On 22 September 2011, the Parliament of Ukraine adopted Law of Ukraine No. 3795-VI "On Amendments to Certain Laws of Ukraine Regarding Regulation of Relations Between Creditors and Consumers of Financial Services " (the "Amendments"), which came into effect on 16 October 2011. The Amendments include the following major points:

(1) Ukrainian banks and financial institutions may provide consumer loans in Hryvnia only. Foreign currency consumer loans are prohibited in Ukraine.

(2) Lenders are prohibited from charging any fees or commissions for actions that are not regarded as "services" under Law of Ukraine No. 1023-XII "On Consumer Protection", dated 12 May 1991, as amended.

(3) Lenders are prohibited from charging any fees for early repayment of a consumer loan and may not refuse to accept such a prepayment.

(4) A lender would not be entitled to accelerate a consumer loan unless the borrower's payment default continues for at least 1 calendar month, and may not accelerate a mortgage loan unless the borrower's payment default continues for at least 3 calendar months.  If an acceleration demand is made by the lender, the borrower would have 30 days to repay a consumer loan and 60 days to repay a mortgage loan.

(5) The Amendments provide a more detailed restructuring mechanism for consumer loans.

(6) A lender is obliged to notify the borrower of the transfer of the lender's rights under a consumer loan agreement to a third party.

(7) In case of assignment of a bank's rights of claim under agreements with clients, the bank would be expressly allowed to disclose information which constitutes banking secrecys to the assignee.

(8) For floating interest rates, loan agreements must set the maximum increase of such interest rate.

(9) Secured creditors will now be regarded as scheduled creditors in bankruptcy (konkursny kredytor) and therefore will need to file their claims along with such other creditors within the established timeframe (as opposed to being included automatically).

(10) Bankruptcy legislation is extended to personal bankruptcy of an individual entrepreneur. At the same time, a distinction is drawn between claims arising from (and property pledged to secure) the entrepreneurial activity of such individual, and personal claims and property securing personal claims.

(11) Criminal prosecution is introduced for destruction, damage or loss of property which constitutes collateral, is under arrest or is ordered to be seized;

(12) Enforcement against movable property can be carried out by way of notarial writ.

(13) Foreclosure against residential property, including eviction matters, is now more clearly regulated.

(14) The Amendments address in more detail the identification and liability of legal successors of borrowers.

Actions to consider

The Amendments will apply to loan agreements concluded after 16 October 2011.  In order to comply with the amended lending rules, banks and financial institutions should review and revise their internal policies and regulations on lending to corporate and individual clients as well as their standard loan and security documentation.