Fee for using another person’s money – new rates to apply soon
- Author: Igor Gorokhov
- Services: Commercial arbitration and out-of-court dispute resolution, Contract law
- Date: 12.07.2016
On June 03, 2016, the Russian President signed a law amending, among other things, the rules of the Russian Civil Code concerning the calculation of interest for using another person’s monies. This part of the law will take effect on August 01, 2016.
These amendments change the very new provisions of the Civil Code, which were recently amended in course of a major reform of Part One of the Civil Code.
In particular, in July 01, 2015, Article 317.1 of the Civil Code took effect, under which in the relations between commercial organizations, a creditor under a monetary debt could by default request interest for the period of lawful use of monies by the debtor (for example, for the period of contractual deferral of payment for goods that have already been delivered). From that same date, the interest for unlawful use of another person’s monies under Article 395 of the Civil Code were to be calculated based on the average rates of bank interest for individual deposits in effect at the location of the debtor – a rather cumbersome and inconvenient formula which immediately raised questions in practice as to the calculation procedure.
The adopted law removes the condition that interest for lawful use of monies between commercial organizations is charged automatically. Lawmakers made the reasonable move to return to the old rule, namely, interest can be charged if the parties expressly agreed on this, and Clause 1 Article 317.1 of the Civil Code, under which the key rate of the Russian Central Bank is used, will apply only if the parties have not agreed on the interest rate.
As regards interest for unlawful use of another person’s monies, the new edition of Article 395 of the Civil Code stipulates that it will likewise be determined based on the key rate of the Central Bank, which of course is more convenient and clear from a practical standpoint. Furthermore, the calculation being tied to the key rate makes the interest uniform for the whole country; from June 14, 2016, the key rate is 10.5%, which is higher than the refinancing rate of 8.25% used prior to the Civil Code reform and the average rates used today, which are different for the various regions in principle, are constantly changing and on average do not exceed 8%.
It appears that the amendments to the Civil Code will end the discussion on the non‑uniform nature of the new procedure for calculating interest under Article 395 of the Civil Code and on the expediency of Article 317.1 of the Civil Code. Moreover, there will no longer be a need for a clause on non-application of the default “lawful” interest, which has already become standard for agreements.
Should any questions arise in connection with the above or if you need any additional materials, please contact Igor Gorokhov or Daniil Petrukh, St. Petersburg Office of Capital Legal Services.
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