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President Dmitry Medvedev has signed a law that changes the way individuals pay back bank loans. Now people will be able to repay the loan early in full or by installments provided two conditions are met.
First, the change only applies to personal loans, not business loans. And second, the lender must be notified 30 days in advance that the loan will be repaid early. In this case, the lender can only receive interest on the loan accrued until the repayment date. These changes to the Russian Civil Code apply retroactively to all loan agreements signed before passage of the law.
The issue of loan agreements between banks and individual borrowers was recently brought up by the Presidium of the Supreme Commercial Court of the Russian Federation. The court released a memo summarizing the judicial practice of imposing administrative sanctions on banks for violation of consumer rights.
According to the memo, oversight authorities often hold banks accountable for violation of consumer rights, and courts tend to support the authorities and rule against the banks.
Banks occasionally violate the law when signing loan agreements. A case in point: a borrower missed a scheduled payment under a loan agreement. The bank instantly issued a new loan in the amount of the overdue payment, unbeknownst to the borrower. However, this new loan never reaches the borrower but is instead used to repay the original loan. Now, the borrower has to pay interest on two loans.
Another case: a bank issues a loan to a customer on the condition that the bank is entitled to demand repayment of the entire amount of loan if the borrower’s financial situation deteriorates. According to the bank's terms, deterioration meant a decrease in income in excess of 10%.
Another bank stipulated in a loan agreement that if a borrower makes a claim against it the case will be considered in the court with jurisdiction where the borrower lives, whereas disputes related to claims filed by banks will be considered in the court with jurisdiction where the bank is registered.
A loan agreement drafted by one bank included a provision that services related to provision and servicing of the loan shall be paid by the borrower according to the bank’s rates, and the bank reserved the right to change these rates at its discretion without consulting the borrower.
A final example: a borrower comes to the bank that issued him a loan and requests information on the repayment schedule and the balance on his loan. The bank tried to charge for this information although the agreement says nothing about this.
In all of the above cases the banks violated the consumer rights protection law and were therefore subject to administrative liability.
Accordingly, we can safely assume the following: now banks cannot charge interest on interest or repay borrower’s debt by issuing another loan in his name without notifying the borrower; deterioration of a borrower’s financial situation may not be the sole criterion for demanding early loan repayment; disputes related to claims filed by banks against individual customers must be considered by courts with jurisdiction where the customer lives; customers cannot be charged a fine for refusing to take a loan; banks may not change rates without the prior consent of the customer; and information about the loan balance and payment schedule must be provided to customers free of charge.
Sergei Ignatenko, press secretary of the Maritime Territory Court