Challenge to fees charged by lenders in the Czech Republic
Over the last few months the lawfulness of certain fees charged by Czech retail lenders to their borrowers has been challenged. Tens of thousands of customers have reportedly claimed that fees they paid should be refunded.
Several first instance decisions have been issued which ruled that fees were charged unlawfully and should be refunded. These decisions may have implications for the way banks charge fees, not only in the retail sector but more widely.
A German Federal Court of Justice decision in 2011 found that it was unlawful under German law for a bank to charge its consumer customers a fee for maintaining an account evidencing the disbursements and repayments of a loan. The German court found, in essence, that the maintaining of the loan account was entirely in the bank’s interest and that an obligation to pay the fee constituted an unfair term under provisions of the German Civil Code implementing Council Directive 93/13/EEC on unfair terms in consumer contracts (the Directive). The Directive has also been implemented into Czech law.
Similar types of fee are usually referred to as a “loan account fee” or “loan maintenance fee” in the Czech Republic and normally amount to an equivalent of a few euros payable monthly. The German decision was published in the Czech legal press in 2012 and quickly publicised by consumer-protection activists. Several law firms offered to represent customers against banks on a contingency fee basis, claiming the refund of such loan account fees paid over the past four years, which is the applicable limitation period. They are reported to have attracted tens of thousands of claimants, which makes the potential liability on the part of the banks significant even if the amount of the average individual claim is not.
Two early decisions (one issued by the District Court Prague 5 and one by the Financial Arbiter) have found against the banks. Shortly before the publication of this edition of the EFLR, another decision of the District Court Prague 5 found in favour of a bank.
Although both decisions against the banks referred to consumer protection law, this was not the sole basis for the findings. Both decisions were equally based on the fact that the loan agreements in question set out the borrower’s obligation to pay the fee but did not stipulate any corresponding obligation for the bank. The Prague 5 court and the Financial Arbiter therefore found that the agreements were, in respect of the loan account fee, too vague and therefore void. Both decisions therefore turned on the way the fees were agreed in the loan agreements under consideration. The decision in favour of the bank, on the other hand, concluded that the borrower freely accepted the obligation to pay the fee and should therefore be held to it. The more abstract question of whether loan account fees are lawful in general under the Czech law implementing the Directive is still, therefore, an open issue.
There are various arguments in support of the lawfulness of such fees under Czech law. However, much will depend on the specifics of each case. For example, the argument that a loan account fee is just a part of the overall consideration payable to the lender for the granting of the loan will be difficult to maintain as long as the fee is expressed to be payable in consideration for a specific “service” (such as maintaining a loan account) but where there is not a sufficiently clear obligation on the part of the lender to provide that service.
If the reasoning of the two decisions against the banks becomes more widely accepted, lenders may be ordered to refund certain fees. It may also force lenders to incorporate all their costs in their interest rate, rather than charging any additional fees. Many are already doing so.
In addition, the reasoning could apply to other fees charged by banks under Czech-law-governed loan agreements, outside the retail sector. The risk is arguably smaller in relation to common types of commercial lending fees charged to sophisticated borrowers. It can be argued that a sophisticated borrower should understand what it is getting in return for paying, for example, a “commitment fee” or an “arrangement fee”. These arguments would, however, be more difficult to maintain in relation to less sophisticated borrowers or less usual types of fee. In any event, banks can mitigate that risk by making sure that, where they charge a fee under a Czech-law-governed loan agreement, a corresponding obligation of the bank is sufficiently clear.