Buyer Beware: Consumer Protection Information

SAVINGS ON THE TEG — TAUX EFFECTIVE GLOBAL

Special Note: This article in no way reflects any suspicion of any lender from whom our clients have borrowed, but is meant to inform for consumer protection purposes.

The TEG, or Taux Effective Global in French, what in English we know as the AER, or Annual Equivalent Rate, “is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears.” (Wikipedia.org)

A lay person such as myself gets tangled up in these words, but the rate is used to compare the annual interest between loans with different compounding terms (daily, monthly, annually, or other) and differs from the APR (annual percentage rate) because it does not incorporate one-time charges such as front-end fees nor is it defined by legal or regulatory authorities (as APR is in many jurisdictions).

What’s interesting about this is that almost no one actually performs the analysis on their loan offer from a lender to see if their TEG is correct or not. Some Web sites claim that as many as 70% of all mortgages have made bank errors in your favor. This was brought to my attention by one of our attorneys who specializes in these cases, as the consumer can seek compensation for the mistakes made by the bank resulting in potentially huge savings.

Please note that in the interest of being precise and correct, I have taken the liberty of paraphrasing or quoting his words: “The TEG reflects the total cost of the credit to the client, taking into account all the compulsory costs paid by the borrower in connection with the credit.” The bank is legally bound to provide this information so that the borrower can make the accurate comparisons with other loan offers. I am personally ‘guilty as charged’ of NOT doing the due diligence on a loan offer and accepting the word of the bank as true and correct.

“A limited preliminary analysis can be carried out on the basis of the loan offer along with the amortization table only, but preferably all documents should be provided for an accurate analysis. If the TEG appearing on the credit offer/agreement is incorrect, the borrower can request the cancellation of contractual interests, and the application of the legal rate in force at the time when the contract was signed.”

The legal rates from 2004 to 2014 were:

2014    0,04%
2013    0,04%
2012    0,71%
2011    0,38%
2010    0,65%
2009    3,79%
2008    3,99%
2007    2,95%
2006    2,11%
2005    2,05%
2004    2,27%

If you discover the error’s in your favor, the bank must reimburse any overpaid interest and apply the legal rate for the future, which can result in a substantial savings over the life of the loan. There are other flaws that can determine the cancellation of the contract, including “incorrect calculation or no mention of the period rate, incorrect mention of the period of payment, signing of the loan agreement before expiration of the 10 day cool-off period, not sending the loan offer by mail, not receiving the borrower’s acceptance by mail etc.”

There is a time limitation for filing a claim of five years from the date of the loan agreement, but it can also be five years from the date when the borrower is ‘informed of the cause of action,’ provided that the borrower is an individual who could not know of the cause of action at the time of entering into the contract. “Most often, errors regarding the TEG can only be assessed by a financial expert, so when the borrower is an individual the time limitation will usually start from the date of the financial expert report revealing the error.”

This is good news for me personally as my loans are now past the five-year mark, but it would be interesting to know if there’s a chance for a savings or not. The independent financial expert our attorney works with will check the TEG for free! If his analysis confirms a wrong TEG, he will then issue a report evidencing the mistake, for a cost generally not exceeding 400€, including the calculation of amounts to be reimbursed by the bank.

I imagine that the initial free report will indicate whether it’s worth pursuing further or not. If a TEG issue or other issue justifying an action is confirmed, his firm will assist borrowers to negotiate a reimbursement/reduction of the contractual interests with the bank or, if no agreement can be reached, to bring an action in court. His firm has a fixed fee plus a contingency percentage of the amounts paid by the bank and on future savings. If legal action against the bank is necessary, additional fees will apply.

The documents to be provided are (scanned copies in pdf format, one file per document):

• Initial loan agreement offer (special and general conditions)
• Amortization table
• Schedule of costs and invoice issued by the notary
• Deed of sale

If the borrowers’ death/invalidity insurance contract was not subscribed with the bank:

• Insurance contract with schedule of payments

If the bank invoiced fees/costs in relation with the issuance of the credit:
 
• List of costs paid to the bank in relation to the credit: e.g. fees for preparing the credit offer (“frais d’étude”); purchase of bank shares in case of a mutualist bank

If the loan was subscribed via an intermediary (mortgage broker…):

• Mortgage broker invoice / intermediary invoice

If the loan is guaranteed by a mutual guarantee company (Crédit logement, CNP caution, SACCEF…):

• Guarantee contract

If the loan is guaranteed by personal guarantees (“caution personnelle”):
 
• Costs charged by the bank for notifying the information letter (status of the loan) to the guarantor

If the interest rate is variable:

• Information letters from the bank stating the new interest rate and the date when new rate applies

If the loan was renegotiated:

• Amendments to loan agreement (including new offer and amortization schedule)

If the loan was partially/totally reimbursed in advance:
 
• Letters from the bank confirming partial/total reimbursements

To learn more about this, contact our attorney, M. Sébastien PINARD and be sure to tell him Adrian Leeds referred you:

email: [email protected]
+33 (0) 1 84 16 93 89
 

NOTARIAL TAXES AND FEES GET A DOWNWARD FACE LIFT

A decree of February 26, 2016 as part of the Macron Law of of August 6, 2015 makes significant changes to the Notary fees.

The government decided an overall decline in the rate which takes two forms:
 
–  For all transactions, notary fees have been lowered to 1.33% for real estate sales, 1.45% for the loan arrangements, 1.38% for notarial transaction, and even 1.36% for inheritance claims.
 
–  For property transfers and the formalities that accompany them, the amount of notary’s fees will not exceed 10% of the value of the property or the transfer duties (a 90€ ceiling). This measure primarily concerns the sales of real estate for small amounts. This will mainly make a difference on land or property situated in rural areas, or disposal of public areas, basements and urban parks.

The idea behind this is to equalize the profits by the Notaires — to raise those whose projects are less profitable and lower those whose projects are more profitable. Do not confuse the taxes paid with the Notary fees.  
 
Under these conditions, the customer must make a distinction between the remuneration of the notary and taxes levied by the notary.
 
You can learn more on the Paris Notaires site (in French).

PROPERTY PRICES IN THE ILE-DE-FRANCE AT THE END OF JANUARY 2016 REMAINS STABLE

According to the Notaries of Paris, the Ile-de-France regional real estate market has again become fluid: the activity is stable on the market throughout the Region, despite a slight decline in January 2016, and apartment prices and houses remain stable.

Download the PDF (in French).

A bientôt,

  Adrian Leeds
  Editor, French Property Insider

  Email: [email protected]

 

 

 

 

P.S. FREE FINANCIAL FORUM! Thursday, April 21, 2016. Join us with Brian Dunhill and me for an in-depth look at how American citizens deal with the ever changing regulatory environment and financial challenges and the financial aspects of property ownership in France. Details available on our Conferences & Events page. Be sure to register in advance at dunhillfinancial.be/events.html

 

---