Thursday, 21 July 2016

Debt collection agencies as credit intermediaries - opinion of AG Sharpston in Verein für Konsumenteninformation (C-127/15)

The wild wild West of the financial markets knows no boundaries to creativity... Inko is an Austrian debt collection company that helps banks and other consumer credit lenders to recover their payments from consumers defaulting on credit payments. In such circumstances, Inko approaches a consumer on the lender's behalf and gives them a choice of either paying the outstanding debt in full or entering into a repayment agreement. Consumers are given just 3 days to make their choice, i.e. to complete a pre-printed form (instalment agreement) and return it to Inko. Under the terms of this agreement consumers: acknowledge that the outstanding debt is due together with the costs for the default under the initial credit agreement; agree to the repayment plan in monthly instalments; and accept that the payments they make would first cover Inko's fees and only after the due credit amounts. Inko's fees are thus paid by defaulting consumers, as well as Inko receives the interest. 

Since Inko acts on behalf of the lenders, the repayment agreement is concluded between the lender and consumers. Inko claims thus that they have no (pre-)contractual duties towards consumers, such as information duties on the basis of the Consumer Credit Directive (Directive 2008/48). The Austrian Consumer Organisation (Verein für Konsumenteninformation) disagreed and started injunction proceedings against Inko.

Two questions that were referred to the ECJ in these proceedings pertain to the status of Inko under the CCD, i.e. whether they can be seen as a credit intermediary, and the status of an instalment agreement - whether it's a 'deferred payment, free of charge', as defined in Article 2(2)(j) of the CCD. The reason for the agreement to classify as a deferred payment free of charge could be that the fees and interest paid to Inko do not seem to exceed what consumers would need to pay to lenders under Austrian law due to being in default with credit payments.

AG Sharpston considers that Inko acted indeed as a credit intermediary (I) and consumers did not conclude agreements for a deferred payment free of charge (II), as defined by the CCD.  

Ad (I)
There are four requirements in the test for a credit intermediary, pursuant to Art. 3(f) of the CCD: natural or legal person (1) may not act as a creditor (2) while operating in the course of his trade, business or profession (3) and charging a fee for his services (4). (Par 25) The services to be provided should be related to presenting, offering credit agreements to consumers, or preparing or concluding them for them. (Par 26) All these conditions are satisfied in this case, when Inko presents instalment agreements to consumers on behalf of creditors in order to recover their outstanding debts for a fee. Moreover, the notion of the credit intermediary should be broadly interpreted to provide genuine consumer protection. Credit intermediaries are obliged to provide consumers with 19 items of mandatory pre-contractual information from Article 5 (1) CCD "in good time" before the agreement is binding. The AG assesses that:

"The three days indicated in Inko’s specimen agreement is inadequate to enable a borrower to assess his position. Where a borrower is confronted with the option of repaying the outstanding debt in full or completing the instalment agreement, it is unlikely that he has a genuine choice. If he could readily repay the outstanding amount (the less expensive option as his liability for further costs would be reduced), he would probably not be in default. Three days is also insufficient time for the borrower to compare the costs of agreeing to the instalment arrangement with alternative solutions offered by other lenders." (Par 28)

Provision of a high level of consumer protection that the CCD aims at requires that Inko provides pre-contractual information to consumers and in a timeframe longer than the three days offered, unless lenders would provide this information themselves. (Par 29) AG Sharpston continues that the principle of responsible lending also demands such an interpretation. (Par 30)

Ad (II)
AG Sharpston does not consider the instalment agreement as a deferred payment free of charge, pursuant to Article 2(2)(j) CCD. 'Free of charge' should be referred to the definition of a charge as a 'total cost of the credit to the consumer' in Article 3(g), which covers with its scope also recovery costs "incurred where a borrower is in default under the initial agreement, whether those costs are charged by the lender himself or by a debt collector acting on his behalf". (Par 41) It does, therefore, not matter that without the intermediation of Inko, consumers would need to likely pay the same costs to their lender for debt recovery. As long as debt recovery is not free of charge, it cannot be seen as a 'deferred payment free of charge' pursuant to AG Sharpston. (Par 46-51).

Monitoring the application of EU law - EC 2015 Annual Report
The European Commission has published its 33rd Annual Report on monitoring the application of EU law (click here for the full report; see the press release here). The Commission, as "guardian of the Treaties", monitors the Member States' measures for the implementation and application of EU law to ensure that they comply with EU law. This Annual Report highlights the main developments in enforcement policy in 2015, and gives some facts and figures. 

