The Constitutional Court protected the rights of citizens in relations with non-professional creditors
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The Constitutional Court of the Russian Federation (CC) has protected the rights of citizens in relations with unprofessional lenders who can issue loans on overly strict conditions. Citizens have the right to ask for a reduction in rates, and the courts have the right to reduce the “usurious interest” established in the agreement, even if the law at the time of the transaction did not limit their size. In addition, if a court of general jurisdiction considered the statute of limitations for collecting a loan to have expired, the creditor’s claims cannot be recognized as part of the borrower’s bankruptcy. Lawyers note that the clarifications of the Constitutional Court can be used by borrowers whose litigation in the courts has not yet been completed.
On December 26, the Constitutional Court published a resolution on the issue of checking the constitutionality of Art. 809 of the Civil Code (Civil Code) on interest under a loan agreement and Part 3 of Art. 69 of the Arbitration Procedural Code (APC) on the grounds for exemption from evidence. Sergei Filatov filed a complaint about this, who in 2013 borrowed 16.9 million rubles from citizen N. at 15% per month with compound interest. Over the course of five years, the borrower paid 18.9 million rubles, but still owed money.
In 2019, the creditor applied to the district court (court of general jurisdiction) to recover 71 million rubles. taking into account interest, but the claim was rejected due to the expiration of the statute of limitations. In 2020, the arbitration court of the Volgograd region declared Sergei Filatov bankrupt. As part of the insolvency case, the lender filed claims against the debtor, and the arbitration court recognized them as justified, including in the register of creditors the debt, which grew due to interest to 400.7 million rubles.
The borrower challenged this decision, claiming the statute of limitations had expired and the amount of interest was disproportionate, but the complaints were rejected. The arbitration courts referred to the principle of freedom of contract, emphasizing that the borrower voluntarily agreed to the terms, and the 2017 “anti-usury” amendments to Art. 809 of the Civil Code do not apply to the 2013 loan. The amendments limited the maximum amount of interest for citizen borrowers: if the money is not issued by a professional lender providing consumer loans, if the amount of interest exceeds two or more times “usually charged in such cases,” the court has the right to reduce it.
According to Sergei Filatov, the contested norms do not comply with a number of articles of the Constitution of the Russian Federation (including on state protection of human rights and freedoms, on the equality of all before the law and the court).
As the borrower explained, the rules allow for the collection of unlimited interest for the use of a loan and allow arbitration courts to ignore the conclusions of courts of general jurisdiction about the expiration of the statute of limitations.
The Constitutional Court refused to recognize the norms as unconstitutional, but, in fact, supported the borrower, making two conclusions.
Firstly, although the amendments to the Civil Code of 2017 do not have retroactive force, agreements concluded before them can still be checked for the fairness of the conditions, the Constitutional Court clarified. The principle of freedom of contract “does not limit the right” of the borrower to ask for a reduction in interest on the loan and does not prevent the court from reducing them in the case of “obvious disproportionality of the requirements.” To do this, you can refer to Art. 10 of the Civil Code on the inadmissibility of abuse of rights and to consider “usurious interest” as an attempt to “obtain unjust enrichment.”
Secondly, when considering the validity of the creditor’s claim against the debtor within the framework of bankruptcy, the arbitration court is “bound by the decision of the court of general jurisdiction that has entered into legal force,” by which the creditor is denied collection of the debt due to missing the statute of limitations. We are talking about cases where the refusal was issued in a dispute between the same persons under the same agreement. The circumstances established by a decision of a court of general jurisdiction have “prejudicial significance,” that is, they do not need to be proven again, unless the prejudice is refuted in the manner prescribed by law, the Constitutional Court noted.
“As long as the binding nature of a decision of general jurisdiction has not been overcome… no one, including the courts themselves, has the right to evade its compliance,” the resolution emphasizes. This is aimed at “eliminating conflict, ensuring stability and generally binding judicial acts” and “ensures the operation of the principle of legal certainty,” the Constitutional Court explained, obliging to review the court decisions in the case of Sergei Filatov.
Denis Krauyalis, adviser in the dispute resolution practice at Tomashevskaya & Partners, notes that the Constitutional Court is “increasingly directing lower courts towards targeted enforcement, with a departure from formalism, where the absence of a direct rule can serve as an unconditional basis for refusal to protect the right.” According to atLegal partner Andrey Toryannikov, when considering bankruptcy cases, arbitration courts interpret the rules of the APC “very loosely” and sometimes “forget” to take into account decisions of courts of general jurisdiction. WeLegal Managing Partner Vladislav Linetsky adds that arbitration courts proceed from the priority of the bankruptcy law, which is aimed “at ensuring uniform satisfaction of the interests of creditors and providing them with the opportunity to protect their interests,” therefore they prefer to decide for themselves whether the statute of limitations has expired or not.
Since the interpretation of the Constitutional Court is “mandatory for all law enforcers,” this practice should now stop and if the statute of limitations is missed, the creditor’s claims should not be recognized as bankruptcy, the lawyer believes. Thus, citizen borrowers received protection from collecting from them “excessive interest, contrary to the principle of good faith of the lender,” clarifies Mr. Linetsky.
Borrowers who have already completely lost their cases with creditors “will not be able to review their results,” since the Constitutional Court resolution does not indicate the possibility of such a review for persons other than Sergei Filatov, explains Denis Krauyalis: “Those borrowers who have not yet started to go to court or has not yet gone through all the courts.”
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