Czech Republic: End of arbitration clauses in credit agreements for consumers?

05.05.2016

Arbitration clauses should vanish from consumer credit agreements. This is a recommendation submitted to the Chamber of Deputies by the Parliamentary Committee that discussed the bill on a consumer credit. The proposed change should be beneficial to consumers, since numerous experts believe that arbitration clauses are being abused by some sellers. One should note that arbitration clauses in agreements on consumer credits underwent a change already five years ago. As a result of that change, sellers became obliged to negotiate the arbitration clause in a separate deed. The aim of this obligation was to avoid “hiding” the arbitration clause in a multi-page contract or business terms and conditions. However, the promoters of the current bill are of the opinion that even that adjustment was not sufficient.

Another alleged reason for the proposed change is that loan providers in practice frequently draft the agreements by themselves, and include in them a reference to a specific arbitrator. This as a rule casts doubts on the impartiality of the arbitrator concerned.

If arbitration clauses are banned in credit agreements for consumers, then all consumer disputes arising from such agreements would be capable of being resolved by regular courts only.

The bill, however, also envisages other changes related to consumer credits. One of them is the limitation of a contractual penalty, reducing it from 70 percent to 50 percent of the amount owed, up to a maximum amount of CZK 200,000. Another proposed change concerns the actual provision of credits. Providers will have to thoroughly examine a consumer's ability to repay the credit. Their failure to do that will render the credit agreement null and void, and the consumer will not be required to pay any interest, and any interest already paid by him will be returned. Naturally, this broadly conceived protection of consumers, which is to the detriment of a contractual freedom, is subject to criticism from various places, be it credit providers or liberal-minded politicians and economists.

The bill has not yet encountered any major obstacles, and the members of Parliament should pass a final decision on it by this summer.