Repayment holidays: the end without a beginning?

During the period of the nationwide lockdown introduced by Resolution No. 211 of the Cabinet of Ministers of Ukraine dated 11 March 2020, “On Preventing the Spread within Ukraine of the Acute Respiratory Disease COVID-19 Caused by the SARS-CoV-2 Coronavirus”, financial institutions were prohibited from charging late payment penalties and fines for non-payment of consumer loans.

This prohibition was introduced in accordance with the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding Support for Taxpayers for the Period of Implementation of Measures Aimed at Preventing the Emergence and Spread of Coronavirus Disease (COVID-19)” No. 533-IX of 17 March 2020 (hereinafter – Law No. 533).

Thus, by paragraph 7 of the aforementioned Law No. 533, Section IV “Final and Transitional Provisions” of the Law of Ukraine “On Consumer Lending” was supplemented by paragraph 6 with the following wording:

“6. In the event of a consumer’s default between 1 March 2020 and 30 April 2020 in fulfilling obligations under a consumer credit agreement (including, but not limited to, the consumer’s failure to meet payment obligations during the period from 1 March 2020 to 30 April 2020), the consumer shall be exempt from liability to the lender for such default. including, but not limited to, the consumer, in the event of such a delay, being exempt from the obligation to pay the lender a penalty (fine, interest) and other payments, the payment of which is provided for in the consumer credit agreement for the consumer’s delay in fulfilling (non-fulfilment, partial fulfilment) their obligations under such an agreement. It is prohibited to increase the interest rate on the loan for reasons other than those provided for in Part Four of Article 1056-1 of the Civil Code of Ukraine, in the event of non-performance of obligations under a consumer credit agreement during the period from 1 March 2020 to 31 May 2020 (including, but not limited to, the consumer’s delay in fulfilling payment obligations during the period from 1 March 2020 to 31 May 2020). The provisions of this paragraph shall also apply to loans defined in Part 2 of Article 3 of this Law.”

It should be noted that Part 2 of Article 3 of the Law of Ukraine “On Consumer Credit” provides that:

This Law (the Law of Ukraine “On Consumer Credit”) does not apply to:

1) agreements containing a consumer credit clause in the form of an overdraft facility with a repayment term of up to one month, and credit agreements concluded for a term of up to one month;

2) loan agreements which do not provide for the payment of interest or any other charges for the use of funds provided under such agreements;

3) credit agreements the purpose of which is to grant the consumer the right to enter into transactions involving financial instruments, provided that such transactions are carried out with the participation or through the intermediation of the creditor or another professional participant in the securities market;

4) loans granted under agreements concluded as a result of the settlement of a dispute by means of a court-approved settlement agreement;

5) loans granted exclusively under relevant state programmes or local government programmes to a specific group of individuals and providing for specific lending conditions set out in such programmes, including the payment of interest on the loan;

6) unauthorised overdrafts, which constitute an amount by which a transaction carried out on an account exceeds the established credit limit, arising from an agreement between the lender and the consumer and which are not foreseeable in terms of amount or timing.

7) credit agreements where the total amount of the credit does not exceed one minimum wage as established on the date of conclusion of the credit agreement;

8) loans provided by pawnbrokers in the event of the transfer of the pledged item to the pawnbroker for safekeeping, provided that the consumer’s obligations are limited to the value of the pledged item.

Of course, in adopting Law No. 533, the legislator intended to alleviate the plight of those who would be deprived of their earnings due to the restrictions introduced by Resolution No. 211 of the Cabinet of Ministers of Ukraine dated 11 March 2020; however, it has once again confirmed that, by acting in haste and failing to pay due attention to legislative technique, the legislator may further confuse the parties to the relationships whose regulation is entrusted precisely to them.

After all, the legislator has extended the provisions of paragraph 6 of Section IV ‘Final and Transitional Provisions’ of the Law of Ukraine ‘On Consumer Lending’ to types of credit relationships that are not regulated at all by the provisions of the Law of Ukraine ‘On Consumer Lending’, that is to say, out of the blue created a conflict of norms, which will subsequently have to be resolved through legal proceedings, as not all financial (credit) organisations will agree to apply the provisions of paragraph 6 of Section IV “Final and Transitional Provisions” of the Law of Ukraine “On Consumer Lending”, in particular pawnbrokers, whose operations were authorised from a certain point in time and which carried out transactions not covered by the Law of Ukraine “On Consumer Lending”.

It should also be noted that the amendments introduced by Law No. 533 to the Law of Ukraine “On Consumer Lending”, pursuant to which, in March–April 2020, financial institutions were not entitled to impose penalties on their borrowers for late loan repayments or to increase the interest rate on the loan if the borrower failed to service the loan during the specified period, contained exceptions in cases where financial institutions could increase the interest rate between 1 March 2020 and 31 May 2020, provided that a ‘floating’ rate was specified in the loan agreement in accordance with Part Four of Article 1056-1 of the Civil Code of Ukraine.

If, in your opinion, financial institutions have breached the law during the quarantine measures in force between 1 March 2020 and 31 May 2020, please contact our company for assistance.

We will help you.