Unsecured loans, be careful with "self-negotiated" interest rates in Vietnam

Judgment 45 /2019/DS-ST dated July 25, 2019 on the dispute over the property loan contract of the People's Court of Ben Luc district, Long An province has the following content:

“On October 25, 2017, Mr. Huynh Le Minh T1 signed the Loan Application cum Credit Contract No. 20171026-0004706 with Bank V One Member Limited Liability Company (the Company for short) to Borrowing amount of VND 33,338,000, the negotiable interest rate is 3.92%/month, for the purpose of borrowing money for personal consumption, when borrowing Mr. T1 does not mortgage any assets for the Company.

According to the agreement in the contract, Mr. T1 is responsible for paying the Company the principal and interest amount of VND 63,544,639, payable in consecutive installments within 36 months, specifically the first 35 months, paying the amount of 1,743 each month. 000 VND and last month pay 2,539,639 VND. The first payment period starts on December 1, 2017.

To perform the contract, Mr. T1 has received enough loan amount for personal consumption and has paid to the Company a total amount of 21,285,000 VND (in which principal debt is 12,179,696 VND, interest debt is 9,105,304 VND). Since July 11, 2019, Mr. T1 has not paid any more principal and interest even though the Company has used many reminders.

Because Mr. T1 was late for payment, the one-member limited liability financial company, Bank V, sued Mr. T1 to request Mr. T1 to pay a lump sum of VND 42,259,639 debt to the Company, in which: the principal is 21,158,304 VND, debt interest is 21,101,335 VND.”

Court ruled:

- Accept the petition of the V Bank Finance Company Limited against Mr. Huynh Le Minh T1.

- Forcing Mr. Huynh Le Minh T1 to be obliged to pay VND 42,259,639 to Bank V Finance Company Limited.

Credit institutions can negotiate with their customers the interest rates for unsecured loans in accordance with the law, as provided for in Article 91 of the Law on Credit Institutions 2010 of Vietnam as follows:

Article 91. Interest rates and fees in business activities of credit institutions

1. Credit institutions are entitled to fix and publicly post up the capital mobilization interest rates and service provision fees in the credit institution's business activities.

2. Credit institutions and customers have the right to agree on interest rates and fees for credit extension in the credit institution's banking activities in accordance with law.

3. In case of abnormal developments in banking activities, in order to ensure the safety of the credit institution system, the State Bank has the right to prescribe a mechanism for determining fees and interest rates in its business activities. credit institutions.

And some people wonder that: According to the provisions of the Civil Code 2015, "the agreed interest rate must not exceed 20%/year", then the credit institution when agreeing on the interest rate must comply with the law, which is to apply the interest rate of 20%/year of the Civil Code, at How can you negotiate a higher interest rate?

To explain this issue, we must understand the scope of application of the Civil Code and the Law on Credit Institutions 2010. The Civil Code 2015 has the scope of regulation and conditions for law application as follows:

Article 1. Scope

This Code stipulates the legal status and legal standards of conduct of individuals and legal entities; personal rights and obligations and property rights of individuals and legal entities in relationships formed on the basis of equality, free will, property independence and self-responsibility (hereinafter collectively referred to as: civil relations).

Article 4. Application of the Civil Code

1. This Code is the general law governing civil relations.

2. Other relevant laws governing civil relations in specific fields must not contravene the basic principles of civil law specified in Article 3 of this Code.

3. Where other relevant laws do not or have provisions but violate Clause 2 of this Article, the provisions of this Code shall apply.

4. In case there is a difference between the provisions of this Code and an international treaty to which the Socialist Republic of Vietnam is a contracting party on the same issue, the provisions of the international treaty shall prevail.

The Civil Code is likened to the constitution of civil transactions, covering in general, regulating general civil relations in general and including lending activities of credit institutions. “must not contravene basic principles of civil law” is understood as must not contradict any provisions of the Civil Code.

On the other hand, the Law on Credit Institutions 2010 also has the following scope of regulation:

Article 1. Scope

This Law provides for the establishment, organization, operation, special control, reorganization and dissolution of credit institutions; the establishment, organization and operation of foreign bank branches, representative offices of foreign credit institutions and other foreign organizations engaged in banking activities.

