ii) In Singapore : The concept of consumer loans is understood in a broader sense, which are personal financial loans for consumption purposes. Consumer lenders include commercial banks, insurance companies, etc. 186
iii) In the United States : Consumer lending is defined as lending for personal, family, and household purposes. Authorities must provide accurate consumer demand information and are responsible for resolving consumer credit disputes. 187
Thus, it can be seen that consumer lending transactions are referred to by the laws of various countries from the perspective of a civil relationship, based on the characteristics of the majority and weak borrowers and the specific purpose of using the loan, regardless of whether the borrower is an individual or an organization.
The regulations in Vietnam have similarities with the cited countries, because they all consider consumer lending as a form of civil contract relationship that is inherently unequal in terms of the borrower's rights, requiring a specific legal mechanism. Disputes over consumer lending contracts, in addition to the provisions of banking law, must of course be resolved by civil law (including the application of procedural procedures for civil cases). However, the current legal reality, consumer lending is allocated to credit institutions with only a few specific regulations applied exclusively to financial companies, which is not appropriate.
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4.3.4.2. Enhance borrower responsibility in assessing financial capacity to protect the rights of consumer borrowers
In terms of contractual equality, the laws of countries around the world have their own regulations to protect the rights of consumer borrowers. Specifically: i) In the UK: Regulations on consumer lending are all directed towards court intervention if the parties' agreement (contract) is unfair, and at the same time recognize the right to cancel the signed agreement. 188 ii) European Community : Issues relatively specific and strict regulations on consumer lending. Decree No. 2008/48/EC dated April 23, 2008 of the European Parliament on Consumer Credit Contracts, in Articles 8 and 23, emphasizes the obligation to assess the borrower's creditworthiness before signing the contract.
Thus, credit information transparency is a mandatory requirement, as a contractual obligation for lenders as mentioned by the laws of countries. Regulations under the European Community also set out the obligation of lenders to assess the financial capacity (of the borrower) to fulfill payment obligations before lending. In case the borrower is unable to repay the loan, the lender must also bear joint responsibility.
Regulations under Vietnamese law:
Vietnamese law does not mention this responsibility of credit institutions. Consumer borrowers decide and are responsible for their own actions, even when the contract
186 Lee Chin Yen (1980), Tlđd (12), p. 3
187 Arnold, Porte LLP (8/2015), Tlđd (16), https://files.arnoldporter.com/usregulationofbanklending.pdf, pp.12, 17
188 See also: Appendix 03 (Case 9)
has adverse content. That is, the consumer borrower must perform the obligation until the debt is paid off, regardless of whether they have the financial ability to do so or not.
It can be seen that most of the people who take out consumer loans have limited finances. Too high interest rates will put pressure on them when repaying the loan, leading to avoidance and non-cooperation in resolving the issue with banks and prosecution agencies. At that time, the interests of all parties are also seriously harmed (including credit institutions because the borrower does not cooperate in repaying the debt). In this case, it is necessary to recognize that credit institutions are irresponsible in assessing the borrower's capacity before lending. If the consumer borrower is unable to repay the loan, the interest rate, the law needs to set a fixed overdue interest rate suitable for a limited period of time, instead of allowing the lender to apply an overdue interest rate of 150% of the interest rate for the loan term, until the debt is fully paid.
4.3.4.3. Binding obligations of the lender in relation to the service provider, consumer trade
The legal relationship between commerce and consumer credit is generally not mentioned by current law. Vietnamese law has recognized and legalized regulations allowing financial companies to sign contracts to open service introduction points at commercial supply locations (Article 6 of Circular No. 43/2016/TT-NHNN), but it leaves open a real relationship of sharing benefits between these two economic units, if they "join hands" to push risks to the borrower. The rights of consumer borrowers are not protected by law in cases where the quality of goods and services with credit funding from banks does not meet requirements.
