Procedure for overdue loan recovery cannot be changed when borrower signs loan agreement

The Bank of Russia draws lenders’ attention to the fact that they cannot suggest that a borrower concludes an agreement that changes the mode and frequency of interaction in cases of overdue-debt recovery when a consumer loan agreement is being signed.

The regulator addressed a respective information letter to credit institutions, microfinance organisations (MFOs), consumer credit cooperatives (CCCs) and agricultural consumer credit cooperatives (ACCCs).

The frequency and mode of interaction between a lender and a borrower are determined by Federal Law No. 230-FZ, dated 3 July 2016. However, the law stipulates that a lender and a borrower may conclude an agreement that provides for other frequency and mode of interaction between the parties. Such an agreement may be concluded, among other things, as part of negotiations of overdue debt restructuring and shall be initiated by the financial consumer.

However, inquiries the Bank of Russia receives from the public show that some lenders introduce clauses which change the mode and frequency of interaction in the process of debt recovery in the general or individual conditions when they conclude a consumer loan agreement. Otherwise, lenders may suggest signing a supplementary agreement on the day the loan agreement is concluded.

In its information letter, the Bank of Russia explains that if a bank, an MFO, a CCC or an ACCC suggests that a borrower signs such an agreement in conjunction with a consumer loan agreement, this practice is deemed to be a violation of financial consumer rights and is non-compliant with law, which has been established, among other things, by legal precedents.