Provision for amendment of the interests under credits, when EURIBOR is being changed – is it invalid or does it cause an effect?

Very often in the bank credit agreement is agreed a provision, which says that the bank has right, during the term of the agreement, unilaterally to change the rate of the applicable interest, in case that the defined EURIBOR reaches levels, higher than the mentioned in the agreement and the bank should inform the credit holder about that. Such provision, even agreed, however is invalid, because it is wholly in favour of the bank and to credit holder’s detriment.

At systematic interpretation of art. 143 and art. 144 of the Consumer protection Act, taking into consideration also the purpose of the law, in its rulings the Supreme Court of cassation mentions, that it is permissible a provision in credit agreement for increase of the initially agreed interest, if it corresponds to the following cumulative conditions:

1. the circumstances for amendment of the interest to be explicitly agreed;
2. these circumstances to be objective and not to depend on the creditor’s will;
3. the methodology for amendment of the interest to be fully and clearly described in the agreement;
4. to be possible as well increase, as reduction of the initially agreed interest.

For clarity, we explain the above mentioned with example: Bank credit agreement says that the minimal acceptable for the bank rate of the 3-month EURIBOR is 2.5 %, as the bank has right, during the term of the agreement, unilaterally to change the rate of the applicable interest, in case that the 3-month EURIBOR reaches levels with 0.25% higher than the mentioned in the agreement in a month and the bank should inform the credit holder about that. It is also agreed a prohibition for reduction of the interest under the initially agreed rate of 6.4 %.

A provision like this is absolutely invalid.

In such provision are provided the circumstances, at which the interest may be changed unilaterally by the bank – if the 3-month EURIBOR reaches levels with 0.25% higher than the mentioned in the agreement in a month and this doesn’t depend on the creditor’s will, because it is an objective market index. At the same time, the applying of this circumstance depends on the creditor’s will, because:

1. it is executed by explicit act of the bank and there is no available automatism of the change;
2. there is no clarity about the way of formation of the unilaterally changed interest;
3. there is no connection between the concrete rate of the interest’s increase and the rate of the increase of the index;
4. it is established an explicit prohibition for reduction of the interest under the initially agreed rate of 6.4 %.

To this end, the process provision is totally unequal.

In case that such provision is available in Your agreement and the Bank unilaterally changes the interest rate, You should obligatory consult a lawyer in order to protect Your rights.

The present article doesn’t represent legal opinion or legal advice. The author of the article doesn’t bear liability for the execution of any legal actions on the grounds of its contents.