This regulation (according to Vietnamese law) is different from the regulations of consumer lending laws in other countries. Accordingly, this responsibility is imposed on the lender. If the consumer borrower complains or files a lawsuit about the quality of goods or services with the supplier, the lender (bank) must also be jointly responsible. 189
Regarding the binding conditions between two commercial and credit contracts, according to Vietnamese law, only when the parties have an agreement stating in the contract the specific responsibilities of the credit institution, then this provision will be applied. The factor of the quality of goods and services not ensuring the commitment of the supplier (commercial goods and services) is the basis for exempting the borrower from liability to the lender (this agreement is decided by the parties themselves, on the principle of not violating the law, not violating social ethics). 190 However, consumer borrowers do not always perceive correctly and include in the contract the content of this binding agreement. In reality, in the contracts signed for consumption purposes, this content is not mentioned, and the rights of consumer borrowers are still not properly guaranteed.
189 See: Judgment of the UK Supreme Court in the case of Mr Durkin v DSG Retail Limited, 2014 on Consumer Credit Agreements in Appendix 03 (Case 9)
190 Specifically, commercial and banking laws do not mention the relationship between these two contracts, only according to Clause 1, Article 120 of the 2015 Civil Code on conditional civil transactions stipulates: " In case the parties have an agreement on the conditions for the occurrence or cancellation of a civil transaction, when that condition occurs, the civil transaction arises or is cancelled ."
Originating from the connection between credit institutions and enterprises providing commercial services and goods (an inevitable trend of the commodity economy), the responsibility of credit institutions is to learn about the quality of goods and products before providing capital, instead of this responsibility belonging to the borrower. This regulation also has an important meaning, limiting collusion for profit between lenders and suppliers of commercial services and consumer goods.
In summary, from the above-mentioned legal experience and judicial practice abroad, the evidence shows that: Awareness and legal regulations on consumer contracts in our country are still limited and inadequate, and need to continue to be revised and supplemented in the following points:
Firstly, the scope of consumer lending is limited to the operations of financial companies, with restrictions on the amount and purpose of the loan. These 191 regulations continue to limit the scope of subjects and subjects of consumer lending, which invisibly creates discrimination and hinders the operations of credit institutions, and does not protect the rights of borrowers. Therefore, the law expands and supplements regulations on the obligations of credit institutions in general when lending to consumers, similar to the regulations applicable to financial companies.
Second, the obligation to assess the creditworthiness of the borrower of credit institutions is not mentioned by law, lacking a legal basis for implementation. Establishing a suitable interest rate mechanism for consumer borrowers who cannot repay their debts due to objective difficulties is necessary. In this case, it is necessary to consider the responsibility of the lender who did not investigate and assess the financial capacity of the borrower. Therefore, the thesis recommends amending the law in the following direction: Only stipulate that the overdue interest rate does not exceed 130% of the interest rate in the term, or set a reasonable penalty period for overdue interest not exceeding 18 months instead of the current regulation (high interest rate, no limit on interest calculation period).
Third , the legal relationship between consumer credit contracts and consumer commercial contracts using loans is not yet mentioned by current law. In fact, there is a close relationship between credit institutions and enterprises providing trade and services, mutual benefits, and the risk of "colluding" to push risks to the borrower. The thesis recommends adding a provision: If the manufacturer or enterprise providing goods and services does not meet product quality requirements, this is the basis for reducing the consumer borrower's responsibility for the loan to purchase goods with defective quality.
Implementing the above recommendations will contribute to affirming the views of lawmakers: strongly protecting the rights of the disadvantaged, enhancing the responsibility of the lender when assessing the financial capacity of the borrower, the responsibility towards the supplier of goods and services, and bringing the provisions of the law on consumer credit contracts more in line with international legal practices.
191 Clauses 1 and 2, Article 3 of Circular No. 43/2016/TT-NHNN also stipulates that the total outstanding consumer loan balance for a customer at that finance company shall not exceed VND 100,000,000; Capital needs for purchasing and using goods and services specified in Clause 1 of this Article include: a) Purchasing means of transport, household appliances and equipment; b) Costs of studying, medical treatment, travel, culture, physical education and sports; c) Costs of house repair... The regulation restricts both the subject and scope of activities, narrowing the number of participants...
