Amendments to Article 29 “Interest Rates on Credits, Deposits and Service Charges of a Credit Institution” of the Federal Law “On Banks and Banking”

Pepeliaev Group advises that on 15 February 2010 the Russian President signed Federal Law No. 11-FZ “On Amendments to Article 29 of the Federal Law “On Banks and Banking” (hereinafter – “Article 29 of the Bank Law”).

Article 29 of the Bank Law regulates the procedure for establishing and/or amending such terms and conditions of credits and deposits as the interest rates, service charges and duration of contracts.

The above law clarifies that, unless otherwise specified, a credit institution establishes, on agreement with its customers, not only interest rates on credits and deposits and service charges, but also the procedure for determining interest rates on credits, including by determining interest rates on a credit based on amendments to the provisions set out in a relevant contract[1].

The new law applies different approaches to regulation of possible amendments to the terms of relevant contracts in relations between credit institutions and their customers, including legal entities (and individual entrepreneurs) and individuals.

In particular, in respect of legal entities and individual entrepreneurs, it is established that such terms as interest rates on credits and/or the procedure to determine them, interest rates on deposits, charges and the duration of such contracts may not be amended unilaterally by the credit institution, with the exception of cases stipulated by the federal law or the contract with the customer[2].

In respect of individuals, the law establishes that the credit institution cannot unilaterally reduce the duration of a credit contract, increase interest rates and/or extend the procedure for determining such interest rates, increase or establish service charges, with the exception of cases stipulated by the federal law[3].

No changes have been made to the regulation of such issues under a contract for a bank deposit made by an individual, to be returned on the expiry of a specific period or in the event of circumstances stipulated by the contract[4].

Consequently, credit institutions may unilaterally amend any of the above terms of contracts with legal entities and individual entrepreneurs only in cases stipulated by relevant contracts or the federal law.

In respect of individuals, the federal law does not allow only those unilateral amendments to the terms and conditions of credits and deposits, that lead to deterioration in such terms of credits and deposits, unless otherwise stipulated by the federal law. Any such amendments stipulated by a contract with an individual shall be deemed invalid.

Please note that the new version of Article 29 of the Bank Law will enter into force from 20 March 2010. In addition, the provisions on possible unilateral amendments to contracts with legal entities and individual entrepreneurs, as well as possible amendments to credit contracts with individuals, will only apply to legal relations that arose from contracts concluded after the entry into force of the above law.