I. INTRODUCTION
In credit transactions, banks commonly use standard form contracts to standardize procedures, reduce costs, and manage risks. However, when the drafting party holds a significantly stronger bargaining position—as is typically the case with banks—such standard contracts may contain unilateral or imposed clauses that weaken the borrower’s rights.
The key legal issue is: Where is the boundary between a bank’s legitimate contractual drafting autonomy and conduct that violates the principle of balance of interests, potentially rendering contractual clauses (or even the entire contract) invalid or subject to judicial or regulatory intervention?
This article examines the legal framework, identifies types of contractual clauses that frequently conflict with the principle of balance of interests, analyzes the approach adopted by Vietnamese law, and proposes recommendations for improvement.
II. PRIMARY LEGAL FRAMEWORK
1. Civil Code 2015
The 2015 Civil Code (CC) establishes fundamental principles—equality, freedom and voluntariness of agreement, and good faith—which serve as the general standards for assessing civil contracts, including standard form contracts. The Civil Code also regulates standard form contracts and general trading conditions (contracts of adhesion / standard terms).
2. Law on Protection of Consumers’ Rights (2010)
The Law on Protection of Consumers’ Rights (LPCR) provides specific rules on invalid contractual clauses in contracts concluded with consumers, such as clauses that exclude liability, restrict the right to initiate legal proceedings, or allow the seller/service provider to unilaterally modify contractual terms. These provisions are often applied by analogy to credit contracts with individual borrowers.
3. Law on Credit Institutions and Implementing Regulations
The Law on Credit Institutions (as amended) and its guiding instruments govern credit-granting activities, information disclosure, and transparency obligations of credit institutions. In the event of disputes, credit contracts must be interpreted in accordance with both sector-specific regulations and civil law principles.
Note: A credit contract is a civil transaction and must comply with the Civil Code’s principles of equality and voluntariness, while also being subject to sector-specific regulation under the Law on Credit Institutions. In case of conflict, specialized legislation prevails, supplemented by general civil law principles.
III. COMMON TYPES OF STANDARD BANK CLAUSES THAT CAUSE IMBALANCE (AND LEGAL ASSESSMENT)
Below are typical clauses found in standard credit contracts, with analysis of how they may infringe the principle of balance of interests and the relevant legal grounds for assessing their consequences.
1. Clauses Allowing Unilateral Modification of Contractual Terms
(Interest rates, fees, penalties, interest calculation methods)
- Practical issue: Many contracts allow banks to “adjust” interest rates, service fees, or even restructure debts based on internal policies, without the borrower’s consent or with only ex post notification.
- Legal issue: Such clauses undermine voluntariness and equality. If they allow changes at the sole discretion of one party, they may be deemed unlawful general trading conditions (see LPCR provisions on unilateral modification). In civil contracts, interest and costs are fundamental terms; unilateral modification erodes the contractual consensus.
2. Clauses Excluding or Limiting the Bank’s Liability
- Practical issue: Some standard contracts limit the bank’s liability for management errors, account statement inaccuracies, or transaction processing mistakes, or shift responsibility to third parties.
- Legal issue: The LPCR explicitly invalidates liability-exclusion clauses in many circumstances. Similarly, the Civil Code upholds fairness; unreasonable exclusion clauses that deprive the counterparty of fundamental rights may be declared invalid.
3. Clauses Imposing Excessive or Unreasonable Penalties
(Default interest, overdue interest, overlapping penalty fees)
- Practical issue: In certain credit card or loan contracts, overdue interest rates and penalty fees are excessively high or calculated on a compound basis (“interest on interest”).
- Legal issue: While parties may agree on interest rates, the Civil Code and related regulations prohibit agreements contrary to social morality. Banks must also comply with sector-specific limits and disclosure obligations under the Law on Credit Institutions and State Bank regulations. If penalties are manifestly unreasonable, courts may reduce them, invalidate the clause partially, or apply the principle prohibiting abuse of a dominant position.
4. Clauses Requiring Borrowers to Bear All Costs Without Limitation
(Notarization, registration, debt recovery costs)
- Practical issue: Contracts often require borrowers to bear all recovery and enforcement costs, including unreasonable expenses.
