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January 5, 2010

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Court rules against interest-rate lawsuit

A HONG Kong man who sued a foreign bank for not decreasing the interest rate on a loan in line with other overseas banks has lost his lawsuit.

Pudong New Area People's Court said yesterday that the bank had the right to decide what interest it charged and wasn't obliged to lower interest rates when other banks did.

The plaintiff surnamed Cheng bought an apartment in Luwan District in 2007. He signed a contract with a foreign bank, which was not named by the court, to get a loan of HK$6.8 million (US$876,753). The interest rate was 5.25 percent.

The contract said the bank had the right to adjust the loan interest of foreign currencies according to the international market.

During the financial crisis, the Federal Reserve Bank in the United States and some Hong Kong banks lowered their interest rates.

But the interest on Cheng's loan didn't change.

Cheng sent the bank e-mails and lawyer's letters, urging it to decrease the interest like other banks.

On May 22, 2008, it offered him an interest rate of 3.25 percent but said the interest wouldn't be lowered again during the contract term.

Cheng wasn't satisfied, however, because the interest was still higher than that offered by other banks. He sued, asking the bank to reduce interest to 2.5 percent and return "overcharged" interest of HK$220,000. He said the bank was obliged to adjust the interest rate in line with other banks.

The bank said a lowering of interest overseas didn't necessarily result in the same decrease on China's mainland because financing costs were different.

According to the People's Bank of China, banks should decide the foreign currency loan interest themselves. The bank's behavior didn't violate the contract, the court ruled.


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