Penalties under Loan Agreements during the Quarantine Period

published: 08.07.2020

Important!

Penalties on loans during the quarantine period will not be charged, both for individuals and for enterprises.

Obviously, the quarantine period did not have the best effect on the economic condition of enterprises and the wallets of most compatriots. However, the obligations that were assumed back in the pre-quarantine era require fulfillment, which, due to obvious circumstances, cannot always be fulfilled on time. And here is an important point: loan agreements contain requirements for calculating penalties for delays, which are usually promptly charged by the bank, and when the client makes the next payment, the funds will be used by the bank primarily to pay off the debt on penalties. Thus, if the amount contributed by the client provided only the size of the next payment under the loan agreement, a “snowball” arises – after all, the debt on payment of payments under the agreement remains and, accordingly, penalties for delay are charged again.

However, recently (on July 4), Law “On Amendments to the Economic Code of Ukraine and the Civil Code of Ukraine Regarding the Prevention of the Accrual of Penalties on Credits (Loans) during the Quarantine Period Established in Order to Prevent the Spread of Coronavirus Disease Covid-19 on the Territory of Ukraine” (No. 691) came into force.

What to expect:

In the event that such a delay occurred during the quarantine period established throughout the territory of Ukraine and within 30 days after the end of the quarantine, the borrower is exempted from payment of a forfeit, fine, or penalty interest. (However, they are not exempted from paying inflation losses for the time of delay and 3% per annum of the overdue amount).

It should be understood that although the Law provides for exemption from the payment of fines by the borrower, this does not mean that automatically in case of delay during this period, fines will not be charged, because the lender can traditionally make such an accrual and, therefore, the borrower should be vigilant if they intend to use such right.

Based on the constant practice of working with banks, we know that the only effective way in the event of the lender’s failure to comply with the law is to go to court with a corresponding claim.

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