Anna Khrisanfova published “Unfair claims: It is wrong to allow excessive consumer protection to the economic detriment of banks” in The Lawyers’ Newspaper

Source: The Lawyers’ Newspaper

Unfair claims: It is wrong to allow excessive consumer protection to the economic detriment of banks

In this response to the article by Julia Sevastianova titled “The protection of depositors’ rights,” the author draws attention to the disputable conclusion of her colleague that the deposit rate is not subject to reduction if a depositor refuses an insurance contract. In her opinion, if banks complied with the ban on depriving customers the opportunity of opening a deposit account without concluding an insurance contract and informed customers about the conditions of the financial products offered, it would be unfair to require banks to incur losses resulting from the arbitrary refusal of depositors to have insurance contracts.

The article by Ms. Sevastianova deals with the measures banks take, under bank deposit agreements, that infringement on depositors’ rights, such as the introduction of fees for cash withdrawals upon termination of a bank deposit agreement, fees for additional contributions, as well as an interest rate reduction on a deposit when a depositor withdraws from a life insurance agreement (endowment life insurance and investment life insurance).

On the inadmissibility of additional commissions, the positions of Rospotrebnadzor, FAS of Russia, and the courts seems correct and meets the requirements of fairness and economic feasibility for bank deposit transactions. Indeed, the additional fees a bank imposes, in fact, reduce the amount of a depositor’s possible income (and sometimes the amount of the money initially invested), which directly contradicts the purpose of the deposit agreement, as stipulated in Article 834, Paragraph 1, of the Civil Code of the Russian Federation, which deals with bank credits to depositors for interest on the amount of the deposit.

Accordingly, the attempt of banks to reduce their obligations through deposit agreements that charge fees for cash operations (both directly, through deposit agreements, and through commissions for servicing current accounts connected with them) as a sanction for the completely legal decision of a depositor to close a deposit account prematurely unjustifiably restricts the freedom of depositors to dispose of their money and deprives them of interest from their investment.

In particular, the argument of PJSC JSCB Svyaz-Bank, in case No. А56-49555/2019, quoted in the article, is that the introduction of a commission, in the amount of 10 percent of cash withdrawn from the account, results from the need to counteract illegal cashing activity. The only legal way for banks to take such a countermeasure, considering that they are private persons not authorized to carry out the public function of combating crime, is to refuse to accept a deposit, in accordance with Article 7, Paragraph 11, of the Federal Law of 7 August 2001, No. 115-FZ, “On combating money laundering and terrorist financing.” The banks do not determine the illegality of depositors’ suspicious actions, which is the task of law enforcement and the judicial authorities, as the Constitution of the Russian Federation authorizes. In any case, the illegal operations of depositors cannot serve as the basis for enriching the banks, at the expense of depositors, by withholding commissions.

There is another way of understanding the illegal actions of banks regarding the imposition of an additional account agreement (Article 16, Paragraph 2, of the Law of the Russian Federation of 7 February 1992, No. 2300-1, “On the protection of consumer rights”). According to judicial practice[1], the court does not consider transferring funds, after a client closed an account, to another account the client had opened in the same bank as a distinct service subject to a separate charge but as an obligation of the bank, under the terms of the deposit contract[2]. As a result, charging any new fees, other than those already covered in the bank account agreement, is contrary to the consumer protection law.

The banks’ imposition of life insurance contracts when opening a deposit should be considered in the same way. However, the author’s position that the deposit rate cannot be reduced if the depositor withdraws from the insurance contract is arguable. In situations where a bank complies with the prohibition to deprive customers of the possibility to open a deposit without concluding an insurance contract and properly informs customers about the terms and conditions of the offered financial products (i.e., with full transparency regarding the procedures for using the customer’s money and the mechanism for generating profit), it would be unfair to demand that banks incur losses from depositors arbitrarily canceling insurance contracts.

The appeal ruling of the Moscow City Court of 28 November 2017, case No. 33-41113/2017, refers to a loan agreement containing a condition that increases the loan rate, in the event of the “termination/non renewal of the agreement/policy of life and health insurance of the borrower and/or the replacement of the beneficiary, under the life and health insurance agreement/policy,” to “the level of the interest rate effective at the time of the conclusion of the agreement on a similar product without the compulsory life and health insurance.” The court found no grounds to recognize this condition as inconsistent with the law and as an infringement on the plaintiff’s right as a consumer[3].

A similar conclusion can be reached with regard to bank deposit agreements. In the case of deposits, it is not a question of insuring the risk of the client’s nonrepayment of a loan amount but of increasing the deposit rate, provided that the depositor participates in an additional, more risky investment[4]. In other words, by offering a high rate, in exchange for signing an insurance contract, banks thus attract clients for their partners, from whom they, in turn, receive remuneration.
So, deposit and insurance contracts are indeed legally independent of each other (in fact, they are concluded between different parties), and the conclusion of one contract is not conditioned by the conclusion of another (the law expressly prohibits the opposite).

However, despite this, one should recognize that the existence or absence of a life insurance contract affects the profitability of the banking product for the bank itself. Accordingly, the deposit rate the bank offers reflects the bank’s expected income from the related insurance (which is the purpose of combining the products). It would be wrong to allow excessive protection of consumers’ rights when consumers have the opportunity to make an informed choice about a deposit if it is to the detriment of the economic interests of the banks, as expressed in the model terms of the proposed products, by virtue of the principle of the freedom of contract. Furthermore, since Order No. 3854-U of the Bank of Russia provides for the so-called cooling-off period, during which the depositor, in any case, is entitled to withdraw from an insurance contract (14 calendar days from the date of the agreement’s conclusion), bank customers have a legal way to manipulate the deposit terms and conditions, maintaining, after the refusal of insurance, the increased rate over what the bank offered on deposits with insurance.[1] Ruling of the East Siberian District Arbitration Court of 31 July 2015, No. F02-3097/2015, in case No. A78-12324/2014.

[2] A similar position is adopted with respect to the fees charged for additional contributions, as the article under discussion described.

[3] Also see the appellate determination of the Krasnoyarsk Regional Court of 17 October 2016, No. 33-14068/2016.

[4] According to Subparagraph 10, p. 1, of the Instruction of the Bank of Russia, 11 January 2019, No. 5055-U, “About minimum (standard) requirements on the conditions and procedure of voluntary life insurance, with the condition of periodic insurance payments (rent, annuities) and (or) with the participation of the policyholder in the investment income of the insurer,” the voluntary insurance contract is not a bank deposit agreement in a credit organization, and the monetary means transferred under such a contract are not subject to be insured, in accordance with Federal Law of 23 December 2003, No. 177-FZ, “On the insurance of deposits of individuals in banks of the Russian Federation,” and the banks should communicate this information to the beneficiaries of the insurance services.