From Iceland — Car Loan Ruling Ripples Through Iceland

Car Loan Ruling Ripples Through Iceland

Published June 18, 2010

Wednesday’s Supreme Court ruling that car loans pinned to foreign currency were illegal has begun to ripple through other aspects of Icelandic society, from the housing market to the government.
As reported, the Supreme Court found that car loans taken from the companies Lýsingu hf. and SP-fjármögnun that were pinned to foreign currency were illegal. Families who took out loans on foreign currency, back when the crown was strong, would find the money they owed double almost overnight with the crash of 2008.
Fréttablaðið reports that this ruling has sent tremors through the real estate market, as many mortgage loans taken out were also pinned to foreign currency. Some companies find themselves in a legal gray area. Especially troubling to these companies is that many who took out such loans on cars have already paid back far more than they borrowed, and are possibly entitled to refunds.
The government, for its part, has stated that it will not get involved in the issue. Prime Minister Jóhanna Sigurðardóttir told reporters that the government will not “get itself involved in restricting the rights of [loan recipients].” Minister of Business Gylfi Magnússon added that he can envision some loan recipients receiving refunds from these companies.
Many questions remain unanswered, though, perhaps the largest of them being: what about companies that are now bankrupt? Where will these refunds come from? Would it be right for those who saw these loans as risky, and therefore avoided them, to cover the losses of those who took their chances?
For now, this remains a matter to be decided in the courts.

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