Since 2013, the Republic of Cyprus has been under the scrutiny of the European Commission over concerns regarding the ineffective enforcement of EU Directive 93/13/EEC in connection with the use of unfair terms in consumer contracts.
This Directive is crucial for consumer protection, aiming to shield buyers from unfair terms often buried in standard contracts for goods and services.
This long-running investigation stems from Cyprus’ alleged failure to properly apply the law. The issue resurfaced recently following a landmark ruling by the Nicosia District Court against the Cyprus Housing Finance Corporation (CHFC), which sided with consumers over abusive clauses in loan agreements issued by financial institutions.
Government response and ongoing EU dialogue
Cypriot Minister of Energy, Commerce and Industry, George Papanastasiou, has reassured the House of Representatives that the government has taken all necessary steps to comply with the Directive, in a bid to avoid sanctions from the EU.
As Minister Papanastasiou outlined, the European Commission first issued a formal warning to Cyprus in 2013, highlighting issues in the country’s property market, where citizens were found to be facing unfair terms in mortgage contracts.
In a response to a parliamentary question raised by independent MP Alexandra Attalidou (Volt), the Minister explained that on 20 June 2013, the Commission formally launched infringement proceedings (Case No. 2013/2082) against the Republic of Cyprus.
At the heart of the issue was the failure to fully implement the 1996 law on unfair terms in consumer contracts, a law that should be enforced by the Consumer Protection Service in relation to land developers and credit institutions.
Between 2013 and April 2021, a series of official communications were exchanged between the Cypriot authorities and the Commission, all aiming to resolve the matter. According to Papanastasiou, the ministry has taken continuous action over the years to address the concerns raised, meeting the deadlines set by the Commission and fulfilling Cyprus’ obligations.
The process continued into 2024. Following the Cypriot government’s submission of a reasoned response in April 2021, the Commission requested further clarification, which was officially delivered on 4 November 2024. Cyprus submitted its detailed reply on 4 February 2025, providing all the data and documents requested.
Papanastasiou stressed that multiple ministries and competent authorities collaborated on the response, under the coordination and final review of the Legal Service. As it stands, the Ministry reports no pending actions on its part, and the final decision from the European Commission is now awaited.
Recent court rulings strengthen consumer rights
The issue of unfair contract terms in Cyprus has also been tested in court. On 13 May 2025, the Nicosia District Court issued a prohibition order against CHFC, instructing it to immediately cease using specific loan clauses deemed unfair under both national and European law.
The court found that the terms in question violated the principles of good faith and contractual balance, referencing case law from the Court of Justice of the European Union. These included clauses allowing for:
- Unilateral changes to interest rates
- Termination of interest subsidies
- Imposition of vague or undefined fees and charges
- Merging or offsetting of accounts without notice
- Unilateral changes to repayment terms
This ruling marks the second conviction by a Cypriot court in a case involving unfair terms in banking contracts. The first came on 25 February 2021, in a case against Société Générale, which is currently under appeal. In that instance, 13 out of 14 mortgage clauses examined by the court were declared unfair, citing lack of transparency, disruption of contractual balance, and unilateral modifications by the bank.
As the EU continues to review Cyprus’ compliance, these rulings may prove pivotal in reshaping the local financial landscape and reinforcing consumer protections in the country’s banking and property sectors.
