Bank review, №6 June (173) / 2013,

The main competition at present developing among banks is that with respect to attracting and forming deposits. In the fight for good clients and “new” money, the banks need to adapt to market dynamics as quickly as possible, offering attractive banking products to consumers.

However, the winner of this competition is the bank that is constantly expanding the scope of services rendered to clients, reducing their cost, improving the quality of credit, settlement and cashier services, providing benefits for loans, offering various advice to clients, etc. This is a rule of fair competition.

However, it is no surprise that in such strict conditions the temptation to overtake competitors as quickly as possible sometimes makes the participants use ungentlemanly and unfair forms of competition, which, however efficient, bear in themselves quite significant risks, including antitrust risks.

Based on an example of one of the recently examined antitrust cases, we need to understand what should be taken into account when implementing such a banking product as deposit, so as not to attract attention of the antitrust authorities.
Some theory

One of the forms of unfair competition is to mislead a consumer with respect to the nature, manner and place of manufacture, consumer properties, quality and quantity of a product or with respect to its manufacturers pursuant to Article 14 of Federal Law No.135-FZ “On protection of competition” dated 26.07.2006 (hereinafter the “Competition Law”).

The literal interpretation of this regulation of the Competition Law clearly suggests that in order to classify any actions as an act of unfair competition, one must establish the fact of dissemination of information by an entity about itself and/or its product, or of conducting other misleading activities.

Such actions must:

• Be aimed at gaining advantages when conducting entrepreneurial activities;
• Contradict Russian laws, good business practices, requirements of decency, reason and fairness;
• Cause losses to competing business entities or harm their goodwill.

Actions falling under these criteria are unfair competition in any sphere of business and on any product market. The banking services market is no exclusion.

In 2012 the FAS of Russia on several occasions classified as an act of unfair competition the actions of banks on attracting deposits with subsequent deterioration of consumer properties of such deposits as compared to the originally announced consumer properties.

Example from antitrust authority practice

It is appropriate to mention here the case on violation of antitrust legislation examined by the FAS of Russia regarding KB Uniastrum Bank.

As the resolution of the antitrust authority suggests, KB Uniastrum Bank signed agreements for replenishable fixed-term deposits. Pursuant to the conditions of such agreements, the only condition for returning monies from fixed-term deposit accounts was the transfer of such monies to on-demand deposit accounts opened at KB Uniastrum Bank. In 2010 KB Uniastrum Bank introduced a commission fee in the amount of 7% for withdrawing monies from on-demand deposit accounts, which were transferred to such accounts from fixed-term deposit accounts.

Therefore, KB Uniastrum Bank actually introduced a commission fee for withdrawing moneys from fixed-term deposit accounts and, therefore, unilaterally changed the conditions of signed fixed-term deposit agreements.

It should be noted that the possibility to withdraw monies from fixed-term accounts without any additional commission fees, is undoubtedly a significant condition for consumers when selecting a credit organization for deposits, and for the bank itself it is a solid advantage in comparison with similar banking products offered by competing banks.

Implementation of a commission fee by KB Uniastrum Bank for withdrawing monies resulted in depriving the depositors of an opportunity to receive the returns from the deposited monies which were promised to them when signing the agreements; consequently, the consumer properties of these deposits under the agreements that were already signed, have significantly deteriorated in comparison with the properties that were originally announced.

Therefore, KB Uniastrum Bank has misled its depositors regarding the deposit consumer properties when signing the respective agreements.
The Committee of the FAS of Russia also pointed out that implementation by KB Uniastrum Bank of the commission fee for withdrawing the monies could cause losses to competing credit organizations in the amount of revenues not received from monies deposited by individuals, which these organizations could have received if the clients of KB Uniastrum Bank had been aware of the upcoming implementation of the commission fee for money withdrawal when signing the relevant agreements.

According to the antitrust authority, such practice also contradicts both the effective legislation, since Article 310 of the Civil Code does not authorize a unilateral refusal to perform an obligation tied to conducting entrepreneurial activities, and also the requirements of decency, reason and fairness.

Therefore, there are all the signs of unfair competition in the described actions of KB Uniastrum Bank.

Based on the results of this case examination, the Committee of the FAS of Russia recognized KB Uniastrum Bank as having violated Part 1 Article 14 of the Competition Law as pertains to committing the actions that resulted in attracting money for deposits with subsequent deterioration of consumer properties of such deposits in comparison with initially announced properties due to implementing a commission fee for withdrawals of monies from on-demand deposit accounts, which were transferred to such accounts from fixed-term deposit accounts [1].

Furthermore, an administrative writ was issued to KB Uniastrum Bank on returning to the bank’s customers the monies withheld in form of the commission fee.

Position of Courts

The resolution and administrative writ issued by the antitrust authority based on the results of examination of this case were appealed by KB Uniastrum Bank in court. However, by the court of the first instance and the court of appeal fully supported the position of the FAS of Russia as pertaining to reasonability of recognizing the actions of KB Uniastrum Bank an act of unfair competition [2].

In particular, the courts reached a conclusion that such actions of KB Uniastrum Bank have, inter alia, resulted in a unilateral refusal of the bank to perform its obligations on deposit agreements, namely, the obligation to return the deposit amount and the amount of accrued interest in full, as provided for in these agreements and Part 1 Article 834 of the Civil Code. Standard agreements of KB Uniastrum Bank contain no reference to whether the bank has a right to unilaterally modify terms and conditions of agreements.

The courts also confirmed the conclusions of the antitrust authority on a possibility that the actions of KB Uniastrum Bank caused losses to competing credit organizations, and that these actions contradicted the requirements of decency, reason and fairness.

It must be noted that this case is not the only one examined by the antitrust authority with respect to credit organizations on similar grounds. And in all events the courts supported the position of the FAS of Russia.

Therefore, it appears that the court practice has been formed regarding this issue, and that the position of the antitrust authority is indeed substantiated.

In summary…

Undoubtedly, the ultimate purpose of implementing a deposit policy for any commercial bank is to increase the scope of the resource base when minimizing banking expenditures.

However, when developing its deposit policy, the bank must understand that the main issue is not whether the bank has such policy in general, but rather the quality of such policy and its compliance with the law, including the antitrust regulations.

Based on the example of the case described in this article, it appears that in order to rule out antitrust risks the bank needs to not only have a clear idea of how to attract new clients, but also to perform all the announced agreement terms and conditions in the future. The consumer must be made aware of all relevant properties of a financial product, and the information on consumer properties of the service must be reliable. For this purpose, the bank must have an internal clear and fine-tuned control system over, inter alia, the manner in which a particular banking product is offered, advertised and sold.

And certainly, one should always remember that working under the principle of “no sales without cheating” may always result in significant economic and reputational risks for a credit organization, since different deposits yield different results…

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[1] Resolution of the FAS of Russia on case on violation of antitrust legislation dated 12.12.2012, on case No.1 14/128-11.

[2] Resolution of Commercial Arbitration Court of Moscow and Decree of Ninth Commercial Arbitration Court of Appeal on case No.А40-36832/12.