Home Credit loses appeal in Russia

On Jan. 18 Home Credit & Finance Bank (HCFB), the Russian arm of PPF owned consumer lending group Home Credit, lost its appeal to the Russian Supreme Court in a case brought against it by the Russian Federal Service for Supervision and Protection of Consumer Rights (Rospotrebnadzor).

HCFB was accused of attaching illegal fees to their consumer loans, including fees for servicing the loan, as well as early and late repayment fees (see “Home Credit Still Struggles in Russia,” CBW Jan. 15, 2007). Rospotrebnadozor called these fees “hidden interest fees,” and said that they were illegal under the civil code. The Supreme Court refused HCFB’s request that they reconsider their Oct. 24, 1994 decision which established the illegality of these fees.

According to Russian daily Kommersant, Lawyers are now expecting a wave of lawsuits from borrowers claiming that they were charged illegal commissions. After receiving numerous complaints, the Commission on Human Rights of the Association of Lawyers of Russia has placed on its website an application form for a suit disputing the legality of commissions on credit. Commission member Evgeny Rashchevsky said that a number of suits against banks are now being prepared, mostly aiming at Russian Standard Bank and HCFB. He said that the technology of HCFB’s operation doesn’t allow consumers to acquaint themselves with the conditions of their loans in detail.

This ruling follows a directive by the Central Bank of Russia requiring lenders to disclose the real interest of loans, meaning the advertised interest plus all commission fees and supplemental payments. The central bank said that commissions and fees for credit servicing make up a significant portion of banks’ profits, and that they have been fighting that tendency for more than a year. The central bank also said that this directive will combat defaulting, which can reach as high as 30 percent in some Russian banks. Analysts contacted by CBW said that the average level of defaults for a European bank is between 4 and 8 percent.

Russian analysts say that the recent ruling and the Central Bank directive will substantially reduce the number of consumer loans in Russia. “Full elimination of commissions will kill the credit market,” Association of Russian Banks president Garegin Tosunyan commented.

Jiří Kašek, corporate communications director for Home Credit, told CBW that HCFB will adapt their contract to be in line with the new ruling and central bank directive. “[HCFB] has always tried to be in full compliance with the law, and all our charges are fully visible on our contract,” he said.