Wednesday October 27, 2021, 10:59
Last updated: about 2 hours ago
In a preliminary ruling requested by the regional courts of Ravensburg concerning Volkswagen Bank, Škoda Bank and BMW Bank (the “Banks”) (Cases C 33/20, C 155/20 & C 187/20) (on “Joined cases”), the Court of Justice of the European Union (the “CJEU”) issued a decision to strengthen consumers’ rights in car finance loan contracts (the “Loan contract (s)”). The CJEU found that while the information contained in loan contracts does not comply with the Consumer Credit Directive (Directive 2008/48) (the “CCD”), consumers can exercise their right of withdrawal from such a contract at any time, regardless of the date on which the loan was originally taken out, as well as a right to repayment.
For your information, the CCD aims to harmonize EU rules on loan contracts to finance purchases of goods and / or services from consumers, and to improve transparency of the terms and conditions of loan contracts and the level of consumer protection. In particular, the CCD provides the information that banks, as lenders, must sufficiently explain and disclose to their customers both at the pre-contractual stage and in the loan contract itself. To this end, the CCD also provides a standard format of consumer credit information that should be followed by lenders. Typically, this information includes:
- A description of the credit product;
- the duration of the credit agreement;
- the total amount of the loan;
- the borrowing rate and the conditions applicable to this rate;
- the annual percentage rate and the total amount owed by the consumer;
- the amount, number and frequency of payments;
- costs associated with or resulting from the agreement;
- consequences of late payment and non-performance.
In addition, article 14 of the CCD gives the consumer a period of 14 calendar days to withdraw from the loan agreement, without having to indicate a reason for revocation. In addition, the consumer also has the right to make the early repayment of his credit at any time, insofar as the lender, as a creditor, is reasonably and legitimately compensated in accordance with article 16 of the CCD.
The facts of the joined cases were essentially very similar. All of the applicants had entered into loan agreements with their respective banks to finance the purchase of a vehicle and after some time, either before or after full repayment of the loan agreement, the applicants decided to revoke their contracts. However, such revocations were refuted by the Banks. Consequently, the applicants brought actions against the banks in the regional courts of Ravensburg. All the candidates claimed that their withdrawal should be considered valid because the withdrawal period had not yet started to run due to insufficient information required provided in the contract. In addition, one of the applicants who had terminated the loan agreement after having repaid the loan in full and resold the vehicle to the same dealer, also asserted that by exercising her right of withdrawal, she was also entitled to reimbursement of the difference. between the purchase price, including interest, and the resale price.
In their defense, the Banks argued that such withdrawals could not be accepted since customers already had the mandatory information under the CCD and the 14-day withdrawal period established under the CCD had long expired. In consideration of these requests, the Ravensburg Regional Court submitted a request for a preliminary ruling in order to interpret the CCD in terms of the accuracy and detail required of the information to be provided in loan agreements and of the manner in which national courts must deal with cases of revocations of loan agreements.
In giving his opinion on the request of the Ravensburg court, Advocate General Hogan considered that if the loan agreement must indicate the default interest rate applicable at the time of its conclusion as a percentage, if this interest rate should be amended, the formula for calculating the rate must also be clearly stated. He also believed that banks, as creditors, should provide consumers with information about available out-of-court complaint or appeal procedures. Advocate General Hogan further argued that the bank, as a lender, could not oppose the exercise of the right of withdrawal by consumers by invoking the principle of the prohibition of abuse of rights, the only reason that a significant period of time had already elapsed since the conclusion of the contract. The lender could only oppose the cancellation if it provided the clients with the necessary information required by the CCD.
In its preliminary ruling, the CJEU generally confirmed Advocate General Hogan’s conclusions describing the elements required to interpret the relevant provisions of the CCD, while finding that the agreements examined did not contain all the mandatory information.
Among other things, the Court ruled that the essential information to be included in loan agreements are:
1. A clear and precise mention that the contract is a “linked credit contract” and that the contract is for a fixed term within the meaning of article 10 (2) (a), (c) and (e) of the CCD ;
2. The information obligations set out in the CCD cannot be fulfilled by mere references to the law in contracts in accordance with Article 10 (2);
3. In accordance with Article 10 (2) (l) of the CCD, the credit agreement must specify the default interest rate in the form of a percentage, applicable at the time of conclusion of the contract as well as an explanation. the mechanism for modifying the expected default interest rate. To this end, the formula for calculating the evolution of the tariff must be provided in a clear manner so as to be easily understood by an average consumer;
4. According to Article 10 (2) (r), an average consumer should also be able to understand and easily calculate the amount of compensation due to the lender in the event of early repayment of the loan. In this regard, the method of calculating the compensation must be clearly defined;
5. The contract must also contain information regarding the procedures for complaints or out-of-court remedies applicable and available to consumers, which must be accompanied by an estimate of the costs to be incurred in filing such complaints, and how and where to make the complaint. is to be filed / submitted, including the formal conditions to be observed by consumers in such proceedings. This is in accordance with Article 10 (2)
6. Finally, according to Article 14 (1) of the CCC, creditors of loan contracts must not oppose consumers’ right of withdrawal on the sole ground that a considerable period of time has elapsed since the conclusion of the loan agreement. In addition, creditors cannot rely on the principle of the prohibition of abuse of rights, unless the lender himself has provided the necessary information in the loan agreement.
The CJEU effectively ruled that due to the failure of the banks to provide the correct information in accordance with the CCD, the loan agreements were not concluded correctly, meaning that the 14-day period within which the revocation can be made has not yet started to run Course.
In conclusion, several consumer credit contracts may be affected by this judgment, and eventually be revoked. As the CJEU argues, if mandatory information, such as that described above, is not found in loan agreements, creditors cannot rebut the consumer’s revocation or invoke the principle of abuse of rights. Indeed, this means that some contracts risk being revoked, even several years after their conclusion.
The author would like to thank Kyra Pullicino, intern student at Ganado Advocates, for co-authoring this article.