As regards the acquis on consumer protection, the Commission reports that it has raised the implications of the Court of Justice's case law based on the principles of ex officio control by national courts, equivalence and effectiveness with individual Member States, in 'EU Pilot dialogues for non-compliance' and in infringement procedures (pp. 7-8). These mainly concerned the transposition of the Directive on alternative dispute resolution (see also p. 15) and the Consumer Rights Directive. In its press release, the Commission proudly refers to the online Single Market Scoreboard, which monitors the performance per Member State in a number of policy areas and governance tools. Taking all evaluated areas into account, Croatia, Cyprus, Estonia, Ireland and Slovakia performed best in 2015. 

In addition, the Annual Report mentions that the Commission received less complaints about potential breaches of EU law than in 2014 (p. 17). The three Member States against which the most complaints were filed were Italy, Spain and Germany. Many of those complaints were related to justice and consumers (p. 18). On its website, the Commission has published - among other things - National Factsheets for all Member States, containing graphs per country on EU Pilot files and infringement cases. These factsheet also refer to some key preliminary rulings of the Court of Justice per country. For example, for Spain, the Court's BBVA judgment of 29 October 2015 (reported by us here) is briefly summarised. 

Wednesday, 20 July 2016

Towards a true European Market for retail financial services- responses published

On 14 July 2016 the EU Commission has published the responses (those authorized for publication out of 428 responses received), including a very informative summary of responses (available here) in regard to the Green Paper on retail financial services.

The Green Paper is part of the comprehensive public consultation towards a 'true European market for retail financial services' that the EU Commission launched on 10  December 2015 (on which we have reported earlier). The Green Paper aims to explore the ways in which the EU market for retail financial services, i.e. insurance, loans, payments, current and savings accounts and other retail investments could be further opened up while maintaining an adequate level of consumer protection. It seeks to identify the barriers that consumers and firms face in making full use of the Single Market and the ways in which these barriers could be overcome, including the best use of technology.

Wednesday, 13 July 2016

A victory for the banks? Opinion in high-profile cases on Spanish 'floor clauses'

Opinion of Advocate-General Mengozzi in Joined Cases C-154/15, C-307-15 and C-308/15 (Gutiérrez Naranjo v. Cajasur Banco, Palacios Martínez v. BBVA and Banco Popular Español v. Irles López
This morning, Advocate-General Mengozzi presented his Opinion in three high-profile cases that have generated a lot of attention in Spain. These cases go far beyond the parties' interests and are perceived as being part of an ongoing battle between "the banks" on the one hand and "the consumers" on the other. They originate from a disagreement between the Spanish Supreme Court (Tribunal Supremo) and lower courts about the required level of protection under the Unfair Contract Terms Directive (93/13/EEC). The subject matter of the three cases are the so-called cláusulas suelo (literally: 'floor clauses'), i.e. minimum interest rate clauses, used by banks in mortgage loan agreements. In Spanish media, today has already been called "D-Day" for cláusulas suelo. 

What are cláusulas sueloAG Mengozzi explains: "Those clauses allow a banking institution which grants a variable rate mortgage loan to impose a lower limit on the variable interest rate, so that even if the applicable interest rate [e.g. EURIBOR] is below a certain threshold (or 'floor'), the consumer will continue to pay minimum interest equivalent to that threshold." Such 'floor clauses' were common practice in Spain. In a judgment of 9 May 2013, the Tribunal Supremo declared cláusulas suelo to be unfair. In short, it found that those clauses were not transparent: consumers were unable to foresee the economic and legal burden the contract would place upon them.

The present cases concern the effects of this judgment, more specifically the question of retroactive effect. Under Spanish law, the general penalty for unfair terms is invalidity, which creates a right to full restitution. To what extent can consumers claim restitution of the amounts paid on the basis of 'floor clauses'? According to the Tribunal Supremo, such a refund is only due from the date of the judgment, 9 May 2013. It held that the temporal effects of its judgment could be limited under the principles of legal certainty, fairness and prohibition of unjust enrichment, because the banks had acted in good faith and there was a risk of serious economic difficulties (cf. the CJEU's judgment of 21 March 2013, C-92/11, RWE Vertrieb). However, lower courts have questioned the date from which the refund should begin. Is the Tribunal Supremo's limitation of the restitutory effects produced by an unfair - and therefore, under Spanish law, invalid or void - contract term compatible with the interpretation of "non-binding" in Article 6(1) of Directive 93/13? Should the refund of the amounts paid by the consumer on the basis of the unfair term arise only on the date of a court decision confirming the unfairness, or from the date the contract was concluded?

