Inclusion of terms in a loan agreement with an individual on a forfeit (default interest) for violating the deadline for repayment of a loan (interest on the loan) does not contravene legislation and does not prejudice consumer rights

Pepeliaev Group hereby advises that the Presidium of the RF Supreme Arbitration Court has formed its legal position in respect of the inclusion by banks of terms in loan agreements with individuals that infringe upon consumer rights.

On 2 March 2010 the Presidium of the RF Supreme Arbitration Court issued Resolution No. 7171/09, which aimed to unify court practice[1] applied by arbitration courts in respect of the rules for holding banks administratively liable, as stipulated by part 2, article 14.8 of the Russian Code of Administrative Offences, for including terms in loan agreements that infringe upon consumer rights, as prescribed by law.

According to the legal position set forth in aforementioned Resolution issued by the Presidium of the Russian Supreme Arbitration Court, the inclusion in a loan agreement with individuals of terms on the collection of a forfeit (default interest) for violation of the deadline for repaying a loan (interest on the loan) does not contravene legislation and does not prejudice consumer rights.

At the same time, however, the aforementioned Resolution ruled that the following provisions of loan agreements with individuals violate or infringe upon consumer rights as prescribed by law:

ü terms on a potential unilateral change in interest rates;

ü terms establishing a commission for the opening and maintenance of the loan account;

ü terms stating that any disputes may only be subject to jurisdiction at the address of the bank.

The Resolution by the Presidium of the RF Supreme Arbitration Court has been published on the web-site of the RF Supreme Arbitration Court.

Accordingly, state arbitration courts should be guided by this Resolution when ruling on the relevant legislative issues.

According to clause 1, article 16 of Law of the Russian Federation No. 2300-1 dated 7 February 1992 “On the Protection of Consumer Rights”, the terms of agreements that prejudice consumer rights according to rules prescribed by laws and other legal acts of the Russian Federation on the protection of consumer rights shall be recognised as null and void.

We recommend that credit institutions, which use in their work standard loan agreements with individuals containing terms that are similar to those described above, to bring said agreements into line with the legal position expressed by the Presidium of the RF Supreme Arbitration Court in said Resolution.

Lawyers from Pepeliaev Group will help you analyse the documents applied by the credit institution when lending to individuals from the perspective of whether these documents contain any provisions that infringe upon consumer rights and bring these provisions into line with effective legislation and court practice.