power of a lender to charge higher interest

POWER OF A LENDER TO CHARGE AN INTEREST RATE HIGHER
THAN THE INITIAL INTEREST RATE
AMSEL LTD & ANOR v. UBN PLC

PRACTICE AREA: BANKING LAW

INTRODUCTION

Obtaining a loan facility for one purpose or the other is not an uncommon phenomenon and it is usually evidenced by a loan agreement. This loan agreement, containing the terms upon which the loan facility is granted, is usually presented by the banks for signing by the borrower. One of the essential clauses in the loan agreement is the one relating to interests rate. Some loan agreements make interests rate chargeable susceptible to changes in the trend or fluctuations in the financial market. Such was the loan agreement in the case at hand.

The Court of Appeal, per OHO, J.C.A. considered the import of such an interest rate clause in the case at hand and held that “The settled position of the law is that where there is a provision that interests is not fixed and that it is subject to variations or fluctuations, as in the instant case, the lender has the power to charge an interest rate higher than the initial interest rate as long as what is charged is the prevalent interest rate in the financial market.”

The Court went further to state instance(s) where, despite the interest rate clause being made susceptible, the lender will not be allowed to charge an interest rate higher than the initial interest rate. The Court held that “The exception, however, is where the borrower can establish that the interest rate imposed is unreasonable or in excess of what obtains in the financial market at the relevant time.”

On whether the Court can set aside the imposition of an interest rate higher than the initial interest rate or compel the lender to charge a particular interest rate, the Court, per OHO, J.C.A said “In addition, a Court of law cannot set aside the imposition of an interest rate which is reasonable and in tandem with what obtains at the financial market at the relevant time as this is usually set by CBN policy.”