When giving unsecured loans, should the Civil Code or the Law on Credit Institutions of Vietnam be applied?

Because of high-interest rates, there are also many cases where customers do not pay to credit institutions which leads to going to court.

As the content of the judgment 02/2018/DS-ST dated January 10, 2018 on the dispute over the civil contract to borrow property of the People's Court of Tinh Bien district, An Giang province.

The content of the case is about Q Finance Company Limited suing Ms. Nguyen Thi Thu Q about the fact that she borrowed money but did not pay the debt according to the payment deadline in the contract. According to the contract dated 16/8/2016, Ms. Nguyen Thi Thu Q has a loan at Q Finance Company Limited with the amount of VND 30,000,000 (Thirty million VND) in the form of unsecured, monthly installment payment. The loan term is 30 months, the number of payment periods is 30 periods, the first payment date is on September 12, 2016 and the last payment date is on February 12, 2019; the loan interest rate at the time of signing the contract 90185-000-000- 0419-000 is 3.42%/month for consumer loan purposes. However, Ms. Q only paid for the first time with a total of 9,705,000 VND and then did not pay the debt in full to the finance company.

The Court relied on Articles 463, 468, 357 of the Civil Code 2015 to settle the case.

1. Bring the loan interest rate back to the interest rate specified in the Civil Code 2015 which is no more than 20%/year

2. Forcing Mrs. Q to repay the debt to the finance company, including the principal debt of 26,191,000 VND + the interest incurred is 2,320,000 VND = 28,711,000 VND

The decision-making of the court is also in accordance with the provisions of the Civil Code, but the writer himself believes that, for financial companies, the Law on Credit Institutions should be applied instead of the Civil Code.

It is very important to decide which financial company is covered by the regulation because it will determine the lending interest rate.

If it falls under the provisions of the Civil Code, the Court's declaration of the interest rate of 20% is completely correct. But otherwise, declaring an interest rate of 20% is wrong because the 2015 Civil Code also clearly stipulates that "In case the parties have an agreement on the interest rate, the agreed-upon interest rate must not exceed 20%/year of the loan amount unless otherwise provided for by other relevant laws" when it is not within the scope of regulation of the Civil Code, the interest rate shall comply with other regulations.

Clause 4, Article 4 of the Law on Credit Institutions 2010 clearly stipulates that “Non-bank credit institutions include finance companies, financial leasing companies and other non-bank credit institutions”. Therefore, the Law on Credit Institutions must be used to adjust. Then the 20% interest rate is no longer appropriate.

Article 9. Consumer loan interest rate of Circular 43/2016/TT-NHNN stipulating consumer lending by financial companies, the consumer lending interest rate of financial companies shall comply with the Bank's regulations State on lending activities of credit institutions, foreign bank branches to customers.

Clause 2, Article 91 of the Law on Credit Institutions also stipulates that the interest rate is agreed upon by the credit institution by the bank and the customer.

According to the author, here the interest rate of 3.42%/month of the financial company is not reasonable, but bringing it back to 20% is also not reasonable. Firstly, lending by financial companies, especially unsecured loans, is very risky. Secondly, a financial company is also borrowing money and lending it to others. Borrowing and lending must comply with the contract of both parties and relevant legal documents such as the Law on Credit Institutions 2010 and Circular 43/2016/TT-NHNN.

Therefore, Ms. Q initially took out a loan, knowing that it was high, but still agreed to borrow, she had to be responsible for her actions, and she also had to accept the repayment of the loan to the finance company at the accepted interest rate.