Advocate-General: Tribunal Supremo's approach is permissible 
AG Mengozzi first establishes that the Tribunal Supremo, by classifying 'floor clauses' as unfair terms in particular because of a lack of sufficient prior information, has not afforded a higher level of protection to consumers than that offered by Directive 93/13 and that thus, ascertaining the requested interpretation is relevant (paras. 43-50). He refers to the CJEU's case law (inter alia, its judgment of 30 April 2014, C-26/13, Kásler) to conclude that the requirement of transparency within the meaning of Article 4(2) of Directive 93/13 must be understood in a broad sense: not only should the relevant term be grammatically intelligible to the consumer, but the consumer should also be able to assess the economic consequences resulting from the application of that term, including the calculation of the repayments and interests.

As regards Article 6(1) of Directive 93/13, AG Mengozzi considers that the expression "non-binding" is neutral. He then moves on to say that the CJEU seems to have considered the invalidity of unfair terms not as the only way to satisfy the requirement that unfair terms are non-binding (para. 60). The CJEU has not decided that national courts must declare those terms invalid and create a corresponding right to restitution in integrum (para. 64). From 9 May 2013, 'floor clauses' must cease to exist in the Spanish legal order: they must be eliminated from existing contracts and can no longer be included in new contracts. Therefore, the full effects of invalidity under Spanish law are guaranteed from 9 May 2013 and the effectiveness of Directive 93/13 is fully assured pro futuro. With regard to the prior period, AG Mengozzi observes that EU law harmonises neither the applicable penalties nor the circumstances in which a supreme court decides to limit the effects of its judgments. This means that the present situation falls within the national procedural autonomy of the Member States (para. 68). In AG Mengozzi's view, the Tribunal Supremo's approach - the temporal limitation - is permissible in the light of the principles of equivalence and effectiveness, provided that it remains quite exceptional (p. 73). While he disagrees with the alleged "innovative nature" of the judgment of 9 May 2013, AG Mengozzi points out that the Tribunal Supremo struck a balance between the protection of consumers and "the macroeconomic challenges to the already weakened banking system of a Member State" (para. 72). The safeguarding of legal certainty is "a concern shared by the EU legal order", "on account of the many legal situations which are potentially affected and which could undermine the stability of an economic sector" (para. 74).

A victory for the banks?
AG Mengozzi's consideration of "macroeconomic challenges" is in line with the Tribunal Supremo's argument that its judgment, without a restriction of the retroactive effect, would cause a risk of serious economic difficulties. It has been said that the risk for the Spanish banking sector is 3.500 million euros; no wonder that the AG's Opinion is perceived as a victory for the banks. Yet, the Opinion passes over a number of counter-arguments, brought forward on behalf of the consumers involved as well as by the referring courts.

First, it has been doubted whether the banks have actually acted in good faith.[1] As AG Mengozzi concludes, the judgment of 9 May 2013 was not really "innovative"; the CJEU's case law after that date is "nothing other than the logical continuation of a series of earlier judgments" (para. 49). Can it be said that the banks' "good faith" only ceased to exist on 9 May 2013? In addition, the banks themselves, who drafted and used the highly disputed 'floor clauses', were the cause of the lack of transparency making those clauses unfair. In this respect, AG Mengozzi's remark that the conditions governing the circumstances in which a supreme court may limit the effects of its own judgments fall within the scope of the Member States' national procedural autonomy (para. 80) is unsatisfactory, especially given the emphasis he puts at the same time on the balance struck by the Tribunal Supremo (paras. 72-74). If the Tribunal Supremo's reasoning is subjected to scrutiny in the light of the principle of effectiveness, the part on good faith could be more closely examined as well.

