transactions are so few or nonexistent that even the supervising entity is unable to provide a figure. It may be several a year or their actual absence. Thus, it has nothing to do with actual transactions, which makes a given indicator significantly susceptible to manipulation.
This is because in the end Banks actually do not have to carry out any such transactions among themselves . The offer, therefore, can be relatively high, and this is due to the fact that it does not have to be actually included in the contract executed by the banks. Nor does it necessarily have anything to do with the actual cost of making the money available.
A similar problem a few years ago in determining the amount of LIBOR, this indicator proved susceptible to manipulation as a result was replaced by another parameter. Regulation (EU) 2016/1011 of the European Parliament and of the Council of June 8, 2016. on indices to be used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No. 596/2014; referred to as the BRW Regulation, while it allows transactions to be supplemented with virtual data, it is not permissible, according to the regulation, to set the amount of a benchmark index based solely on unfunded data, or if the data is dominant.
As WIBOR remains disconnected from actual transactions, it remains high compared to other indices. This is because in Poland there are a number of other reference rates related to financial instruments, including some that have achieved compliance with the BMR, but banks do not use them.
What, then, are the options available to a consumer who enters into a contract with a bank that determines the components of installments based on this unlawful indicator while limiting the possibility of entering into another contract, e.g. with a fixed interest rate by allowing, for example, in mortgage loans, only contracts with variable interest rates?
The key is to protect the bank’s client from the negative consequences, both of an intense increase in WIBOR and of a possible termination of the contract by the bank. This can be countered by starting with a complaint, followed by a collateral request, which, properly formulated, would not only keep installments at the original level, but also prohibit the termination of contracts by banks. The next step is an action to declare the contract invalid in principle in the part that grossly violates the interests of consumers in setting installments based on WIBOR.
Objections to the accuracy of WIBOR determination have been raised for years. Currently, Community as well as national institutions are tasked with preventing manipulation of financial systems that would harm the interests of consumers in particular. The entity that contributes to safeguarding the stability of the EU financial system by enhancing investor protection and promoting stable and orderly financial markets is the European Securities and Markets Authority (ESMA) is an independent European Union (EU) more about ESMA.
Read more about methods for determining WIBOR.
In our previous newsletter, we wrote about the planned support for borrowers in the wake of the interest rate hike. At the time, we touched on the so-called “credit vacation,” or the possibility of suspending repayment of a consumer loan.
The law has been approved by the Sejm and is now awaiting the President’s signature.
We have also written about other parliamentary bills aimed at protecting borrowers(24 months of fixed loan payments and setting a fixed interest rate), but work on these bills is not moving so fast in the Sejm and after the first reading they are stuck in committees.
