The President of the Republic has referred legislation passed by Parliament on unfair contract terms to the Supreme Court, with the government arguing that the measure raises serious constitutional questions and risks undermining the foreclosures framework.
A government source told the Cyprus News Agency on Thursday that the referral of the 2026 amendment to the Transfer and Mortgage of Properties Law was “a constitutional review and not a political confrontation”, adding that it was intended to safeguard the proper functioning of the legal order.
According to the same source, the President acted within his constitutional powers by using his right to refer the legislation to the Supreme Court.
The government argues that the legislation directly affects fiscal policy and economic planning, which fall within the remit of the executive branch. It therefore raises, the source said, an issue of legislative interference in core executive responsibilities.
The source also said the legislation weakens the foreclosures framework, creating risks for the system by encouraging unfounded legal actions, delaying foreclosure procedures and enabling strategic defaults.
The government expects the measure to lead to an increase in non-performing loans, a deterioration in payment culture and years-long delays before the courts. It also argues that weakening collateral enforcement could result in higher interest rates on new loans and restrictions on credit expansion.
According to the government source, this would negatively affect economic activity, growth and financial stability. The source added that the legislation would also affect the ability of KEDIPES to recover debts, making it harder to repay state aid and affecting public revenue.
The same source said the framework in place before the new legislation did not deprive any borrower of the right to seek justice. On the contrary, it provided full judicial protection through the courts, including the ability to file a lawsuit, dispute the amount owed and invoke unfair terms or unlawful practices.
The key issue, the source said, was not access to justice, but whether the exercise of that right should automatically suspend a foreclosure.
Under the existing framework, borrowers could apply for a temporary injunction, with any suspension of foreclosure decided by the court on a case-by-case basis. This meant, the source said, that there was a substantive judicial review, as the court assessed whether there were valid grounds and whether a suspension was necessary.
The government argues that avoiding automatic suspension is critical to the functioning of the system, because it prevents incentives for abusive applications.
The source also said rating agencies have repeatedly linked the reduction of non-performing loans and the existence of an effective foreclosures framework with the maintenance of Cyprus’ investment-grade status. The International Monetary Fund, the source added, has also warned that interventions in foreclosure legislation undermine repayment incentives, increase credit risk and restrict access to financing.
“The government fully respects Parliament and its proposals, but it has a responsibility to safeguard constitutionality and financial stability,” the source said.
The source added that the referral does not seek to reject political proposals, but to ensure a balance between social protection and the stability of the system.
SYPRODAT says there is no constitutional issue
The Association for the Protection of Bank Borrowers, SYPRODAT, rejected the government’s position, arguing that no issue of unconstitutionality arises from the legislation.
SYPRODAT Director Jenny Papacharalambous told CNA that the law was based on a proposal submitted by AKEL and the Greens, under which debtors would have access to justice over the amount of their debt and over unfair contract terms.
She said the President considered that the legislation could affect financial stability and have serious consequences for public finances, but expressed hope that the Supreme Court’s decision would be positive for borrowers.
Papacharalambous also referred to a separate proposal concerning interest rate liberalisation, saying borrowers stood to benefit significantly from both cases.
That proposal, tabled by AKEL, DIKO and DIPA, seeks to amend the law on interest rate liberalisation by banning banks from imposing additional interest in cases where the amount owed under a credit facility, including interest, has reached double the original debt.
She said the main reason for that referral was the provision on retroactivity, adding that a ministry representative had agreed on the condition that the measure would apply to new loans.
Source: CNA
