Supreme Commercial Court Triggers a Flood of Lawsuits Against Banks

The Supreme Commercial Court of Russia has ruled that banks cannot unilaterally raise interest rates even if such right is included in the loan agreement. The upshot of this decision may be a flood of lawsuits against credit institutions.

The Presidium of the Supreme Commercial Court has overruled the decisions of lower courts in a dispute of a sole trader with a bank. In the period 2008 - 2009, the bank has been steadily increasing the interest rate from 14.5% to 24.5%. The right to do so had been agreed by the entrepreneur and included in the loan agreement. The courts of three instances have ruled for the bank but the Supreme Commercial Court has decided that a significant increase in rates is not consistent with the principle of fairness and drives the borrower into bondage.

The decision means that even if the right to raise interest rates is included in a loan agreement, such increase – if not approved by a borrower - can be challenged. Banks will have to prove that the increase is ‘insignificant and economically justified’.