On 1 December 2016, the new Consumer Credit Act became effective bringing a fundamental change to arbitration proceedings in the Czech Republic. The Act introduces a total ban on arbitration as a dispute resolution mechanism between credit providers and consumers. This means that from now on, all consumer credit disputes can be resolved by regular courts only.
Until now, it was possible to include an arbitration clause in agreements between credit providers and consumers and to solve potential disputes before any arbitration body (either a permanent arbitration court or an ad hoc arbitrator appointed for the specific case). However, this will completely change with the introduction of the new Act. The change should be beneficial to consumers as many experts believe that arbitration clauses were frequently abused by some credit providers as the stronger party.
Arbitration clauses in consumer agreements already underwent a major change five years ago. As a result of that change, sellers were obliged to include arbitration clauses in a separate document. The aim was to avoid "hiding" the arbitration clause in a vast contract or in business terms and conditions. However, it seems that this was still insufficient and that even further restrictions on arbitration, up to and including its complete prohibition, needed to be introduced. The new obligation follows the trend of the Czech courts which in recent years invalidated many concluded arbitration clauses and proclaimed them as being absolutely void. Although the trend in recent years has been to substantially limit entrepreneurs in negotiating arbitration clauses with consumers, arbitration was still very popular.
The above change only applies to new credit agreements, i.e. arbitration clauses entered into with consumers on or before 30 November 2016 will still be assessed according to the law applicable at the time of their conclusion. However, disputes arising from consumer credit agreements concluded after 1 December 2016 will be decided by the courts exclusively.