Banks to face their customers over 'illegal' mortgage fees

A legal showdown is looming between Czech banks and thousands of angry customers fed up with paying fees associated with their mortgage accounts.

In just one week, around 15,000 people have signed up to a class-action lawsuit against a series of local banks that aims to reclaim more than 100 million Kč worth of charges customers say have been collected illegally.

The landmark case is being run by consumer advocate website Poplatkyzpět.cz (Fees Back), and the organization eventually hopes to completely abolish the contentious fees.

If the action is successful, banks may have to return fees reaching back another four years, meaning clients could stand to receive thousands of crowns each while the lenders would lose an estimated 4 billion Kč.

"We are very confident of success in this action, considering a legal precedent that was recently set in Germany," said Petr Toman, a partner with Prague-based law firm Toman, Devátý & Partneři, which is representing Poplatkyzpět.cz. "We are in the final stages of preparing the case, but if it succeeds we will have an example that can be applied to all banks in future cases and could be spread over various types of credit products," Toman told The Prague Post.

"In the end, we will have a larger group of clients who have the same conditions, and this will speed up and simplify further work."

In Germany, customers no longer pay fees on mortgages, because a Supreme Court decision in 2011 ruled they contravene European Union legislation and clients already pay their banks through interest on their loans. The German ruling was made in a case concerning consumer credits but also applies to mortgages because they are considered a subtype of credit under European law.

The consumer group dTest, which has already filed a case against Komerční banka (KB), says Czech banks charging customers for loan accounts also violates the law.

"The consumer doesn't receive any adequate consideration for this fee; it is just a cost of banks that are transmitted to the client. Fees warp the possibility for consumers of comparing different mortgage offers," says dTest adviser Miloš Borovička.

"We sued KB last November, and we are currently preparing an action [against] Česká spořitelna. Our association is entitled to take action in the public interest," he told The Prague Post.

Each year, it is estimated Czechs pay more than 1 billion Kč in fees for loan accounts, and on average banks charge each customer 174 Kč in fees per month.

"German court decisions are not binding on the Czech territory, but the Czech and German laws are based on the European system of protection of consumers. Arguments used in Germany are applicable in the Czech legal environment too, and we were inspired [by] the German success for our action," Borovička said. "We think Czech consumers are entitled to the same level of protection as the German consumer, but the decision [will come from the] court."

However, the country's leading banks have indicated they are unlikely to agree to a settlement in the case being prepared by Poplatkyzpět.cz and will instead wait for a court decision.

"We consider the fees to be fair and in accordance with Czech legislation," said ČSOB spokeswoman Pavla Hávová.

Libor Ostatek of mortgage broker Golem Finance argues a settlement would present an accounting problem.

"It would be not only an economic problem, but also a financial and technical problem" he said. "Under such a move, banks would have to deal with the Czech National Bank and the Finance Ministry."

A spokesman for the Czech Banking Association would not comment on the case.

While customers who have joined the class action wait for their case to reach court, some banks have already begun to change their fee arrangements, even introducing products without charges.

Institutions such as mBank and Fio banka do not charge a mortgage account fee, and others, such as Raiffeisenbank and AXA, have recently stopped doing so. KB has stopped charging the fee on simple mortgages but has retained it for its Flexible product, while Česká spořitelna and UniCredit have indicated they do not plan to drop the fee.

"Since the beginning of this year, we have offered clients the opportunity to arrange mortgages and consumer loans without a fee for administering the loan," said KB spokeswoman Monika Klucová. "For contracts concluded before the end of last year, the fee charged for the administration of the loan is in accordance with the contracts."

"Legal analysis shows that fees are charged in full compliance with Czech law" she added.

Andrew Greene can be reached at
agreene@praguepost.com