The banking sector of Azerbaijan faced an unpleasant surprise from an unexpected direction. The innovation that has taken place can completely overturn the existing bank-customer relations and credit rules in the country and cause serious problems.
Publika.az informs that on December 16, the Civil and Commercial Boards of the Supreme Court adopted the Decision “On the application of the legislation on the possible limits of deducting the debtor’s salary without acceptance under the contract”.
The decision was taken in relation to the circumstances that emerged during the investigation of a dispute with one of the country’s banks. The gist of the document is that “a contractual condition that gives the creditor (that is, the bank) the right to withhold funds in the amount of more than 20 percent of the debtor’s (that is, the client’s) salary without acceptance is invalid.”
For your information, we would like to inform you that the non-acceptance rule is the automatic payment of funds in a manner that does not require the customer’s consent each time, and is currently widely used in the country. The customer’s consent to this is stated in advance in the credit agreement.
According to the current practice in the country, the monthly payment of the loan is even fully deducted from the salary. According to the decision of the Supreme Court, a maximum of 20% of the salary can be deducted automatically, it is illegal to deduct an amount more than that, and if there is a condition on this in the contract, the contract will be considered invalid.
When adopting this decision, the Supreme Court refers to Article 176 of the Labor Code. There are 2 limits on this issue:
“1. The total amount of all amounts deducted each time a salary is paid cannot exceed twenty percent of the salary to be paid to the employee, and in cases provided by the relevant legislation, fifty percent.
2. Fifty percent of the employee’s salary should be withheld in all cases when amounts are deducted from the salary based on several enforcement documents.”
But lawyers consider the decision of the Supreme Court and its reasoning wrong. The well-known lawyer Ekram Hasanov gives two reasons for this. Thus, the limits on salary deduction specified in the Labor Code apply only to compulsory salary deduction by the state. That is, this requirement does not apply to bank loans. In the decision, it is said that the salary will be withheld by the bank.
Another reason is more interesting – the fact is that the money paid is considered a salary when it is paid by the employer. After the money is deposited in the account, it is no longer considered a salary, and with the prior consent of the citizen, the desired amount can be deducted from it. In other words, in the legislation, deduction from salary means the process of deduction when the money is paid by the employer. The subsequent process is not considered a deduction from the salary.
According to Gorkhmaz Agayev, the head of the legal expert group of the Azerbaijan Banks Association, the decision of the Supreme Court is groundless, for the reasons mentioned above.
The point is that the limitations in the legislation (that is, the limits specified in the Labor Code regarding the deduction of wages) apply only to a person’s cases in court and executive cases, wages and other issues: “But if the customer agreed with his contract and took a loan, on that loan if he gave his consent in advance to the removal of his funds without acceptance, this decision of the Supreme Court means a gross violation of the freedom of contract”.
As a sign of respect, bankers do not call this decision of the Supreme Court “populist”, but they believe that the approach of the Supreme Court is a step taken for public purposes.
The Supreme Court has placed a “delayed mine” in the banking sector
It is true that currently the decision of the Supreme Court is not binding for any banks and legal entities. That is, this document did not establish a new rule for granting loans in the country, and banks grant loans in the same manner and conditions as before.
But this is temporary – the peace can last until someone challenges this condition in the contract in court.
Since the Decision of the Supreme Court panels is a recommendation for the courts, the courts can take that decision as a basis when considering such disputes: “If a court dispute arises in this regard, that is, if any client objects to the fact that the part of the funds automatically deducted from him exceeds 20% of the salary, then the courts Based on this decision and explanation of the Supreme Court, they can make a decision in favor of the client” – the problem for the banking sector will begin then. There will be a problem in the repayment of loans and the mortgage of banks in general.
Urgent meeting in the banking system
Therefore, the decision of the Supreme Court can become a serious problem for the banking system. It is no coincidence that immediately after the mentioned decision, the banks of the country held a meeting on this matter.
Gorkhmaz Agayev, the head of the legal expert group of the Azerbaijan Banks Association, told Fed.az that immediately after the decision, a meeting was held between the banks, the situation arising from the decision of the Supreme Court and the next steps were discussed. For now, the discussion is being conducted at the level of lawyers, the ABA has not made a decision on this issue at the level of bank managers.
After the discussions, the bank managers and owners will determine the joint position to be agreed with the CBA.
“We do not say that we do not recognize the decision of the Supreme Court”
“We do not say that we do not recognize the decision of the Supreme Court, but this issue should be discussed.” The initial position is that after the Supreme Court has issued its decision in the said trial, the bank, which is a participant in the trial, will dispute this issue in the Constitutional Court. It is already known that the bank will apply to KM in this regard.
The problem that the new decision will create for the Central Bank
This decision of the Supreme Court may cause problems for the Central Bank. More precisely, this issue affects the volume of reserves created by banks at the Central Bank.
The point is that according to the rules of the Central Bank, banks create less reserves in the Central Bank for contracts where the customer gives the right to write off without acceptance. Because this contract is considered more reliable in terms of loan repayment. If this rule is removed from the loan agreement, the amount of reserves that banks will create under those agreements should increase.
Therefore, the ABA intends to involve the Central Bank in the processes related to this issue and hold discussions with it.
The problem that the new decision will create for the state budget
The matter does not end only with the Central Bank. The new decision of the Supreme Court and its consequences may show themselves in the payments of banks to the state budget, or more precisely, reduce these payments.
The point is that usually when banks’ profit is calculated, provisions for possible losses on assets are created and deducted from the amount of profit. In other words, the more reserves are created, the more the profit decreases, and accordingly, the profit tax paid to the budget also decreases.
Prohibition of non-acceptance payments in credit agreements can result in exactly this.
Finally, this issue will cause problems not only for banks but also for customers.
Problem for borrowers
No matter how strange it is, this decision of the Supreme Court, which was initially taken to protect the borrower, can harm the borrower himself. First of all, after this innovation, banks will give less credit to clients after they have clarified that they cannot take more than 20% of their salary. Because the amount to be deducted from the salary will be limited. The fact is that a number of citizens do not object to having the entire amount of the salary paid by the bank due to the fact that they have additional income. Now, even those with additional income may face this limitation.
On the other hand, if any borrower sues the bank for this reason, he or she will face a counterclaim from the bank. Because he allowed the money to be deducted with the contract he signed. Finally, according to experts, delaying the debt will lead to the calculation of additional interest on the customer. “Imagine, I am a borrower, I borrowed 5 manats, if my bank does not withdraw my funds on time, I will be charged interest and fines.”
It is for these reasons that banks are trying to solve the problem as soon as possible.
