BANK-now lends a highly indebted entrepreneur so much it voids consumer credit laws - an illegal but common phenomenon.
The Swiss entrepreneur is back on his feet (name known to finews.ch). But at the start of 2013 things looked difficult. He had loaned about 60,000 Swiss francs (about $65,000) from a number of banks until an intermediary from BANK-now suggested a solution.
The Horgen (ZH) based Credit Suisse affiliate proposed a loan of about $87,000, well above what he needed to pay the other banks - at an interest rate of 13.9 percent. He signed the contract, settled the other loans, and started paying the monthly installments.
Large Debt Remaining
It was a golden era of consumer loans. At least until the government introduced the consumer credit law in 2018 and cut the maximum borrowing interest rate to below 10 percent from 15. As a result, volumes have been falling for years and the business for small credit has become hotly contested. The pandemic last year pushed them down a further 3.2 percent to around $8 billion.
Getting back to the entrepreneur. Over the years, he faced temporary unemployment, which prompted him to occasionally default on his installments. Both parties looked for solutions. That is, until 2019 when BANK-now made an official claim for the outstanding debt of about $120,000 including interest.
Legal Proceedings
They went to court and lost. The judge wrote in his ruling, which finews.ch has seen, that BANK-now was clearly trying to bypass consumer credit protection laws when granting the entrepreneur a loan above $86,000.
The legal proceedings revealed that Bank-now had not provided the results of a creditworthiness examination in the loan contract. The required unemployment insurance was also missing. It should never have made the loan as the entrepreneur was already highly indebted.
Ballooning Credit
BANK-now's conduct is the result of a targeted, institutionalized approach. The bank artificially increased the size of the loan in order to avoid strict consumer protection rules. According to the law, the maximum loan is set at about $86,000 in order to protect borrowers. BANK-now also made the offer completely unsolicited without informing the client that the law would be voided above the maximum limit.
A spokesperson replied to finews.ch saying: «BANK-now evaluates credit applications in accordance with the law, including the related disclosure and documentation requirements.»
Numerous Cases
But BANK-now's behaviour seems to be common in the consumer credit sector. The judge cited one of his earlier rulings on a loan that was only marginally above the set limit, stating he did not see why the institute had refused to provide the client the benefit of the consumer credit law.
The Credit Suisse unit seems to regularly get into these types of situations with its borderline practices. In 2016 the association of Swiss debt advisory centers raised a complaint against it, saying it was not fulfilling its due diligence duties in credit assessments.
FINMA Complaint
In 2018, Caritas made an official complaint to the Swiss regulator, FINMA, after they reviewed a sample of BANK-now lending contract and found most of them wanting. FINMA didn't do anything about the complaint. A 2018 legal case at the Federal Court in Bellinzona related to the illegal financing of the Tamil Tigers in Sri Lanka also attracted widespread attention. BANK-now had apparently been providing them with loans for years while "systematically" turning its head the other way, the lawsuit said.
It is not clear whether BANK-now has actually improved its lending practices.
The bank does not acknowledge any mistakes related to the case with the entrepreneur and it stands by its loan contract. He argues that the contract is not valid as it is but does not contest the fact that he owes the bank money although he is fighting the additional interest they have tacked on.
Debt Paid
The judge confirmed the invalidity of the contract. BANK-now appealed the decision and lost.
The parties agreed to settle the matter out of the hands of the courts given the legal costs. BANK-now got its money back but not the accumulated interest. At least that means that the Credit Suisse affiliate doesn't have to make a credit provision in its books.
