So different deposits or rules of competiive struggle
Today, the main competitive struggle among banks is aimed at attracting and forming a deposit base. In the fight for good clients and “new” monies, banks are forced to adjust to market developments as quick as possible, by offering attractive banking products to consumers.
The bank to win this competitive struggle will the one that constantly expands the range of its services, reduces their cost, improves the quality of credit, settlement and cash services, provides certain benefits when granting loans, offers advice of various kind to the clients, etc. This is a rule of fair competition.
Nevertheless, it is not surprising that sometimes under such tough conditions the temptation to surpass competitors makes the players use ungentlemanly and unfair ways to compete, which, despite their effectiveness, often involve quite significant risks, including antitrust risks.
Using the example of a recent antitrust case, we will try to highlight what should be taken into consideration while implementing such banking product as a deposit and at the same time how to avoid drawing the attention of the antitrust authorities.
A bit of theory
In accordance with Article 14 of Federal Law No.135-FZ “On protection of competition” dated 26.07.2006 (the “Competition Law”), one of the forms of unfair competition is misrepresentation of the nature, method and place of production, consumer properties, quality and quantity of goods or their manufacturers.
When reading literally this provision of the Competition Law, it is clear that in order to qualify an action as an act of unfair competition what needs to be determined is the fact of any person providing misleading information about itself and/or its products or committing other misleading actions.
That provided, such action must:
- be aimed at receiving benefits in the course of business activity;
- contradict laws of the Russian Federation, good business practices, requirements of good faith, reason and fairness;
- cause damages to other competing businesses or to their goodwill.
Actions corresponding to the above criteria are qualified as unfair competition in any field of business and on any goods market. And the banking services market is no exception.
The Russian Federal Antitrust Service (FAS) has in the past qualified as an act of unfair competition the actions of banks aimed at attracting monies in deposits with the consumer properties of such deposits subsequently degrading.
Example from practice of an antitrust authority
An example would be the case on breach of antitrust law examined by the Russian Federal Antitrust Service in relation to Uniastrum Bank.
As follows from the decision of the antitrust authority, in the period from December 2008 to December 2009 Uniastrum Bank entered into agreements for fixed-term deposits. Under the terms and conditions of these agreements, the only condition for withdrawing monies from the fixed-term deposit accounts was a transfer of such monies to current accounts opened at Uniastrum Bank. However, in 2010 Uniastrum Bank introduced a 7% commission for withdrawing money from the current accounts, which was deposited to such accounts from fixed-term deposit accounts.
Thus, in effect Uniastrum Bank introduced a commission for withdrawing money from fixed-term deposit accounts and in such way unilaterally changed the terms and conditions of the agreements for fixed-term deposits.
It should be noted that undoubtedly the opportunity to withdraw money from fixed-term deposit accounts without any additional commission is an important condition for clients when choosing a credit organization, and for the bank this is a decisive advantage over similar banking products offered by competitors.
The commission introduced by Uniastrum Bank for withdrawing money resulted in clients losing the opportunity to receive income from their deposits which was promised to them at the time of entering into agreements. Consequently, the consumer properties of such deposits under agreements already executed have essentially worsened compared to the properties declared initially.
Thus, Uniastrum Bank has mislead its clients in relation to the consumer properties of their deposits at the time of entering into relevant agreements.
Also, the FAS emphasized that the commission introduced by Uniastrum Bank for withdrawing money could result in losses incurred by competitors in the amount of profit not received from deposits of individuals which such organizations would be able to receive if the clients of Uniastrum Bank were, at the time of entering into an agreement, informed of the commission to be introduced afterwards for withdrawing money.
According to the antitrust authority, such practice contradicts both the applicable legislation because Article 310 of the Russian Civil Code prohibits unilateral refusal to fulfill an obligation in connection with business activity conducted by the parties and requirements of good faith, reason and fairness.
Thus, the actions of Uniastrum Bank described above contain all traits of unfair competition.
Having examined this case, the Committee of the FAS held Uniastrum Bank liable for violating Part 1 Article 14 of the Competition Law as pertains to actions aimed at attracting monies of individuals into deposits with consumer properties subsequently degrading compared to the properties declared initially due to the commission introduced for withdrawing from current accounts money which was deposited into such accounts from fixed-term deposit accounts.
Furthermore, Uniastrum Bank was ordered, among other things, to return to individual clients the money retained as commission.
Position of courts
The decision and order adopted by the antitrust authority after examination of this case were disputed by Uniastrum Bank in a legal procedure. Nevertheless, the courts fully supported the position of the FAS as pertains to justification of Uniastrum Bank’s actions being acknowledged an act of unfair competition.
In particular, the courts came to the conclusion that such actions committed by Uniastrum Bank resulted inter alia in the bank’s unilateral refusal to fulfill its obligations under the agreements, i.e. the obligation on returning in full the amount of the deposits and interest accrued thereon as set forth in such agreements and Part 1 Article 834 of the Civil Code, and standard contracts of Uniastrum Bank do not contain any references to the bank’s right to unilaterally change conditions of the agreements.
Also, the courts confirmed the conclusions made by the antitrust authority as regards possible losses incurred by competitors due to actions of Uniastrum Bank and as regards such actions contradicting requirements of good faith, reason and fairness.
It should be noted that this case is not the only case considered by the antitrust authority in respect of credit organizations on similar grounds. In all cases, the courts supported the position of the FAS.
This evidences both the developed court practice on this matter and justified position of the antitrust authority.
Value of the case
Undoubtedly, the ultimate purpose for any commercial bank implementing a deposit policy is to increase its resource base and at the same time to minimize expenses.
However, when developing its deposit policy, a bank should understand that the main issue is not the availability of such deposit policy, but its quality and compliance with requirements of the law, including antitrust law.
In view of the case described in this article, we believe that in order to exclude antitrust risks a bank should have a clear idea of not only how to attract new clients, but also how to fulfill all the declared terms and conditions of the relevant agreements in the future. The consumer must be informed of all the essential terms of a financial product, and the information on consumer properties of a service must be accurate. To implement this, the bank must have a clear, well established control system, including control over how a particular banking product is offered, advertised and sold.
And of course one should always bear in mind that fooling clients can always result in a credit organization being subject to essential economic and reputational risks since the deposits can be so different…
 Decision of the Russian Federal Antitrust Service on violation of antitrust law on case No.1 14/128-11 dated 12.12.2012.
 Decision of the Commercial Arbitration Court of Moscow and Decree of the Ninth Commercial Arbitration Appeal Court on case No. А40-36832/12.
Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Akimova, Moscow Office of Capital Legal Services.
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