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A credit contract is a very common type of contract in economic and social life. It is concluded and performed between a credit institution and a borrower. Credit contract disputes in Vietnam often arise when the borrower is unable to repay the loan to the bank. This article aims to provide information about credit contracts and common credit contract disputes in Vietnam today.
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What is a Credit Contract in Vietnam?
A credit contract is a legal form of the lending relationship between a credit institution and an individual or organization borrowing funds. Essentially, a credit contract is a type of loan contract regulated under the contract provisions of the 2015 Civil Code.
The distinctive feature that differentiates credit contracts from other loan contracts is that the lender in credit contracts must be credit institutions, and the loan subject is always money. Credit contracts are governed by the Law on Credit Institutions and guiding documents.
Characteristics of a Credit Contract
Regarding the Parties to the Credit Contract
The parties to a credit contract are the lender and the borrower:
- The lender in a credit contract is a credit institution or a foreign bank branch in Vietnam. This is a special type of enterprise that performs some or all banking activities, including accepting deposits, granting credit, and providing payment services. This is a conditional business line, so all credit institutions must be licensed by the State Bank of Vietnam, meeting stringent conditions on capital, technology, personnel, location, etc.
- The borrower can be an individual or organization, either Vietnamese or foreign, meeting the lending conditions of credit institutions.
Regarding the Subject of the Credit Contract
The subject of a credit contract is always a sum of money that the credit institution lends to the customer for use within a specified period.
Regarding the Form of the Credit Contract
Credit contracts are established in writing, usually drafted by the credit institution.
Regarding the Content of the Credit Contract
According to Article 17 of the Lending Regulation 1627, a credit contract must include the following basic contents:
- Loan conditions
- Purpose of loan use
- Loan method
- Loan amount
- Loan interest rate
- Loan term
- Loan security method
- Repayment method
- Other commitments agreed upon by the parties
Regarding Measures to Ensure the Performance of the Credit Contract
Loan security is a unique factor always associated with credit contracts. Banking activities are risky, so credit institutions use collateral as a final measure to mitigate the risk of capital loss. The security measures are stipulated in the credit contract and simultaneously expressed through a mortgage or pledge contract or a guarantee with assets.
Regarding the Diversity of Loan Methods
Loans under a credit contract can be provided in various forms:
- One-time loan
- Credit limit loan
- Investment project loan
- Credit card loan
- Overdraft loan
![Types of Credit Contract Disputes in Vietnam](https://dcnh-law.com/wp-content/uploads/2024/07/3.png)
What is a Credit Contract Dispute in Vietnam?
A dispute arising from a credit contract occurs when the parties have conflicts or disagreements about fulfilling obligations under the credit contract that cannot be resolved through negotiation.
Typically, disputes arise when the borrower fails to fulfill, fully fulfill, or timely fulfill obligations to the lender, such as violating the obligation to repay the principal and interest as agreed in the contract. Additionally, disputes may arise when the credit institution fails to fulfill or fully fulfill obligations to the borrower, such as violating disbursement obligations, applying incorrect interest rates, or not complying with legal regulations.
During the dispute resolution process in court, the parties often agree on the loan amount, the principal and interest paid, and the remaining principal but disagree on the remaining interest and the handling of collateral to recover the debt.
Types of Credit Contract Disputes in Vietnam
Credit contract disputes are diverse and complex, often arising from an initial dispute and expanding into various situations based on different criteria. Based on the practical lending activities of banks and credit contract dispute resolution, credit contract disputes can be categorized as follows:
Disputes Over the Validity of Credit Contracts
- A credit contract may be invalid if the lender is a credit institution or the borrower is an organization but the representative signing the contract lacks authority or exceeds authority, or the borrower is an individual who is a minor, lacks civil act capacity, has restricted civil act capacity, or has difficulty in cognitive and behavioral control.
- A credit contract may be invalid if the loan subject in the contract does not comply with legal regulations, such as lending in gold or foreign currency to subjects not allowed to borrow in foreign currency.
- A credit contract may be invalid if not established in writing.
- A credit contract may be invalid due to violations of other prohibitions by law.
Disputes Due to Breach of Repayment Obligations
This is the most common type of credit contract dispute. The essence of this dispute is that the borrower fails to fulfill, fully fulfill, or timely fulfill obligations to the lender, such as violating the obligation to repay the principal and interest as agreed in the contract.
Disputes Over Debt Recovery Measures
Credit institutions may apply various measures to recover debts, such as urging direct repayment from the customer, managing the customer’s revenue source to recover the debt, waiving or reducing interest to encourage repayment, handling collateral to recover the debt, taking possession of the collateral to replace the repayment obligation, or filing a lawsuit in court.
Among these, disputes commonly arise from the measure of handling and auctioning collateral to recover the debt, especially when credit institutions do not strictly follow the procedures for handling collateral.
Disputes Over Interest Rates
Disputes over interest rates in credit contracts include:
- Disputes over the application or adjustment of loan interest rates
- Disputes over overdue interest rates
- Disputes over the application of overdue interest on late payment interest
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