Legislation and Court Practice Related to Facility and Loan Agreements Were Amended

Amendments were introduced to Articles 809 and 810 of part two of the Civil Code of the Russian Federation pursuant to which a borrower being a native who raised a loan for the purposes not connected to the entrepreneurial activity may repay the loan early in full or in part without consent of the creditor subject to at least 30 days prior notice.  
 
In other cases the interest bearing loan may be early repaid only subject to prior consent of the creditor.
 
In case of early repayment of the loan the creditor is entitled to interests under the loan agreement accrued until the date of repayment of the loan in full or in part.
 
These amendments affect legal relationships which arose under facility and loan agreements entered into before such amendments became effective.
 
The Presidium of the Supreme State Arbitration (Commercial) Court of the Russian Federation has summarized court practice on the implementation of the legislation governing loan agreements and bringing banks to administrative liability for breach of legislation on protection of consumers’ rights when concluding loan agreements.
 
In particular, judges of courts of the highest instance specified that court is entitled to apply rules governing deeds on adherence to a loan agreement drafted by the bank and containing provisions materially breaching the balance of the parties’ interests and upon entering into which the borrower was actually deprived of the opportunity to affect the contents thereof. If under a loan agreement the bank has the right to amend the provisions thereof unilaterally, it shall be governed by the principles of reasonableness and good faith when exercising such right. In addition to interests accrued on the loan the bank is entitled for a specific consideration (commission) if the same is established for rendering an independent service to the client. In other cases court shall judge whether the said commissions may be regarded as payment for loan use.
 
The issues arising in the course of resolving disputes related to facility agreements (credit line) were clarified. The Presidium of the Supreme State Arbitration Court of the Russian Federation has specified what terms and conditions should be agreed for a facility agreement to be deemed concluded. Such terms and conditions, inter alia, include those on maximum facility amount, repayment term, interest rate and terms of application for the next tranche disbursement.
 
As far as it relates to bringing banks to administrative liability for breach of legislation on protection of consumers’ rights the Presidium of the Supreme State Arbitration Court of the Russian Federation stated that a provision of facility agreement aiming at the direct or indirect accrual of compound interest (interest upon interest) infringes consumers’ rights provided for by the law. Provision of loan agreement which entitles bank to claim early performance of obligation to repay the loan in the event of deterioration in the financial position of the borrower contravenes law and breaches consumers’ rights. A fine imposed in the loan agreement against the borrower for his refusal to raise a loan contravenes legislation on protection of consumers’ rights.