Secondly, the question has been raised whether the Tribunal Supremo's approach is contrary to the prohibition imposed on national courts of revising or altering the content of an unfair term (see, e.g., the CJEU's judgment of 14 June 2012, C-618/10, Banco Español de Crédito). AG Mengozzi does not answer this question directly. Perhaps limiting the effects of invalidity is not the same as varying the content of contract terms, the ratio behind this prohibition might nevertheless apply equally.[2] It is not entirely clear why the required "deterrent effect" (para. 71) should not date further back than 9 May 2013. One could argue that the banks are now rewarded for awaiting the Tribunal Supremo's judgment before changing their practice. In the words of Prof. Francisco de Elizalde (footnote [1]): "It could lead possible infringers to believe that the greater the damage, the more lenient the remedies."

Thirdly, AG Mengozzi appears to pay strikingly little attention to the position of consumers. Admittedly, achieving the balance sought by Directive 93/13 is not the same as favouring the consumer. But AG Mengozzi dismisses the plight of Spanish consumers too easily, where he says that a consumer who had concluded a loan agreement containing a 'floor clause' could simply repay one loan with another from a different banking institution, and that application of the 'floor clause' would not have led to a substantial change in the monthly amounts payable by consumers anyway (para. 73). He seems to overlook the economic risk mortgage loan agreements and 'floor clauses' pose to the consumer's household finances. His statement is all the more curious in relation to the finding of unfairness of those very same 'floor clauses'.

Finally, it is a pity that AG Mengozzi only spends one brief paragraph at the very end of his Opinion on the relationship between collective and individual actions (para. 81). In Case C-308/15, a specific question was asked by the referring court about the meaning of the right to effective judicial protection as enshrined Article 47 of the EU Charter of Fundamental Rights in this respect (see para. 32). Not only does AG Mengozzi seem to deny the precedent effect of the Tribunal Supremo's judgments, he also does not seize the opportunity to propose a more systematic solution to the disparities between the Tribunal Supremo and lower courts (see also para. 23). He just presumes that the implementation by the lower courts is "likely to safeguard the principle of equality and the principle of economy of procedure" (para. 81), without even mentioning Article 47. Is this another missed opportunity? We will know when the CJEU renders its judgment in the cláusulas suelo saga. To be continued. 


[1] See further: Francisco de Elizalde, 'The Rain in Spain Does Not Stay in the Plain - Or How the Spanish Supreme Court Ruling of 25 March 2015, on Minimum Interest Rate Clauses, affects European Consumers', EuCML 5/2015, pp. 184-187; link.
[2] The Commission, for example, has argued that the declaration of an unfair term as invalid "is not compatible with a limitation of the effects of such invalidation, unless such limitation is necessary to preserve the principle of res judicata" (see EurActiv).

Thursday, 7 July 2016

Beware when buying a car: CJEU judgment on information regarding transfer costs of a motor vehicle
Cars and consumer information prove to be a tricky combination. 

Today the EU Court of Justice gave judgment in a German case concerning an advertisement for a Citroën motor vehicle (C-476/14). The Court ruled that, pursuant to Directive 98/6/EC on consumer protection in the indication of the prices of products offered to consumers, costs in connection with the transfer of a motor vehicle from the manufacturer to the dealer, which are payable by the consumer, must be included in the selling price of that vehicle indicated in an advertisement made by the trader. Such costs form a component of the final price, which enables consumers to evaluate and compare the price of products indicated in an advertisement with the price of other similar products and thereby to make an informed choice on the basis of simple comparisons.

Earlier this year (March 2016), an ECC-Net report has been published about cross-border car purchases and registration, which are prone to fraud. Consumers are recommended to thoroughly check what is being offered, including whether the price of the car is comparable to that of similar models, whether the seller is acting lawfully, and that all the car's documentation is in order. 

So consumers, beware when buying a car!

Monday, 4 July 2016

Blog 'Brexit and European Consumer Law: Now What?' by Catalina Goanta

Just over a week after the 'Brexit' referendum, it is still too early to draw any conclusions about the future relationship between the EU and the UK. The (potential) legal consequences of a 'Brexit' are also unknown, but worth exploring - if only tentatively. In a blog posted this morning, Catalina Goanta of Maastricht University argues that it would not make much sense for the UK to entirely "undo" the EU's influence on national private law, in particular consumer law. Read the blog here.

Thursday, 30 June 2016

Public consultation on the impact of national civil procedure laws

Parallel to the Fitness Check of EU Consumer and Marketing Law (on which we have reported earlier) the impact of domestic laws of civil procedure is also currently under review. The study has two strands: the impact of national laws of civil procedure on mutual trust and free circulation of judgments, and the impact of these laws on the enforcement of consumer rights derived from EU law.

