The harmonisation of consumer lending legislation into a single law has taken several years. It materialised with the enactment on 21 December 2013 of Federal Law No. 353-FZ “On Consumer Credit” (the “Law”).
The Law will regulate, from 1 July 2014, the provision of loans to individuals by banks or non-credit financial institutions for purposes not related to entrepreneurial activities.
The Law restates the provisions related to consumer lending initially contained in different federal laws and regulations, as well as provisions formulated by the courts. It also introduces significant novelties which are outlined below.
Lenders have about three months left to bring their documentation in line with the new requirements and adapt their credit policies as well as internal processes.
Terms of consumer loan agreements
The terms of a consumer loan agreement must be divided into general and specific terms. The general terms are unilaterally determined by the lender in order to create uniform terms which are applicable to all the consumer loan agreements of that lender. The specific terms are to be agreed by the lender with each particular consumer borrower and are applicable only to a particular loan agreement.
The Law does not provide for a particular list of general terms which must be determined by the lender. However, the lender must make a number of the facts concerning the provision of the loan publicly available (in the place of acceptance of the application for the consumer loan or on its official website).
The facts to be disclosed include, in particular:
- information about the lender;
- the loan provision and repayment procedures;
- the interest rate or, if the interest rate is variable, its calculation method;
- available types of consumer loan; and
- the loan currency and term.
We understand that the legislator expressly chose not to provide for a list of general terms in the Law in order to leave lenders with some room for manoeuvre in determining the general terms of consumer loan agreements.
The Law stipulates a non-exhaustive detailed list of specific terms of the consumer loan agreement. They must be set out in a distinct and easily readable font and in tabular form as will be provided by the Central Bank of the Russian Federation (the “CBR”). In case of any discrepancies between the general and the specific terms, the specific terms will prevail.
Variation of terms
Under the Law, the lender can vary the general terms of the consumer loan agreement provided that the changes will not impose any additional obligation on the consumer. The consumer borrower must be informed of any changes in the general terms, however the timeframe for providing such notification is not defined.
The consumer borrower can start court proceedings to request a unilateral change of the general terms of the consumer loan agreement. This is only possible, however, in respect of terms that are clearly excessive for the consumer borrower.
The specific terms can be changed according to the standard procedure in Chapter 29 of the Russian Civil Code (mutual consent or court proceedings in specific cases). As a result, when the Law comes into force, the regime of contracts of adhesion will no longer apply to the specific terms of consumer loan agreements.
Fees, charges and other restrictions
Many restrictions on lenders, which are currently supported by court practice, have been given a statutory basis. This confirms that lenders, in particular:
cannot charge consumer borrowers fees for:
- the performance of obligations imposed on lenders under Russian law; and
- the services which are provided for the sole benefit of lenders and do not create any separate benefit for consumer borrowers (such as document and application reviews, credit checks, etc.);
- cannot, if a consumer loan agreement provides that the consumer borrower is to open an account with that lender, charge the borrower for any transactions related to that account which are connected with the performance of obligations under that agreement;
- must set the maximum penalties for failure to repay the consumer loan or interest within the limits of statutory caps; and
- cannot provide a borrower with a new loan to repay an existing loan without concluding a new consumer loan agreement.
Total value of consumer loans
The total value of the loan will have to be stated on the first page of any consumer loan agreement. Lenders will no longer be able to freely determine the total value of the loan.
The CBR will calculate and publish the mid-market total value of consumer loans (all types) on a quarterly basis. On the date of the consumer loan agreement, the total value of the loan must not exceed the mid-market total value by more than one third. This mechanism will allow the CBR to monitor the maximum total value of consumer loans.
The deadline by which the CBR must start publishing the mid-market total value of consumer loans is 14 November 2014.
Assignment of claims under consumer loan agreements
Lenders will be able to assign claims under a consumer loan agreement, without the borrower’s consent, to any third party unless prohibited in the agreement or by applicable law. This should, in our view, help prevent any further divergence in court practice on the question of whether the assignee needs to be a bank.
All personal data of the borrower transferred to the assignee will continue to be protected by bank secrecy rules.