Credit disputes with banks

Assistance in disputes with banks and other financial institutions

Recently, disputes with financial institutions regarding loan repayment have been in the headlines and the first reports in the news of the day. And this is understandable: first, the rapid appreciation of the dollar against the hryvnia, which has had a fundamental impact on the ability to repay loans, and second, the unstable political situation, which always has a similar effect on the economy as a whole. Of course, the majority of the Ukrainian population is in no hurry to take out new loans, but the existing ones need to be repaid.

Resolution No. 5 of the Plenum of the High Specialized Court of Ukraine for Civil and Criminal Cases dated 30.03.2012 "On the Practice of Application of Legislation by Courts in Resolving Disputes Arising from Credit Relations" as amended by the same Resolution No. 7 dated 07.02.2014, defines the legislative acts to be referred to by the courts in considering such disputes:

• Constitution of Ukraine (Articles 41, 42, 99);
• Art. 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms of 04.11.1950;
• Chapters 52, 53, 71 of the CCU;
• The Law of Ukraine "On Banks and Banking Activities" of December 07, 2000, No. 2121-III;
• Law of Ukraine "On Pledge" dated October 02, 1992, No. 2654-XII;
• Law of Ukraine "On Mortgage" No. 898-IV dated June 05, 2003;
• The Law of Ukraine "On Protection of Consumer Rights" of May 12, 1991, No. 1023-XII;
• The Law of Ukraine "On Securing Creditors' Claims and Registration of Encumbrances" of November 18, 2003, No. 1255-IV;
• Law of Ukraine "On the National Bank of Ukraine" of May 20, 1999, No. 679-XIV.

The ways of protecting the rights of a person are defined in Article 12 of the CCU, and it should be noted that the judicial way is not the best method and does not always lead to the desired result - given the level of internal "legal protection" of banking structures and their huge influence on the activities of the state, but the participation of a competent lawyer can force the bank to make concessions.

Possible ways to solve the problem

• Settlement agreement

The lender's voluntary consent to granting the borrower an installment plan for repayment of the loan, interest, and reduction of penalties is formalized by additional agreements to the main loan agreement (deferral or postponement of loan repayment due to hard financial circumstances, health conditions). Sometimes, the lender imposes additional requirements for the borrower to provide certain guarantees of repayment: a guarantee, additional collateral or mortgage of property, etc.

• Termination of the agreement on the grounds of changes in material terms (Article 652 of the Civil Code)

The recent depreciation of the hryvnia against foreign currencies by almost 2.5 times (since 2008, since 2014) has led to a sharp increase in interest and repayment amounts under loan agreements in foreign currency (which have always been much higher than in hryvnia, and therefore people have taken out loans mainly in foreign currency), as many loan agreements provide for a floating interest rate or the lender's right to increase it. Borrowers began to demand that banks change their agreements due to changes in material terms - we receive income in hryvnia, but we have to pay back loans in foreign currency.

However, the aforementioned Resolution No. 5 put forward restrictions on the effect of Art. 652 of the CCU - the borrower, who bears the burden of proof, must prove a number of facts: "materiality" of this condition in the agreement; confidence of the parties at the time of entering into the agreement that such a change of circumstances will not occur; simultaneous presence of the four conditions of part 2 of Article 652 of the CCU. In practice, this proves to be almost impossible, and therefore these types of disputes in court mostly end up not in favor of the borrower.

• Termination of the agreement on the grounds of its conclusion in violation of Article 65 of the FCU.

According to Article 61 of the Family Code of Ukraine, the object of the right of joint property is wages, pensions, scholarships, other income received by one of the spouses, i.e. funds from which it is expected to make payments under the loan agreement. However, back in 2010, the SCU noted that the provisions of the article relate to the disposal of property, not to the right of one of the spouses to obtain a loan, since the loan agreement does not create obligations for the other spouse, but only for the borrower as a party to the agreement.

In other words, when entering into a loan agreement, there must be a written consent of the other spouse to receive a loan - with a clear definition of amounts, dates and conditions. In the absence of such consent or its incorrect execution, you have the right to refer to a violation of the law.

• Termination of the agreement on the grounds of violation of Article 11 of the Law of Ukraine "On Protection of Consumer Rights"

Article 11 of the Law of Ukraine "On Protection of Consumer Rights" applies only to individuals, and therefore, private entrepreneurs and legal entities (i.e. business entities) cannot refer to it in case of taking a loan.The Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on the Settlement of Relations between Creditors and Consumers of Financial Services" of 22.09.2011 No. 3795-VI amended Article 11, namely: its provisions apply to all legal relations between a lender and a borrower (consumer) under a consumer loan agreement, both those arising during its conclusion and during its execution. Previously, it was only about the moment of conclusion. After the entry into force of Law No. 3795, many clients decided to exercise their right to restructure their loans, in particular, to convert their currency into hryvnia at the exchange rate that existed at the time of the loan. However, no one, including the court, has the right to oblige the lender to carry out such a restructuring, and there are certain requirements for loan collateral, which may result in the economic feasibility of the process being nullified.

• Invalidation of a loan agreement on the grounds of misrepresentation when obtaining a loan (Articles 229-230 of the Civil Code of Ukraine)

This is one of the most characteristic problems of this type of case - the presence of so-called "hidden fees" in most agreements drafted by bank legal services. Although the lender seems to provide all the information required by Article 11 of the Law of Ukraine "On Consumer Protection" and NBU Resolution No. 168 of 10.05.2007 on the Rules for Providing Information to Consumers by Ukrainian Banks on Credit Terms and the Total Cost of Credit, it later turns out that in the annexes (usually printed in a font that is almost impossible to read) one can find references to additional payments that affect the actual amount of interest and the actual amount of loan payments.

It is noteworthy that the court practice in this category of cases is ambiguous, and the generalization of the SCU does not mention it at all, but this is indeed the most realistic way to get out of loan obligations. Very often, this may require a forensic accounting opinion.

In any case, you cannot do without the help of qualified lawyers in credit disputes. Remember that all ambiguous provisions in loan agreements are interpreted in favor of the consumer. Also, even if we fail to invalidate the agreement, we can help you cancel a court decision to recover penalties under loan agreements, which can often be several times higher than the amount of the loan itself. An agreement, the subject of which is a consumer loan in foreign currency, concluded after the entry into force of the Law of Ukraine "On Amendments..." No. 3795-VI dated 22.09.2011, may be declared invalid - the provision (receipt) of consumer loans in foreign currency in Ukraine is prohibited (part 1 of Article 11 of the Law of Ukraine "On Protection of Consumer Rights").

And one more extremely important note. The courts have always considered disputes with banks to be property disputes, and therefore required plaintiffs to pay state fees, which was a significant obstacle to challenging loan agreements. Amendments to the legislation exempted the plaintiff from paying the court fee if it is a violation of his or her rights as a consumer (Article 22(3) of the Law of Ukraine "On Protection of Consumer Rights").

The powers of collection services have also been significantly limited, and they can now be held liable. The law prohibits long and periodic visits of collectors to the consumer's home, constant telephone, fax, electronic or other communications without the consumer's consent. It is also officially prohibited to publicly disseminate information about debts and to contact the debtor's relatives or friends.

It is worth using the services of our specialists (including not only lawyers, but also experienced economists and accountants) at the stage preceding the conclusion of the loan agreement. Risk analysis and calculation of your real financial capabilities with our legal support will be the key to fulfilling the loan's main function - to obtain a service or product, to realize your plans, to start a business, etc. - today and now, without worrying about finding free funds.

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