- Legal issue: Such clauses may constitute unfair terms. The LPCR and Civil Code allow courts or arbitral tribunals to adjust compensation or invalidate clauses that impose disproportionate obligations or effectively eliminate complaint mechanisms.
5. Dispute Resolution Clauses Unfavorable to Borrowers
- Practical issue: Contracts may require disputes to be resolved exclusively by courts or arbitration located at the bank’s headquarters, creating obstacles for individual borrowers.
- Legal issue: If such clauses exclude fundamental litigation rights or restrict access to justice, the LPCR deems them invalid. The Civil Code likewise protects access to legal remedies.
6. Clauses Granting Interpretative Authority to the Bank in Case of Ambiguity
- Practical issue: Contracts stipulate that the bank’s interpretation prevails in case of disagreement over contractual obligations.
- Legal issue: These unilateral interpretation clauses undermine contractual balance. Under the Civil Code, when interpreting standard form contracts, courts must favor the weaker party (contra proferentem principle).
IV. LEGAL CONSEQUENCES: WHEN ARE CLAUSES OR CONTRACTS SANCTIONED?
1. Judicial Invalidation or Reduction of Effect
If a clause violates mandatory legal provisions (e.g., liability exclusion, restriction of litigation rights, unilateral modification), it may be declared invalid under the Civil Code and LPCR. Courts may invalidate only the offending clause while preserving the remainder of the contract if it can operate independently.
2. Regulatory Intervention Regarding General Trading Conditions
State authorities responsible for consumer protection may require enterprises to amend or revoke unlawful standard terms and conditions.
3. Application of Sector-Specific Legislation
Certain contractual elements (interest rates, fees, credit limits) must comply with State Bank regulations and the Law on Credit Institutions. Violations may result in administrative sanctions in addition to contractual adjustment.
V. THE ROLE OF COURTS IN RESOLVING DISPUTES INVOLVING STANDARD CREDIT CONTRACTS
1. Judicial Approach
Courts conduct a comprehensive review of jurisdiction, procedures, contract content, and sector-specific regulations. In standard form contracts where the weaker party lacks bargaining power, courts typically interpret clauses in favor of the offeree (interpretation contra proferentem) and apply consumer protection rules where appropriate.
2. Criteria for Assessing “Imbalance”
Courts consider:
(i) the degree of unilateralism of the clause;
(ii) whether the clause falls within prohibited categories under the LPCR or Civil Code;
(iii) the actual harm or practical impact of the clause;
(iv) whether the bank adequately disclosed and explained the terms to the customer.
VI. RECOMMENDATIONS FOR LEGAL IMPROVEMENT AND PRACTICAL APPLICATION
- Clarifying Prohibited Clauses in Standard Credit Contracts
Explicitly define prohibited clauses (e.g., unilateral interest rate adjustment without transparent criteria) and establish disclosure standards for interest calculation and fees. - Mandatory Disclosure of General Trading Conditions and Plain-Language Summaries
Banks should provide clear Vietnamese disclosure statements outlining interest rates, fees, risks, and complaint mechanisms prior to contract execution. - Strengthening Regulatory Oversight and Sanctions
The State Bank and consumer protection authorities should review standard contracts and sanction abusive use of general trading conditions. - Guidance for Courts and Arbitration Tribunals
Develop uniform adjudicatory guidelines on invalidating clauses, reducing penalties or interest, and defining “unfairness” to enhance legal predictability.
CONCLUSION
Bank-drafted standard credit contracts are essential tools for credit operations but inherently risk creating imbalances between banks and borrowers—particularly individual consumers and small entities with weaker informational and bargaining capacity. Vietnamese law provides protective mechanisms through the Civil Code 2015, the Law on Protection of Consumers’ Rights, the Law on Credit Institutions, and implementing regulations. Nevertheless, further normative refinement and stronger enforcement are required.
Where standard clauses infringe the principles of freedom, equality, and good faith, or fall within prohibited or restricted categories under sector-specific law, courts or regulatory authorities may declare such clauses invalid, require amendments, or apply other measures to restore contractual balance.
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Khuong Ngoc Lan