4.3.5. Perfecting regulations on sanctions for breach of loan contracts
The regulations on sanctions for violations of the Loan Agreement amended by Circular No. 39/2016/TT-NHNN have made significant progress. However, the regulations on compensation for damages and agreements on sanctions for violations of the loan agreement are considered new points, still have some unreasonable points, and need to be further amended and supplemented according to the following recommendations:
4.3.5.1. Expanding the conditions for allowing early termination of loans
The sanctions of terminating loans and recovering capital before maturity are set by law when the borrower violates the obligation to provide complete and honest information, and violates the commitments in the loan agreement. These commitments are set by lawmakers, and should be understood in a broad sense, not simply limited to violations of commitments on documents and certificates related to borrowing; using loans for improper purposes; not complying with regulations on inspection, supervision, and use of loans by credit institutions... but including general contract violations that pose a risk of causing unsafe loans. Indeed, for loans with large contract values and long loan terms, credit institutions often set many conditions for contract performance and strict disbursement conditions, along with which credit institutions have measures to prevent risks.
In theory, the parties can agree to record this content in the loan agreement or in the internal regulations of the credit institution to more closely bind the borrower's responsibility for its commitments. However, not all credit institutions are aware of this issue to protect their own rights when events such as the one cited arise.
Thus, the legal basis for applying sanctions for early loan recovery as currently prescribed by law is still incomplete and does not fully reflect the objective and subjective risks that may occur during the loan contract implementation process.
From the above analysis, banking law needs to supplement the grounds allowing credit institutions to terminate loans before maturity as follows:
Firstly, in principle, if an investment or business project receiving capital funding does not demonstrate economic efficiency during the implementation process (normally, the parties must agree to select a specialized agency to implement and based on the results of the examination and inspection), the credit institution is of course allowed to terminate the loan.
Second, the law stipulates that the lending condition is when the borrower has the financial capacity to repay the debt. Thus, in case the value of the collateral, the borrower's finances decrease compared to the time of the loan or the inability to recover the principal and interest, the credit institution has the right to request the customer to add collateral, request a change in the credit limit. 192 In case the customer does not comply with this reasonable request of the credit institution, the credit institution has the right to terminate the loan and recover the loan capital.
192 According to the author's own survey, 92/110 opinions agreed that this provision should be clearly stated in the law (accounting for 83.6%). See Appendix 1: Survey on HĐCV
If these recommendations are legalized, they will limit risks for credit institutions when lending, especially for small-scale credit institutions with poor legal work and limited capacity to draft and evaluate the effectiveness of loan contracts.
4.3.5.2. Amendment of regulations on sanctions for violations and compensation for damages caused by violations of loan contracts
Current regulations allow the parties to agree on contract terms: The party that violates the obligation will only be fined without having to compensate for damages or will be fined and must compensate for damages (Clause 2, Circular No. 39/2016/TT-NHNN). However, applying the mechanism of self-agreement on liability for breach of contract in the contract will easily cause confusion during implementation.
- Regarding the agreement on penalties for violations:
Current banking law mentions the following sanctions for violations of the loan agreement: early termination of the loan; penalties for late payment of principal and interest for the borrower... Penalties for violations against the borrower if the scope and basis for the sanctions are not clearly stated will create overlap when applied for the reasons as cited in the thesis, demonstrated by trial practice through court judgments and decisions. 193 Meanwhile, applying the mechanism of self-agreement to penalize the lender (without setting a specific penalty limit) for violating the disbursement obligation is inappropriate. Because in terms of theoretical basis, the loan belongs to the credit institution, the parties cannot freely agree to apply a penalty based on the loan amount if it is not disbursed, or apply a penalty to the loan amount that the credit institution recovers without legal basis. At the same time, if this regulation is implemented, it will be inevitable that credit institutions, due to business pressure, will agree on sanctions for violating loan contracts that are not suitable to the actual financial situation and capacity of the credit institution, which can easily cause risks and unsafe loans.
