Bank Loan interest RatesInterest rates for bank loans
charges for bank loans in France (TEG frais de dossier) Representative example.
zero-interest rates in Austria's Supreme Court
Floating interest terms in credit contracts are calculated on the basis of a benchmark interest rates (e.g. EURIBOR or LIBOR) and a premium (margin). However, when benchmark interest rates began to drop below zero, the issue of whether bank lending to credit institutions in the absence of an agreement on a floating interest ceiling would have to continue to be discussed.
Specifically, the following questions were discussed: Can a default interest benchmark deplete the margins provided and require a bank to repay interest to its customer? The Supreme Court has ruled in earlier cases that the credit agreement partners of credit contracts for consumers routinely arrange - and it is therefore a shared understand - that creditors must bear interest on their credits.
Consumers of the creditor cannot reasonably be expected by a creditor to interest prepaid funds. In the past, the Tribunal has also held that those who agree to the payment of a floating interest fee have undertaken to divide the risks of further variations in the cost ofinancing. Recent rulings in this respect have led the Supreme Courts to conclude that a bank cannot be required to repay interest on credits which it has extended on the basis of a base interest payment.
Similarly, the same rules do not cover business loans. For B2B operations, the Tribunal considers that the need for protecting the contracting party is lower. It is generally assumed that a company loan taker has more expertise, greater know-how and a better grasp of credit agreements. In addition, the following basic rules shall be applied to business lending:
Compensation - Unless expressly otherwise stipulated, in the case of business-to-business operations (according to a general rule of Austria law) it is presumed that the recipient (i.e. the borrower) owes an appropriate compensation. Adjustment symmetry - Loan officers in credit cases for consumers have reasoned that the court should not provide a zero-foot benchmark interest for credit agreements where the credit agreement does not include an upper limit (the so-called "adjustment account argument").
Now the Supreme Court has ruled on the use of this line of credit against borrowers in connection with B2B-credit. According to the Court, the rule of'adjustment compensation' will only be applicable to commercial credit in special cases. Whilst the recent Supreme Court judgments depend on the facts of an individual case, these judgments give a broad indication of how a zero-floor of bank credit can be included in credit conditions for consumers.
Apart from a few individual instances, the banking sector is (for the time being) refraining from introducing a zero limit for credit to consumers, not least to prevent PR from being negatively impacted. In the area of business credit, only individual cases have so far been ruled by the Supreme Court. However, in general it is more likely that the Court of Justice will respect a zero threshold in the framework of a business loan.