Czech Republic: Romani NGO helps halt illegal debt collections worth more than CZK 2.5 million
The Brno-based organization DROM Romani Center has long been successfully aiding people who have ended up in the debt trap because of usurious loans. In 2014 the courts halted illegal collections proceedings against 33 clients of DROM worth CZK 2 532 000.
In some cases the collections agents have even had to return money previously collected. Many clients to whom the DROM organization provides social services are grappling with high debts because of their failure to pay off small consumer loans in time.
Loans worth an average of CZK 10 000 - 20 000 frequently become debts of five to 10 times the original amount and continue to grow while collections are being enforced. In cases where the assets of a debtor have been subjected to forfeiture on the basis of an arbitration award, especially for awards issued prior to 2012, those collections processes are being successfully halted.
The courts have repeatedly upheld the finding that arbitration proceedings before privately-owned arbitrators are illegal, which means such collections proceedings are stopped; if the creditor wants to pursue the debt collection further, it must allow an independent court to decide the issue, not a privately-owned arbitrator. "Last year we not only succeeded in halting collections procedures worth more than CZK 2.5 million, but in some cases the collections agents had to return money to our clients that had been illegally seized. A total of almost CZK 80 000 was returned to our clients last year," says Mgr. Filip Fuchs, a lawyer with the organization, adding that "Recently many people have turned to us who do not even live in socially excluded localities. We are helping everyone who has found themselves in a difficult social situation due to indebtedness, not just Romani people."
Several hundreds of thousands of arbitration awards on consumer loan contracts were issued until 2012, the vast majority of which are invalid even though the collections proceedings based on them are still underway. Debtors themselves must propose the collections be halted by filing with an official bailiff.
If, after the court halts the collections proceedings and overturns the arbitration award, the creditor then decides to pursue the debt in court, it is possible to object on the grounds that the collections period has expired, and if the debt has been secured by a promissory note, it is possible to argue in court that the note is invalid. "Some creditors decided not to pursue the debts further for some of our clients after the collections were halted, while others sued. The court, however, will investigate objections that the collections period has expired, as well as the issue of whether the amount of the penalty in the contract is legal and whether the contractual penalty was properly spelled out in the contract itself, not just in the general conditions included as an appendix to the contract. The first verdict we have received in such a matter so far has reduced the creditor's entitlement because the contractual penalty was incorrectly negotiated. While the collections agent was seeking an amount in excess of CZK 60 000 from the client, once that collections proceeding was halted and the matter went to court, the client ultimately only had to pay the original loan in the amount of CZK 10 000 and the costs for the creditor's attorney in the amount of CZK 500," says Fuchs.
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