Legality of banking fees in Serbia: the tipping point

What started as a typical consumer protection claim, designed to create a fairer, more transparent banking market, ended up in mass claims fundamentally challenging the right of banks to charge any fee or cost (anytime) in addition to interest.

Serbia's banking sector has been fraught with mass litigation brought by borrowers who allege that loan processing fees and expenses are being charged illegally. The large backlog of cases (hundreds of thousands in the pipeline) has become a major issue in Serbia, leading to proposals for systemic amendments to the Civil Procedural Code, reactions by the National Bank of Serbia, public tantrums and debates, attorneys' suspensions of work and threats of a general strike.

Serbian Supreme Court 2018 opinion on bank fees

In 2018, the Serbian Supreme Court of Cassation (the Supreme Court) issued its legal stance opining on the permissibility and way the banks may charge loan processing costs and fees.

The Supreme Court held that "a bank is entitled to charge costs and fees for banking services, and the provision on costs in the loan agreement upon which the borrower undertakes to pay the bank costs is not null and void, […]". However, in what would turn out to be a far-reaching statement with a ripple effect, it added "provided that the bank's offer comprised clear and unambiguous data on the loan costs."

The lower instance courts (mis)interpreted this statement by holding that a bank may charge loan processing fees and costs only if these are actually incurred and if they are specifically itemised in the bank's offer, i.e. if the offer showcases a breakdown of each cost (presumably each mandatory cost, costs of paper and printing, salaries, overheads, etc.). Otherwise, the courts would hold that the banks are not entitled to charge them, the provisions on the banks' costs would be deemed null and void, and the banks would have to repay charged costs with interest plus bear the costs of the proceedings.

Three years later, Belgrade courts are paralysed by more than 100,000 claims, propped up by consumer associations and some heretofore unseen "ambulance chasing". The banks continued to lose these cases as they were unable to prove the actual costs behind their loan processing fees, and that they had informed the borrowers thereof upfront.

The 2021 Supreme Court Supplement: an attempt to right a wrong?

In September 2021, the Supreme Court supplemented its 2018 opinion with what was thought would be a clarifying paragraph stating that "a bank is not obliged to separately prove the structure and amount of each cost which is included in the aggregate amount of loan costs disclosed in the offer which the borrower accepted when entering the loan agreement."

Instead of putting out the fire, the supplement caused outrage among consumer associations, bar associations and the general public, who claim that it turned the 2018 opinion on its head. They argued that a U-turn in court rulings would compromise legal security and justice. In addition, the 2021 supplement opened up new lines of discussion in pending disputes: whether the banks provided a written offer, what the effective interest rate is and its nature and whether it is being charged by the banks, questions on "hidden" loan costs charged twice, the legality of front-end fees, etc.

At the time of going to print, the judiciary was at a standstill. Most hearings have been postponed, and all eyes are on the higher courts and their first judgments following the 2021 supplement. The upcoming months will show whether there will be a shift in court rulings in the banks' favour.

Moving forward with mass claims

Mass consumer claims are here to stay. While they had a slow start (relevant consumer protection legislation was adopted in 2011 and 2014), in the past five years the banks have borne the brunt of large‑scale consumer disputes in Serbia (previously due to CHF indexed housing loans). This indicates a clear culture shift in consumer behaviour.

"Urgent changes to the Civil Procedure Code, but also organisational changes within the courts, are necessary."

However, Serbia's judicial system proved unable to handle mass claims. Urgent changes to the Civil Procedure Code, but also organisational changes within the courts, are necessary: on the one hand, to improve the already existing procedural "tools" designed to cut costs, backlogs and delays, and on the other hand, to finally introduce some form of a formal collective action in Serbia.

authors: Jelena Arsić and Nataša Lalatović Đorđević