Therefore, banking law needs to stipulate the principle: Agreement on penalties for breach of loan contract for borrowers must not be contrary to the provisions of law, and at the same time, propose appropriate administrative sanctions (the application of this administrative sanction is to limit credit institutions from issuing unequal loan contract forms). For credit institutions, the agreement on penalties for breach of disbursement and loan recovery obligations without basis, according to the author of this agreement, must not exceed the corresponding penalty level for the loan interest rate that the credit institution benefits from, which is appropriate.
- Regarding the provisions on compensation for damages:
In the practice of signing loan contracts at commercial banks, up to now, the author has not discovered any loan contract with a clause on compensation for damages if the credit institution violates.
According to the author, in this issue, it is necessary to rely on the arguments on liability for compensation for damages outside the contract to resolve, accordingly, the borrower only needs to prove
193 See: Section 4.2.4. Identify and handle cases of incorrect application of regulations on sanctions for breach of loan contracts to protect the rights of borrowers.
damage, the lender is at fault, there is a causal relationship similar to the provisions of specialized law (For example: According to Clause 5, Article 146 of the 2014 Construction Law, if a party to the contract performs its contractual obligations inconsistently with the provisions, the level of compensation for damage must be equivalent to the level of loss of the other party; Clause 6, Article 22 of the 2014 Real Estate Business Law also stipulates the obligation of the seller to compensate for damage caused by its own fault).
However, unlike the claim for compensation in the pre-contractual stage, the consequences (material damage) of compensation for delay or non-disbursement according to the progress of the investment contract committed by the credit institution are often much greater (which can be direct or indirect damage due to delay in implementing the investment and business progress that has been set), if the borrower ignores the damage. Therefore, relying on the mechanism of self-negotiation of compensation will not be appropriate, because the credit institution proactively excludes or minimizes the level of compensation for damage. Or conversely, the borrower takes advantage of the application of the provisions of the Civil Code on the obligation to compensate for all damage to gain benefits.
In summary, from the arguments demonstrated above, the law on HĐCV needs to complete the legal framework on sanctions for violations of HĐCV more appropriately, overcoming the limitations of current regulations, according to the following recommendations:
Firstly, supplement and amend the provisions on the principles of applying the agreement on penalties for violations of the Contract for borrowers so as not to overlap and cause damage to the borrowers. For lenders, the penalty for violations due to late disbursement and early recovery of loans must be based on the interest rate that the lender enjoys for the loan amount in violation.
Second , supplementing regulations on sanctions for damages applied to lenders, ensuring that damages are remedied for customers, with specific limits based on the value of the next disbursement, and the borrower's proactive action to remedy the consequences, instead of letting the parties negotiate as is currently inappropriate.
If this regulation is supplemented, it will overcome the situation where credit institutions "circumvent the law" by inserting provisions into the loan agreement that are disadvantageous to the borrower, nullifying the responsibility of credit institutions to compensate for damages to borrowers, while at the same time positively affecting the safety of credit institutions, limiting possible risks, and deterring credit institutions if they intentionally violate the law.
Chapter 4 Conclusion
Clearly outline the needs, orientations and principles for perfecting the law on public service contracts, overcoming shortcomings and limitations in the process of applying the law with scientifically-based arguments, suitable to the needs and orientations of the banking industry and credit institutions (the entities directly affected by these assessments and recommendations) in the current situation.
With 05 (five) practical legal solutions, drawn from the practice of HDCV, the thesis has solved common problems in the process of contract implementation and dispute resolution (the most practical measure to evaluate the effectiveness of law application in practice). The focus of these solutions is based on two groups of interests, with the following meanings: i) further enhancing the rights of the borrower (identifying illegal sanctions that often occur); ii) help credit institutions confidently draft loan agreement templates, state management agencies, and judicial agencies unify dispute resolution policies, ensuring greater safety and efficiency when lending (research to identify the legal status of borrowers; further consolidate solutions for a safe and effective lending process; correctly apply regulations on statute of limitations; the right to request repayment of principal and interest; identify and propose handling measures, create a connection between loan agreements and guarantee contracts)... These proposals are accompanied by specific solutions, creating unity in viewpoints when applying, avoiding prolonged disputes and conflicts, affecting the rights and reputation of the parties.
