On 5 October 2011, the Supreme Commercial Court of the Russian Federation (the "SCC") posted an information letter on its official site, reviewing the judicial practice on holding banks administratively responsible for violating the legislation on protecting consumer rights when entering into credit agreements (the "Letter").
The Letter confirms the SCC's position in evaluating the separate terms of a credit agreement with an individual borrower in order to protect consumer rights. Specifically, terms that:
- set compound interest rates (interest on interest), either directly or indirectly;
- permit banks to demand early repayment of credit when a borrower's financial circumstances worsen; and
- prohibit the early repayment of credit during a certain period, as well as a bank charging a commission for the early repayment of credit, all violate the rights of a consumer.
In addition, the Letter clarifies that a bank may transfer its rights under a credit agreement with a consumer to organisations that do not have banking licences (including collection agencies).
These clarifications should be carefully considered by the banks as they may materially influence the current standard practice of entering into credit agreement with customers.
[Information Letter No. 146 of the Presidium of the Supreme Commercial Court of the Russian Federation "Reviewing the judicial practice in respect of several issues of holding banks administratively responsible for violating the legislation on protecting consumer rights when entering into credit agreements", dated 13 September 2011]