What is a guarantee?
Guarantees fall into two categories: personal guarantees and guarantor mortgages. Most commonly, personal guarantees are granted to secure the principal debtor’s debt instruments or overdraft loans. The term guarantor mortgage is used here to describe an arrangement where a third party’s asset is provided as security for a claim.
Valid or invalid guarantee
In determining the validity of a guarantee, it is important to determine when the guarantee was undertaken. If the guarantee was undertaken between 1 May 1998 and 31 October 2001, the Agreement on Use of Personal Guarantees, dated 1 May 1998, applies. Guarantees undertaken between 1 November 2001 and 3 April 2009 are subject to the Agreement on Use of Guarantees for Individuals’ Liabilities, dated 1 November 2001. Guarantees undertaken after 3 April 2009 are subject to the Act on Guarantors, no. 32/2009.
It should be noted that pension funds and the Icelandic Student Loan Fund were not parties to the agreements from 1998 and 2001 and were therefore not obliged to act in accordance with them. Furthermore, financing companies became parties to the 2001 agreement at different times. Act no. 32/2009 applies to all of these parties, however.
What can be done?
Guarantors and/or principal debtors are encouraged to contact the financial institutions in question to discuss the validity of the guarantee.
The following information can be important in determining the validity of a guarantee. It is possible to request and review this information:
- The debt instrument itself
- The declaration of personal guarantee (for overdraft loans)
- The assessment of debt service capacity
- The results of the assessment of debt service capacity
- The balance of the loan
- The loan agreement Amendments of terms and conditions (if applicable)
- Other documents relating to the loan
Disputes about guarantees
Complaints Committee on Transactions with Financial Firms
The guarantor may refer a dispute about a guarantee to the Complaints Committee on Transactions with Financial Firms. The fee for referring a case to the Complaints Committee is ISK 5,000. Further information can be found on the Financial Supervisory Authority website.
Individuals may obtain information by telephone at +354 520 3700 on Tuesdays from 10:00–11:00 hrs. and on Thursdays from 14:00–15:00 hrs. It is also possible to send queries by e-mail to: urskfjarm@fme.is.
The courts
It is not required to refer the case to the Complaints Committee on Transactions with Financial Firms before initiating legal proceedings. The guarantor is therefore authorised at any time to seek the assistance of a lawyer or to refer a dispute about a guarantee to the courts.
The Office of the Debtors' Ombudsman does not participate in court cases. Furthermore, the Office does not provide legal advice on the validity of guarantees.