The EU Commission has awarded this project to an international consortium headed by the Max Planck Institute Luxembourg. The Institute has launched a public consultation as part of the study, and encourages consumers, lawyers, judges, academics, consumer protection associations, business/trade associations, dispute resolution facilitators, and those working in other legal professions are to respond. The consultation involves two questionnaires available in six languages that is accessible here.

Apart from the questionnaire, the Institute also appreciates any help in giving further insights into the topics covered. Anyone who can offer help in this regard can leave their contact details for an interview at the end of the survey.

Monday, 27 June 2016

Handbook on access to justice in Europe

In partnership with the European Court of Human Rights (ECtHR), the EU Agency for Fundamental Rights (FRA) has published a handbook which highlights and summarises the key principles in the area of access to justice, in particular those developed under Article 47 of the EU Charter of Fundamental Rights (EUCFR) and Articles 6 and 13 of the European Convention on Human Rights (ECHR). The handbook is meant to raise awareness and knowledge about the different avenues available to access justice.

Access to justice is a core fundamental right according to the EUCFR and a human right under the ECHR. Access to justice enables parties whose rights have been infringed to effectively enforce their rights and obtain a remedy. The handbook provides an accessible summary and analysis of the relevant case law of the EU Court of Justice and the ECtHR, supplemented by – where available – national jurisprudence, on key topics in the area of access to justice.

With respect to consumer law, the handbook refers to EU initiatives on ADR in the field of consumer protection, as well as specific remedies for consumers.

Thursday, 23 June 2016

Rules on compensation for flight downgrades - CJEU in C-255/5 Mennens

Mr Mennens' story might sound as much ado about nothing to many of us. He booked a series of flights with Emirates airlines, some in first and some in business class, and received a joint ticket specifying all flights and an all inclusive price for all of them, instead of individual prices for each flight. On his first flight from Dusseldorf to Dubai he was downgraded from first to business class (which lowered his expected flight comfort). As a result, he requested reimbursement of 75% of his ticket price, but Emirates reimbursed only 15% thereof.

The difference concerned interpretation of Article 10(2)(c) of Regulation No 261/2004. In case a passenger is downgraded on a flight outside the EU exceeding 3500 kilometres, 75% "of the price of the ticket" is to be reimbursed to the passenger. Mr Mennens requested payment of 75% of the total price mentioned on his ticket, while the airlines claimed that since he was downgraded only on one of many flights mentioned on the ticket, 75% reimbursement should be calculated considering the individual price of that one flight. Moreover, the airline claims that the percentage should apply to the price exclusive of taxes.

The CJEU notices that downgrading of passengers on one flight has no impact "on the services agreed upon for any other flights which the ticket permits that passenger to take" (Par. 24) and that "Article 10(2) of the Regulation aims to compensate a specific inconvenience, related to a given flight and not to the transport of the passenger as a whole" (Par. 28). This means that the passenger should not expect to receive reimbursement of 75% of the "overall price of the transport to which that ticket entitles him" (Par. 29).

How to know what is the individual price of the flight if it is not mentioned on the ticket? "The basis should be the part of the price of the ticket corresponding to the quotient resulting from the distance of the flight in question and the total distance which the passenger is entitled to travel". (Par. 30) Moreover, if the taxes and charges for the flight are not dependant on the class for which the ticket was issued, they should not be included in the calculation of the price of the flight, for which the reimbursement is to be given (Par. 38-42).

Thursday, 16 June 2016

Veto to caffeine health claims on energy drinks?

When you are working or studying hard, drink too much coffee on a daily basis, you might be tempted to reach for a caffeine-filled soft drink to give yourself an energy boost. These drinks often claim to help with energy levels, concentration, inspiration, adding wings etc. Since the main consumers of these drinks are teenagers and young adults (68% of adolescents drink them regularly) and these drinks often contain a lot of sugar (up to 27g of sugar, 80g of caffeine in a 250ml can), MEPs expressed a concern as to such 'health claims' being placed on the labels. (Health Committee MEPs ask Parliament to veto energy drink 'alertness' claims). In a resolution adopted yesterday the MEPs asked the Parliament to veto the Commission's proposal to add health claims on caffeine to the approved health claims list. While the Commission excludes from the proposal products for children and teens, energy drinks would not qualify as such.The MEPs are keen to correct this omission.