Disputes with financial companies that are not credit institutions in Vietnam

The Judgment 02/2018/DS-ST dated January 10, 2018 on a dispute over a property loan civil contract has the following summary:

“On August 16, 2016, Ms. Q borrowed money from Q Finance Company in the amount of VND 30,000,000 borrowed in the form of unsecured, monthly installments. The loan term is 30 months, with an interest rate of 3.42%/month, for consumer borrowing purposes.

From September 13, 2016 to February 25, 2017, Ms. Quyen paid 9,705,000 VND, after that, Ms. Q failed to fulfill the debt repayment obligation as committed in the signed loan contract.

When filing the lawsuit, the Company only charged interest until May 21, 2017, specifically, the loan amount was VND 26,191,840 and the interest was VND 2,901,000, interest was VND 53,909, and the contract settlement fee was 1,500,000 VND, total 30,647,500 VND. By the date of the Court's conciliation on November 29, 2017, the principal and interest amount were VND 36,320,000.

Now, Q Finance Company Ltd., requires Ms. Q to pay the principal and interest of the total debt amount of 36,320,000 VND once. At the same time, ask Ms. Q to continue to pay company Q the interest arising from overdue debt until the debt is fully paid."

The People's Court of Tinh Bien district, An Giang has applied Article 468 of the Civil Code on interest rates for the amount of late payment according to the provisions of Article 357 of the Civil Code 2015, deciding:

Forcing Mrs. Nguyen Thi Thu Q to be obliged to pay Q Finance Company Limited the loan amount which is the principal amount of VND 26,191,000 + the arising interest of VND 2,320,000 = 28,711,000 VND ( Twenty-eight million seven hundred and eleven thousand dong ).

Q Finance Company filed a lawsuit based on the Law on Credit Institutions, Circular 43/2016/TT-NHNN and Circular 39/2016/TT-NHNN  of Vietnam as a basis for calculating the monthly loan interest rate of 3.42% (about more than 36%/year). This is a higher interest rate than the provisions of the Civil Code 2015 (20%/year), so this interest rate can only be applied when the lender is a credit institution and can freely negotiate the interest rate. loan rate according to Article 91 of the Law on Credit Institutions.

According to the Law on Credit Institutions, a financial company is a credit institution with the function of providing consumer loans according to Point d Clause 1 Article 108:

Article 108. Banking activities of financial companies

" 1. A financial company may perform one or several of the following banking activities:

a) Receiving deposits from organizations;

b) Issuing certificates of deposit, promissory notes, bills and bonds to raise capital for the organization;

c) Borrowing capital from credit institutions, domestic and foreign financial institutions as prescribed by law; borrowing from the State Bank in the form of refinancing in accordance with the Law on the State Bank of Vietnam;

d) Loans, including installment loans and consumer loans;

d) Bank guarantee;

e) Discounting and rediscounting negotiable instruments and other valuable papers;

g) Issuing credit cards, factoring, financial leasing and other forms of credit extension after obtaining approval from the State Bank.”

2. The Government shall specify the conditions for financial companies to carry out banking activities specified in Clause 1 of this Article.”

However, the Court said that Q Finance Company is not a credit institution, so it must apply the 2015 Civil Code to settle. That is, the interest rate agreed by the parties under this loan contract must not exceed 20% per year according to Article 468 of the Civil Code 2015 and cannot be freely agreed upon. The court determined that this is a civil contract to borrow property between an organization and an individual, not between an individual and a credit institution.

Although Q Financial Company has the phrase "credit institution", it is possible that during the settlement of the case, the Court discovered that company Q, although named as a financial company, did not have enough grounds to prove that Q was a financial company. prove that the company is qualified to carry out consumer lending activities. Because in order to carry out this activity, the company needs to meet the conditions specified in Articles 5 and 9 of Decree 39/2014/ND-CP :

“Article 5. Banking activities of financial companies

1. General conditions for financial companies to conduct banking activities are specified in Clause 1, Article 108 of the Law on Credit Institutions:

2.… (this clause has been repealed)

3. Having a contingent of qualified staff, professional capacity, facilities, technology, means, equipment and internal regulations as prescribed by law to carry out recorded banking activities. in the License.

4.… (this clause has been repealed)

Fully satisfy the professional conditions for banking activities prescribed by the State Bank.

Article 9. Loans, including installment loans and consumer loans

"Financial companies may provide loans, including installment loans and consumer loans, when they fully satisfy the conditions specified in Article 5 of this Decree."

Therefore, the Court applied the Civil Code to settle the dispute, deciding to force Ms. Q to pay the remaining principal and interest at the interest rate of 20%/year.

In fact, there are many companies with the name financial companies, but they are not qualified to carry out credit activities according to the law. Since then, these "fake" financial companies can act as credit institutions to lend at high-interest rates, contrary to the provisions of the law in order to gain illicit profits.

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