The Bank Could Not Charge a Fee for Managing a Loan Because Such an Action Is Not a Bank Service Which the Borrower Ordered - SC Grand Chamber

In 2005, the plaintiff took a loan from the bank, and in 2017 he filed a lawsuit to invalidate the terms of the loan agreement on the establishment of an additional fee for loan management and on the provision of a loan in foreign currency. He also asked the court to recognize the bank's actions to collect fees for managing the loan as unlawful and to oblige it to recalculate the plaintiff's debt. The court of first instance dismissed the claim. The court of appeal generally agreed with this decision, but changed the reasoning of the court of first instance, applying those provisions of the Law of Ukraine On Protection of Consumer Rights (the Law), which were in force at the time of the conclusion of the loan agreement.

Considering the plaintiff's cassation appeal, the Grand Chamber of the Supreme Court resolved, in particular, two issues. The first is whether the term of the loan agreement concluded before January 13, 2006 on the establishment of an additional fee (commission) for credit management is invalid (null). It concluded that the specified term of the loan agreement was disputed. As to whether the demand for the obligation of the bank to recalculate the loan debt is an effective way to protect the rights of the plaintiff, the SC Grand Chamber decided that this requirement was a demand for enforcement of the obligation in kind and an effective way of protection in disputed legal relations.

The courts found that in the loan agreement the parties agreed on a loan management fee, which the borrower had to pay monthly during the entire period of using the loan funds at the rate of 0.3% of the actual balance of the loan debt (excluding the amount of interest the borrower had to pay to the bank). The SC Grand Chamber stated that this term of the contract should be declared null and void.

This term is contested in accordance with part 1 of Art. 21 of the Law (in the version in force at the time of the conclusion of the loan agreement) and part 3 of Art. 215 of the Civil Code of Ukraine. Firstly, banks are prohibited from requiring the client to purchase any goods or services from the bank or from a person related to or connected with the bank as a prerequisite for the provision of banking services (part 3 of Article 55 of the Law of Ukraine On Banks and Banking Activity). Secondly, the terms of the contract which limit the rights of the consumer compared to the rights established by the law are recognized as invalid (the first sentence of part 1 of Article 21 of the Law in the version in force until January 13, 2006). In addition, according to the provisions of Article 509, part 1, of the Civil Code of Ukraine (in the version in force at the time of the conclusion of the loan agreement), the object of the obligation cannot be only actions that one of the parties commits in its favour.

The SC Grand Chamber noted that the bank could not collect payments from the borrower for actions that it performed in its favour (management of a loan case, a loan agreement, calculation and accounting of debt under a loan agreement, etc.), or for actions performed by the borrower in favour of a bank (for example, accepting a payment from a borrower), or for actions performed by a bank or borrower in order to establish, change, terminate legal relations (concluding a loan agreement, amending it, etc.). In other words, the bank is not authorized to charge the borrower a fee (commission) for loan management, because such actions do not constitute a banking service ordered by the borrower (or accompanying it), but are a consequence of the implementation of the bank's rights and obligations under the loan agreement and correspond to economic needs of the bank only.

Taking into account the principles of fairness and good faith, the borrower cannot be obliged to pay for services for which he did not actually apply to the lender. Failure to comply with these principles leads to a violation of the rights and interests of participants in civil transactions. The borrower’s fulfillment of the terms of the loan agreement, established in violation of these principles, does not bring these terms into conformity with the basics of civil law.

The SC Grand Chamber noted that there was no reason to consider the term of a specific loan agreement on the establishment of a fee for loan management to be null and void, either in view of the provisions of Art. 21 of the Law in the version in force at the time of the conclusion of this contract, or considering the provisions of Art. 228 of the Civil Code of Ukraine. Such a term is void as contested.

In view of the the findings of this judgment, in order to ensure the unity of case law in resolving issues of validity (voidability, nullity) of the terms of payment (commission, other similar payments) for loan management (loan servicing, cash and settlement servicing of the loan account, etc.) in loan agreements concluded prior to January 13, 2006, the SC Grand Chamber departed from a number of conclusions formulated by the Supreme Court, namely: a) on the nullity of the term on the additional payment by the borrower in favour of the bank of the commission for cash and settlement services of the loan account; b) on compliance with the requirements of the legislation of the terms of credit agreements concluded in 2005 regarding the monthly commission for cash and settlement service, commissions for the use and management of loan and the need to take into account to establish the validity of these terms of behavior of borrowers who were familiarized with such terms and signed the relevant contracts and they were carried out for a long time (cases No. 667/10018/15-ц, No. 718/194/17, No. 727/557/16-ц, No. 442/475/17).

The SC Grand Chamber also commented on the effectiveness of the requirement for the bank's obligation to recalculate loan debt. According to the customs of business turnover in loan legal relations, it is the bank or other financial institution that calculates the debt. Although the creditor takes such actions for his own benefit, their failure to do so leads to a state of legal uncertainty, the impossibility for the debtor to terminate the obligation through proper execution, in the absence of information about the actual amount of his debt. Therefore, the debtor can demand a proper calculation of the debt, and the creditor must fulfill such an obligation (para. 5, part 1, Article 16 of the Civil Code of Ukraine) in order to satisfy the debtor's interest in legal certainty. Satisfying the debtor's demand to oblige the creditor to recalculate the debt under the contract (as well as writing off some part of it which is the subject of the dispute) can be a way to protect the debtor's right to peaceful possession of the property.

Following the examination of the case, the SC Grand Chamber reversed the judgments of the courts regarding the refusal to satisfy the requirements for invalidating clause 1.3.2 of the loan agreement and the obligation to recalculate the debt under this agreement and made a new decision to satisfy these requirements. It changed the court decisions regarding the refusal to satisfy the requirement to recognize the actions of the bank to collect fees for the management of the loan as unlawful and set them out in the wording of this resolution, otherwise left it unchanged.

The Resolution of the Grand Chamber of the Supreme Court of July 13, 2022, in case No. 363/1834/17 (proceedings No.14-53цс21): https://reyestr.court.gov.ua/Review/105852863.

This and other legal positions of the Supreme Court can be found in the Database of Legal Positions of the Supreme Court - lpd.court.gov.ua/login.