An end to challenges to loan administration fees charged by Czech lenders?
Constitutional Court's dismissal of constitutional complaint: ref No III. ÚS 3725/13, 10 April 2014. Supreme Court opinion ref No Cpjn 203/2013, 23 April 2014
Recent court rulings have weakened claims by consumers against Czech retail lenders regarding the lawfulness of "loan account fees" or "loan administration fees". The rulings confirm that, in principle, these fees are lawful. This article examines recent decisions, and identifies remaining risk areas associated with these fees.
Background
The fees that are being challenged are, essentially, fees charged by a bank for administering a loan account, the primary purpose of which is to keep a record of the disbursements and repayments of a loan. Claimants argue that references to the fees in the loan agreements were too vague and therefore void, and that obligations to pay the fees constituted an unfair term under the Council Directive 93/13/EEC on unfair terms in consumer contracts (the Directive).
A catalyst for the challenges was the publication in the Czech Republic of a 2011 decision of the German Federal Court of Justice1 (which found that similar fees were unlawful under German law). The media has widely reported that tens of thousands of clients, represented by a handful of law firms, have filed actions with Czech courts and the Financial Arbiter, claiming that these fees should be refunded. Early decisions of the District Court Prague 52 and the Financial Arbiter3 in 2013 found in favour of the claimants, although later decisions have been more positive for banks. Out of the 410 cases heard before the courts and the Financial Arbiter since 2013, only 11 have succeeded.
These decisions in favour of banks show that lower courts and the Financial Arbiter consider the fees to be lawful in principle. However, the reasoning has varied. Some courts emphasised that the borrowers freely accepted the terms of the loan agreement. Others concluded that the fee constituted a part of the price paid for the loan and was therefore excluded from assessment under the Directive. The Financial Arbiter scrutinised in great detail whether the banks in fact provided services in exchange for the fee that were not subject to another, separate fee and concluded that, if this was the case, the fee was lawful.
Although the German Federal Court of Justice decision was cited by most claimants, the Czech courts and the Financial Arbiter refused to give that decision any significant weight.
Constitutional Court
On 10 April 2014 the Constitutional Court ruled on a constitutional complaint against a decision of the District Court Prague 4 that found in favour of a bank. The Constitutional Court dismissed the case on the grounds that no constitutional right was violated by the judgment of the District Court, and so did not rule directly on the question of the lawfulness of the fee. However, it did make some comments in this respect, when it endorsed the District Court's application of the pacta sunt servanda principle and its conclusion that the fee is part of the price of the loan and therefore excluded from assessment under the Directive. Unsurprisingly, but still helpfully, the Constitutional Court's ruling confirms that consumer protection is not per se a constitutional right in the Czech Republic.
Supreme Court
Most of the claims concern amounts below the legal threshold for appeal or extraordinary appeal to the Supreme Court. However, the Supreme Court can issue opinions which, although not directly binding, serve to unify the decisions of lower courts. In an opinion issued on 23 April 2014 it expressed two conclusions:
(1) that an agreement in respect of such a fee cannot be considered too vague simply because it fails to specify a full list of corresponding obligations of the bank; and
(2) such a fee agreement cannot be assessed as an unfair term under Czech statutory provisions implementing the Directive, because it is an agreement on price, which is excluded from the scope of the relevant legislation.
Remaining risks
Although it seems that, in principle, loan account fees are lawful, there are still some remaining areas of potential challenge which have not yet been ruled on by the Constitutional Court or the Supreme Court. The Financial Arbiter has hinted that, although the fees are lawful in principle, they could be subject to a different challenge eg a unilateral increase of such a fee by the bank over the life of the loan has been ruled as invalid because the circumstances in which the bank was entitled to the increase, defined in the loan agreement, were considered too vague and not objective. The Financial Arbiter also hinted at possible defects in the way the fee was reflected in the annual percentage rate (APR).
Footnotes
These decisions are subject to pending appeal and judicial review
1.Reference No XI ZR 388/10, 7 June 2011.
2. Reference No 25C 261/2012-138, 18 April 2013.
3. Reference No 3473/2013, 181/SU/2012, 29 April 2013.