Firstly, in terms of scope of regulation, it shows that the Civil Code has a broader scope of regulation than the Law on Credit Institutions 2010. It follows that the Law on Credit Institutions 2010 is a specialized law when civil relations involve a party of "credit institutions". Therefore, in the judgment, it is correct to apply Article 91 of the Law on Credit Institutions rather than Article 468 of the Civil Code according to the principle of priority in applying specialized laws. Although the Civil Code generally regulates civil relations, for the Law on Credit Institutions, these two laws still have equal legal validity, so specialized laws will apply. The application of the 2010 Law on Credit Institutions will not be the application of legal documents with lower legal validity.

Secondly, considering the content of article 468 of the 2015 Civil Code:

Article 468. Interest rate

1. The loan interest rate shall be agreed upon by the parties.

If the parties have an agreement on the interest rate, the agreed interest rate must not exceed 20%/year of the loan amount, unless otherwise provided for by other relevant laws. Based on the actual situation and at the proposal of the Government, the National Assembly Standing Committee shall decide to adjust the above-mentioned interest rates and report to the National Assembly at the nearest meeting.

In case the agreed interest rate exceeds the limit interest rate specified in this Clause, the excess interest rate will not take effect.

The sentence "unless other relevant laws stipulate otherwise" is a familiar quote that appears a lot in legal documents. Because the legislator also understands that it is not possible to regulate all cases that occur in reality. Moreover, the Vietnamese legal system is considered incomplete, so the above sentence is given to avoid the phenomenon of legal conflict when the laws have different provisions on the same issue. Thus, when the law on credit institutions provides otherwise, it is an exception and applies in the case and to the extent that the law on credit institutions stipulates. The application of the provisions of the Law on Credit Institutions will not "contravene the basic principles of the civil law".

Furthermore, Circular 39/2016/TT-NHNN provides additional guidance on interest rates of credit institutions, and regulations on interest rates of credit institutions in lending activities are as follows:

Article 13. Loan interest rates

1. Credit institutions and customers agree on lending interest rates according to market capital supply and demand, loan demand and credit level of customers, unless the State Bank of Vietnam has regulations on interest rates. maximum loan rate specified in Clause 2 of this Article.

2. Credit institutions and customers agree on short-term lending interest rates in Vietnam dong, but not exceeding the maximum lending interest rate decided by the Governor of the State Bank of Vietnam from time to time in order to meet the meet some capital needs:

a) Serving the field of agricultural and rural development according to the Government's regulations on credit policies for agricultural and rural development;

b) Implement the export business plan according to the provisions of the Commercial Law and guiding documents of the Commercial Law;

c) Serving the business of small and medium-sized enterprises according to the Government's regulations on assistance for the development of small and medium-sized enterprises;

d) Develop supporting industries according to the Government's regulations on supporting industry development;

dd) Serving the business of enterprises applying high technology as prescribed in the Law on High Technology and guiding documents of the Law on High Technology.

…”

In conclusion, relevant legal documents show that credit institutions and customers in unsecured lending activities have the right to "agree on lending interest rates by themselves". However, currently, interest rates on unsecured loans from credit institutions are quite high, ranging from about 20% to 70% per year depending on the product package, loan amount, and repayment term. If the borrower is unfortunately unable to repay the loan on time, the borrower may be fined 150% of the current interest rate as prescribed at point b, clause 5, article 466 of the 2015 Civil Code:

Article 466. Borrower's debt repayment obligation

1. Borrowers of money assets must pay in full when due; if the property is an object, it must return the object of the same type in the correct quantity and quality, unless otherwise agreed.

2. In case the borrower is unable to repay the object, it may pay in cash according to the value of the borrowed object at the place and time of repayment, if agreed by the lender.

3. Debt payment place is the place of residence or the place of head office of the lender, unless otherwise agreed.

4. In case of an interest-free loan but when due, the borrower fails to pay the debt or fails to pay it fully, the lender has the right to demand interest payment at the interest rate specified in Clause 2, Article 468 of this Code on the amount of late payment corresponds to the time of delay, unless otherwise agreed or otherwise provided by law.

5. In case a loan has interest but when due, the borrower does not pay or does not pay in full, the borrower must pay interest as follows:

a) Interest on the principal at the interest rate agreed upon in the contract corresponding to the loan term but not yet paid; in case of late payment, interest must also be paid at the rate specified in Clause 2, Article 468 of this Code;

b) Interest on unpaid overdue principal equals 150% of the loan interest rate according to the contract corresponding to the late payment period, unless otherwise agreed.

Hopefully, through the above article, readers have a basic understanding of legal regulations, the market, and civil disputes related to unsecured lending activities.