Monday, 27 February 2017

Consumers law and financial institutions

In the first Quarter Practise Review, issued by the Russian Supreme Court in the mid-February, one can find several decisions on consumer's relationship with banks or other financial institutions. I have already written a post on one of them, namely on a 'hardship' clause and modification of a loan contract, made in foreign currency. Here are the outlines of two others and some general conclusions...

Microfinancial institutions and usurious interest
A man took a loan on 2 % per day that is 730 % per year. Isn't it too much? Isn't it enough to consider the interest rate as usurious and hence - to consider the condition void as contrary to the public order or on the other basis, listed in the Chapter 9 of the Civil Code of Russia? The borrower tried to prove that it was a hard bargain, but failed.
The Supreme court pointed out that microlaoans are subject to heavy statutory regulations, which limits, among other things, the maximum interest rate. On the day of the contract the average annual rate for similar loans (made without any security and with the sum less than 30 000 rubles (roughly $500)) was 686% so the 730 % had not exceeded the extra limits, put in the legislation. Thus the condition in question did not violate the law.
The decision shows the actual price of money for lay people in Russia as well as their vulnerability and total defencelessness before the power of financial institutions which are backed with the whole judicial system.
Responsibility for deposit withdrawal delay
In another case a bank with substantial delay returned a deposit so the depositor brought an action, asking for the penalty according with The Consumer Protection Law (the rate was 3 % per day that is 1095 % annually). However, the court applied the general rate provided in art. 856 of Civil Code (that is around 15 % annually).
From the juridical perspective the dispute was about which rule had to be considered general and which one was specific. Before the decision it was generally argued that Civil Code provides general norm while The Consumer Protection Law was said to specific (as a codified Law should have priority before a 'general law'). The Supreme Court turned it upside down by saying that the consumer protection law provides the penalty rate 'unless otherwise provided by the law'. Given that the Civil Code penalty rate was established later, it containers exactly 'otherwise provided' thus prevailing the consumer protection legislation.
Conclusion
Taking all three decisions together, one cannot avoid a general conclusion that in ambiguous and unclear circumstances the Court supported financially the strongest party, as all the rulings were made in favour of banks or other financial institutions.

So contrary to proclaimed purposes of the consumer protection law, ordinary people tend to stay helpless in courts, although the judges had plenty opportunities to make the opposite rulings.