In addition, the thesis selects and focuses on 05 (five) recommendations to continue perfecting the law, which are interpreted and evaluated for the provisions of the current law that have been mentioned but are not complete (the pre-contractual responsibility mechanism is based on the loan approval regulations prescribed by law), or are lacking (expanding and supplementing regulations to enhance the rights of consumer borrowers). In particular, recommendations on loan safety and enhancing the legitimate rights of borrowers in the sense of contractual equality are focused on research, clarifying their effectiveness.
Based on theoretical and practical foundations, with the acquisition of legal and judicial experience abroad, it is thought that if these issues are overcome and improved, it is expected to improve loan safety, strengthen contractual relations, create a more equal and safer legal environment for subjects when participating in the relationship of credit contracts, and solve the need to handle bad debts in credit institutions. This is also the research objective of the thesis, solving legal issues raised at the request of lawmakers, banking management agencies and credit institutions themselves, effectively implementing the directions that have been clearly outlined by the Party and the State in the process of building and perfecting banking laws in general, and legal relations on credit contracts in particular.
CONCLUDE
Lending relationships are increasingly complex in a deeply integrated and volatile economy. Along with the promulgation of the Law on Credit Institutions 2010, amended in 2017, Circular No. 39/2016/TT-NHNN on lending by credit institutions, Circular No. 43/2016/TT-NHNN on consumer lending and related regulations currently in effect, the law on credit institutions has shown many new contents that are close to the economy and orient the development of lending services. However, the regulations in this field still have many things that need to be further improved and perfected with the purpose of: Unblocking healthy capital sources for the economy; Contributing to the banking reform in accordance with the orientations of Resolution No. 05-NQ/TW dated November 1, 2016 of the 4th Conference of the 12th Party Central Committee; Effectively implement the work of handling bad debt, which is likened to a "blood clot" according to Resolution No. 42/2017/QH14 dated June 21, 2017 of the National Assembly.
Through the overall research, the thesis has closely followed the arguments in legal science, fully assessed the legal status of HĐCV, and made valuable recommendations for theoretical research and law improvement as follows:
Regarding the theoretical framework of the research , the thesis builds a theoretical framework, mainly the theory of freedom of contract with limits on loan safety; a system of criteria for efficiency when lending; principles and requirements for perfecting the law on contract as a basis and orientation for the research work, providing scientifically based recommendations, accurately answering the 05 (five) research questions raised by the thesis.
Regarding the theoretical basis of the law on loan contracts , the thesis applies research theories suitable for the legal and economic fields of banking, deeply studies and approaches scientific arguments about the nature and characteristics of loan contracts, which are the obligations to repay loans and interest of the borrower, etc. The study has set out the scope and limits of equality of loan contracts, the unclear points of these limits; clarifies the level of state intervention, the requirement to harmonize the interests of the subjects, and the regulations that cannot be imposed, contrary to the nature of the contractual relationship.
The thesis has explained and supplemented a number of arguments contributing to the treasure trove of legal and banking scientific research: i) the argument that internal regulations on lending have compliance value and are legally binding on credit institutions; ii) the right to access credit of the social community comes from limited credit capital sources, requiring expansion and further assurance of these rights in the practice of consumer lending; iii) the viewpoint on the rights of consumer borrowers expressed in current Vietnamese law is still limited, not consistent with the development trend of consumer lending as shown by the indicators cited in the thesis in Vietnam and other countries in the world.
Regarding the assessment of the current legal status, recommendations, and forecasts if the recommendations are implemented and improved , the thesis determines the limits and scope of research, mainly commercial banks, financial companies with the target of enterprises and individuals to focus on core issues and has solved and achieved the following issues: