The scope of non-standardized information provision under Directive 2008/48/EC- CJEU judgment in C-58/18 Schyns

A couple of days ago the CJEU delivered its judgment in case C-58/18 Michel Schyns v Banifius Banque SA. Luckily, the CJEU proceeded to decide on the merits of the case in spite of the vagueness of the application (see our report on AG Kokott's opinion in this case here).

The facts of the case

To remind ourselves, this case concerns the interpretation of Directive 2008/48/EC on Consumer Credit. In 2012 Mr Schyns concluded a contract with Home Vision for the installation of a photo-voltaic system (i.e. a solar power system) for the price of 40 002 euros. A couple of days later, Mr Schyns concluded a loan contract with the predecessor of Banifius Banque SA for 40 002 euros repayable in the next ten years in monthly instalments of 472,72 euros. The loan was issued to Mr Schyns who subsequently transferred it to Home Vision. The photo-voltaic system was never installed, and Home Vision subsequently declared bankruptcy. In 2016 (after paying the instalments for over 4 years) Mr Schyns commenced an action against the bank for setting the contract aside and terminating future performance.

The legal issues

This case raised interesting issues on the compatibility of Belgian law with Art. 5(6) of the Directive:
1) Are the rules requiring creditors to select a credit product suitable to the needs and the financial situation of the consumer incompatible with the above provision?
2) Are the rule requiring creditors to refuse to lend to consumers that cannot afford the loan contrary to the said provision?

The scope of 'adequate explanations' in Art. 5(6) of the Directive
The CJEU followed AG Kokott's opinion and answered the first question negatively. It is therefore not contrary to Art. 5(6) of the Directive for national laws to require creditors to recommend the most suitable loan taking into consideration the purpose of the loan and the consumer's financial situation at the time when the contract is concluded.
Given that the Directive does not provide for this obligation, and being a full harmonization instrument, one might question whether Member States may go beyond what is provided in the provision. The CJEU is of the opinion that they can, because the last sentence of Art. 5(6) of the Directive provides that Member States may adapt the manner in which and the extent to which 'adequate explanations' are given (para. 29). According to the CJEU, adapting the manner and extent of adequate explanations can extend the creditor's obligation  to select the most suitable loan. The CJEU also supported its reasoning by reference to Recital 27 and Art. 5(1) according to which consumers may need additional help in selecting the right credit products for their financial needs and wants (para.30), and creditors, as professional lenders are best placed to provide this help to consumers (para. 33).
The CJEU reiterated that, on the one hand, consumers need pre-contractual information to make informed decisions; on the other hand, this pre-contractual information might need to be supplemented with more personalized information for making a fully informed decision (para. 34). However, the CJEU also emphasized that despite of the obligation of the creditor to inform consumers and even to select the right credit product consumers stay ultimately responsible for the choices they are making (para. 34).

Refusing to lend under the Directive
The second question answered by the CJEU tackled the extent to which the selection of the right credit product can reach to. What should creditors do if in selecting the suitable credit product they considers that consumers cannot afford any loan?  Here too, the CJEU agreed with AG Kokott's opinion that it is not incompatible with the Directive for national laws to provide for an obligation to refuse to lend in a situation where creditors cannot be confident that consumers can dully fulfill their contractual obligations, i.e. pay the loan installments as they fall due (para. 49). Although the Directive does not directly provide for this obligation, this interpretation is compatible with  Art. 8(1) of the Directive on responsible lending and creditworthiness assessment and with the broader EU consumer policy reflected in Art. 18(5) of Directive 2014/17/EU that directly provides for an obligation to refuse to lend (para. 46).

Our evaluation
This is an important judgment that aim to clarify the scope of Art. 5(6) of the Directive. It does extend the scope of the provision, and clarifies that adequate explanations can go beyond mere explanations of standard information provided within the Directive; that creditors may also be obliged to select or recommend the suitable loan for consumers (taking into consideration the consumers financial situation at the time when the contract is being concluded and the purpose of the loan). It remains however unclear whether this means an obligation of the creditor to provide financial advice? AG Kokott seems to have thought that it does, however, the court does not make any specific reference to financial advise. Financial advise being an independently regulated activity raises the doubt that it falls within the scope of the Directive. It requires licensed financial advisers (and not every bank clerk dealing with loans will comply with this requirement) and the advisers should take at least some responsibility for the advise they have provided. Given the final reservation of the CJEU that consumers bear the ultimate responsibility for the taken loan leads me to think that adequate explanations do not extend as far as the provision of financial advise. This remains an interesting question though that will need clarification in the future. We may also think whether the question of responsibility is adequately addressed by the CJEU. If creditors are obliged to select the right or suitable loan for the consumer, should they not take the responsibility for it then?

The second aspect of the judgment is also an important development in clarifying the scope of the Directive. Given the full harmonization nature of the Directive and its silence on the creditors obligation following a creditworthiness assessment, the CJEU's contribution to consumer protection by specially enabling Member States to provide the sanction of refusal to lend is an important one. Probably following Directive 2014/17/EC, the CJEU highlighted that the bank should refuse to lend any time it estimates consumers are unable to fulfill their payment obligations as they fall due, arguably aiming to observe the goals of sustainable lending.

ECJ in Orange Polska: Signing a contract in the presence of a courier is not an aggressive practice

On 12th June the CJEU issued its judgement on the Orange Polska case (C‑628/17) on the meaning of the aggressive practices provisions in the Unfair Commercial Practices Directive. This blog previously reported on the AG opinion on the case. The facts of the case will be summarised here, but they are analysed in greater detail in that post. 

The referring court asked whether the practice in question, where in order to conclude a telecommunication contract the consumer has to make the final decision in the presence of the courier employee who is handing him the contract terms, should be considered an aggressive practice with the use of undue influence, according to art. 8 and 9 UCPD.

The Court draws attention to the fact that the context of each individual case needs to be taken into account for determining the existence of a practice that uses harassment, coercion or undue influence (paras 30-31). This case-by-case factual analysis seems to be necessary only for aggressive practices, rather than all kinds of unfair practices.

The Court goes on to clarify that only undue influence is relevant in this particular case (para 32). However, the wording of articles 8 and 9 UCPD doe snot appear to demand identifying whether a practice is aggressive due to the use of harassment, coercion or undue influence.Making reference to point 45 of the AG Opinion the Court pointed out that undue influence is not necessarily impermissible influence but influence which, without prejudice to its lawfulness, actively entails, through the application of a certain degree of pressure, the forced conditioning of the consumer’s will.

Tne Court stated that the fact that the consumer was asked to sign a contract in the presence of a courier without having been sent the contract beforehand, but having had the chance to access it online, cannot be considered an aggressive practice (para 40) on its own.In assessing whether the consumer actually had a chance to receive information prior to the courier's visit, the quality of information plays an important role. The mode of communication is key as the information provided on a trader's website may be superior to that included in a phone conversation (para 42). Still, while more detailed information may be available on line, one could argue that over the phone, consumers may be able to focus on the the questions more relevant for them.

The Court is taking a restrictive view on what can amount to an aggressive practice, as it is pointed out that even if a consumer did not have the chance to access the information beforehand, that is not enough to classify it as an aggressive practice (para 43). Instead, the key criterion is the conduct of the trader. It is stated that conduct, such as the one in the case in question where the courier asks the consumer to take his final transactional decision without having time to study, at his convenience, the documents delivered to him by that courier, cannot constitute an aggressive commercial practice (para 45).

What is needed is something additional to the conduct above that would make the consumer feel uncomfortable and confuse his thinking in relation to the transactional decision at hand. Some examples of what might be considered aggressive includes:'the announcement that any delay in signing the contract or amendment would mean that the subsequent conclusion thereof would be possible only under less favourable conditions, or the fact that the consumer would risk having to pay contractual penalties or, in the event of the contract being amended, would risk the trader suspending the service'(para 48).

Another example was that of the courier informing the consumer that, if he refuses to sign or delays in signing the contract or amendment that has been delivered to him, he could receive an unfavourable assessment from his employer could also fall within that same category; an example similar to point 30 of Annex I of the UCPD, where a trader informs the consumer that if he does not buy the product, his job or livelihood will be in jeopardy.

Unfortunately, the opinion of the AG was not followed in this case and the Court was not daring enough in its interpretation of the aggressive practices provisions, as it was in Wind Tre, even though it was often cited in the judgement. Contrary to the AG opinion, the judgement does not engage at all with the average consumer standard. The judgement fails to provide a comprehensive mechanism for interpreting the provisions or indeed promote our understanding of what kind of pressure is the consumer expected to withstand. Instead, it repeats the phrasing of art.8 on making the consumer take a transactional decision he would not have taken otherwise. 

With this judgement the concept of aggressive practices is interpreted in a restrictive manner, in an effort to balance consumer protection with commercial realities, thus failing to make use of the potential of the provisions.

Un

On stowaway protection - AG Pitruzzella in Kanyeba (C-349/18 to C-351/18)

AG Pitruzzella published his opinion today in an usual referral asking for the interpretation of the provisions of the Unfair Contract Terms Directive as applicable to stowaways (travellers without a valid ticket). The odd-egg character of the Belgian case Kanyeba (joint cases C-349/18 to 351/18) concerns a possibility of there not being a consumer contract and the question of whether the UCTD could apply in administrative, non-contractual disputes.

There is a debate in Belgian law as to the character of the legal relationship between passengers who have not purchased a ticket for their journey and public transport providers. Some scholars argue that even if a traveller does not purchase a ticket, they enter into a contractual relationship with transport providers by walking into the 'travelers-only' zones (adhesion contracts). If this interpretation is followed, then when a stowaway is found and charged the price of the ticket plus any accompanying surcharges (increasing drastically if the ticket is not purchased at the moment of the ticket control), it would be possible to consider, e.g. whether the surcharges are based on fair terms and conditions, pursuant to the UCTD. Other scholars claim that it is a contractual relationship only when the traveller purchased a valid ticket for their journey. They recognise that in other cases a stowaway would not have had an opportunity to accept terms and conditions of the transport, and that the relationship would need to have been regulated by law rather than by contract. Interestingly, in the opinion the attention is drawn to the fact that in Belgian law the unfairness test may also be applied to either type of the legal relationship (para. 28). Regardless the answer as to the nature of the relationship between a stowaway and a transport provider, the UCTD might still apply in Belgium then.

AG Pitruzzella leaves it to national laws, and national courts, to determine the character of the legal relationship between stowaways and transport providers (paras. 40, 43). If the national law does not determine the matter, it is for the national court to establish. In the referred cases, it was clear that passengers had no intention of being bound by the transport contract, as they did not consent to its core conditions: the price (paras. 52-53). This should preclude the relationship as being determined as contractual, although AG Pitruzzella leaves the space for national courts to still do so (paras. 54-58). If the relationship is non-contractual, the UCTD normally would not apply (para. 60). This does not preclude Belgian law from extending the application of the UCTD to all relationships between consumers and traders, also non-contractual ones (para. 62).

We may find specific tips in the opinion of AG Pitruzzella on how to assess the unfairness of surcharges in such circumstances. Namely, as the unfairness test should consider all circumstances surrounding the conclusion of an agreement (or alternatively of the legal relationship between the parties), it seems crucial for national courts to balance private and public interests in stowaway cases. After all, surcharges are supposed to discourage illegal behaviour of a travel without a valid ticket and to protect traders' interests in easier enforcement of travel prices (paras. 63-64). If passengers consider such surcharges as being of a significant detriment to them and distorting the contractual balance, they could have protected themselves against them by a timely ticket purchase.

Intransparency of transparency case law? CJEU in C-38/17 GT v HS

Last Wednesday the Court of Justice delivered a judgment in case C-38/17 GT v HS. On the face of it, the case seems like just another dispute concerning a credit agreement with potentially intransparent terms, specifically terms defining the applicable exchange rate for the loan denominated in foreign currency. On a closer look, a more peculiar picture emerges: the questions asked by the referring court seem to miss the harmonized EU rules, the Commission argues for inadmissibility, Advocate-General decides not to present a written opinion, and at the end of that messy process the Court issues a judgment which might raise at least several eyebrows (for a context see one of the earlier posts published on this blog Forward to the past...).

Facts of the case

The case involved a consumer who concluded a currency-denominated loan agreement and the precise amount of the loan in foreign currency was established only after the agreement had been concluded. Specifically, at the time of contract conclusion the amount of the loan was established on the basis of the sum required in Hungarian forints, applying the exchange rate in force at the time the funds were released. The relevant rate was communicated to the consumer approximately 1.5 month later. There is nothing in the case as to whether the consumer knew in advance about the way in which the exchange rate was to be calculated. In these roughly sketched circumstances, the referring court was wondering whether an array of EU rules and principles, including Articles 4(2) and 5 Directive 93/13 on unfair terms, can be read as obliging the trader to inform the consumer, in clear and intelligible language, before entering into an agreement, about core contractual terms, as a condition of validity of the agreement. The Court of Justice read the reference made by the national court as inquiring whether Articles 3(1), 4(2) and 6(1) of Directive 93/13 preclude the legislation of a Member State, as interpreted by the Supreme Court of that Member State, under which a loan agreement is not invalid where it is denominated in foreign currency and does not indicate the exchange rate applicable to the loan sum for the purpose of determining the definitive amount of the loan, but at the same time stipulates, in one of its terms, that that rate will be set by the lender in a separate document after the agreement has been concluded. In the process of reformulating the question the Court dropped a reference to Article 5 UCTD, which concerns the transparency of terms formulated in writing and establishes a rule that, in the case of doubts, interpretation most favourable to the consumer shall prevail.

Judgment of the Court

In its judgment the Court follows a sequence of steps: since we are talking about a core term, the first question is whether the relevant term is phrased in plain intelligible language in line with Article 4(2) UCTD. If it is, our job is done, no consequences can be drawn against such a term on the basis of the analysed directive. If it is not, we move to the second step and carry out a substantive assessment on the basis Article 3(1). If unfairness is established, the sanction of invalidity, as a matter of principle, only applies to the term in question. Only if the agreement cannot function without the relevant term it can be deemed invalid in its entirety.

Let us first focus on the assessment whether a term is phrased in "plain intelligible language". The Court first recalls some of it earlier case law highlighting that the transparency requirement cannot be reduced merely to the terms being "formally and grammatically intelligible" (see eg our earlier post on the Court's judgment in Andriciuc). Rather, due to the consumer's weaker position vis-à-vis the trader, the requirement must be understood in a broad sense. In particular, according to the Court, "the contract should indicate transparently and specifically how the mechanism to which the relevant term relates is to function and, where appropriate, the relationship between that mechanism and that provided for by other contractual terms", so that that consumer "is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him of entering into the contract".

Applied to the case at hand the requirement implies that "the mechanism for calculating the amount lent, expressed in foreign currency, and the exchange rate applicable must be indicated transparently, so that a reasonably well-informed and reasonably observant and circumspect consumer may evaluate, on the basis of clear, intelligible criteria, the economic consequences for him of entering into the agreement, including, in particular, the total cost of the loan" (para. 34). So far so good. Note, however, that the question is to be examined "in the light of all relevant facts" including promotional material and information provided to consumers during negotiations (para. 35). Surely, the contextual background seems important and indeed follows from the earlier case law, but what does it mean exactly in the case like the one at hand? Can information provided during negotiations make an otherwise intransparent term transparent? If so, how does this relate to Article 5 of the UCTD? The Court does not say. 

What may worry consumer advocates even more is the point in time, at which an appropriate level of transparency should be achieved. In particular, as noted by the Court in para. 36: the seller or supplier cannot be expected to have specified all the relevant details at the time the agreement was concluded. Again, it is not clear which "relevant details" can be skipped at the time of entering into a contract. Understandably, the exact exchange rate will often not be known in advance. But what about the way in which the exchange rate is to be calculated? 

Because the assessment is left to the national court, the Court then moves to the second stage, that is whether the relevant term can be considered unfair. In this respect, the focus of the Court remains on the wording of Article 3(1): whether, contrary to the requirement of good faith, a term causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer concerned. Also here the Court does not offer much of a clarification, besides noting that the assessment should consider "the nature of the goods or services" as well as, again, "the circumstances attending the conclusion of the agreement ... which could have been known to the seller or supplier at that time the agreement was concluded and ... could affect the future performance of the agreement (paras. 39 and 40). 

Concluding thought

While the reference to the circumstances attending the conclusion of the agreement may, at the end of the day, work in consumer's advantage ("a contractual term which manifests itself only during the performance of the agreement term may give rise to an imbalance between the parties", para. 40), the judgment leaves more questions open than it answers. It is not clear, in particular, whether the Court retracts on its earlier judgment in VKI, where it found that "the unfairness of ... a term may result from a formulation that does not comply with the requirement of being drafted in plain and intelligible language set out in Article 5 of Directive 93/13" (para. 68). Does the resulting imbalance already relate to the consumer's uncertainty about the scope of his obligations? Or should it rather be established by looking at the relevant rights and duties and comparing them on the merits? 

Finally, we should not forget that all the rules we are talking about in here are minimum harmonisation rules. To recall, in Ahorros the Court made it clear that Member States may adopt national legislation which authorises a judicial review as to the unfairness of contractual terms which relate to the definition of the main subject-matter of the contract or to the adequacy of the price and remuneration, on the one hand, as against the services or goods to be supplied in exchange, on the other hand, even in the case where those terms are drafted in plain, intelligible language. The same is true for additional rules concerning bringing terms to consumers' attention (eg German rules on Einbeziehungskontrolle) or the consequences of intransparency (eg intransparency as a self-standing ground for invalidity). Of course, the judgment does not say otherwise - and let us not be fooled that it does. 

Return to sender - CJEU in Fülla (C-52/18) on bulky non-conforming goods

We have not yet had a chance to address the CJEU's judgment of 23 May in the case Fülla (C-52/18). As we have mentioned in the comment on the AG Wahl's opinion, Mr Fülla was convinced that a party tent he has ordered on the phone was not in conformity with this order. The trader was disputing this claim, but the main issue of the case was the lack of a proper communication between the parties as to where and on what conditions the goods could be brought into conformity to begin with. Mr Fülla demanded that the tent was brought into conformity at his place of residence and did not offer to return it. The trader expected the goods to be returned, but did not inform of this requirement the consumer nor offered to advance the postage costs for the return of the goods.

As it was mentioned in our previous comment, and following the opinion of AG Wahl, the CJEU also leaves the determination of the place, in which the goods should be brought into conformity, to the discretion of national laws (para. 46). After all, the place has not been specified in the Consumer Sales Directive, except for its provisions requiring that the determination of such a place enabled repair or replacement: free of charge, within a reasonable time and without significant inconvenience to the consumer (para. 32). Therefore, national courts have to take into account these three requirements, as well, in their interpretation of national laws in accordance with EU law (para. 47). The CJEU emphasises that consumers could experience some inconvenience when having to package and deliver goods to a place where they will be brought back into conformity. It just cannot be a significant inconvenience (para. 40). However, due to the character of certain goods (e.g. that are heavy or bulky) a need to send/transport them to a place other than their location with the consumer may automatically constitute a significant inconvenience (para. 43). It is worth to note that the CJEU is not overly concerned with the lack of harmonisation that such a solution would lead to, as the CSD is in any case a minimum harmonisation directive.

When a consumer sends the goods back to a trader, claiming that they are non-conforming, the question arises whether the trader needs to advance the costs of posting the goods back to him. The CJEU considers such an obligation too far-reaching and able to distort the balance of rights and obligations of both parties. The main argument here is that the goods may turn out not to be non-conforming and that advancing such postage costs could also slow down the process of bringing the goods back into conformity (para. 53). Therefore, in general, consumers may only expect that the postage costs will be reimbursed to them after the non-conformity is confirmed by the trader. However, the situation is different if the advance of postage costs would be necessary in order not to prevent the consumer from making use of their rights (para. 55). Therefore, in specific cases where the transport is costly, e.g., traders could be required to advance such costs. We may expect some disputes arising to determine when exactly such a significant inconvenience would arise.

Finally, the CJEU addresses the issue of the hierarchy of remedies. As a consumer may only then terminate the contract due to non-conformity if a trader was first given an opportunity to remedy that non-conformity, the question was whether in a given case this condition was fulfilled. After all, Mr Fülla did not deliver the tent to the trader's place of business. The CJEU answers this in the affirmative. As the consumer notified the trader of the non-conformity and of the fact that the repair/replacement could occur at his home, when the transport of goods was likely to cause a significant inconvenience to consumers, and the trader did not inform the consumer about his requirement for the place at which repair/replacement could occur - the consumer could terminate the contract on the basis of the non-conformity (para. 65).

Recent research reveals how consumers engage with crypto-assets

The Financial Conduct Authority, the UK's financial regulator/supervisor recently published an interesting report on how consumers behave in relation to crypto-assets: How and why consumers buy cryptoassets. To remind ourselves, crypto-assets are virtual, digital assets used for payment or investment purposes or both. This research fits well into the current EU efforts on regulating fintech services and products. We have reported earlier on the EU Commission's 2018 Action Plan on Fintech within which crypto-assets are of a special concern. More recently we have discussed ESMA's recommendation for a need for tailored regulation for the protection of consumers, buyers of crypto-assets.

The present research is focused on consumer behavior, on how consumers engage with crypto-assets. It is especially interesting to discover the profile of an 'average' fintech customer of crypto-assets and their ability to make informed decisions. The report answers questions such as why did consumers decide to buy crypto-assets, what sources of information they used to make their decisions, and how well in general they understand the market. As expected, this research seems to suggest crypto-assets are bought for investment purposes without fully understanding the risks involved in their decisions. 

The report is an interesting and easy read with plenty of direct testimonies from consumers, and  as such is highly recommended to our readers interested in consumer behavior and/or financial innovation.

In the future, it would be interesting to expand this research onto other areas of fintech services i.e. credit, insurance and payments to get a fuller picture of the fintech market structures and their consumers.

Early birds and credit costs' repayment - AG Hogan in Lexitor (C-383/18)

Last Thursday, on May 23rd, AG Hogan issued his opinion in the Polish case Lexitor (C-383/18) interpreting mainly Article 16 Consumer Credit Directive. Whilst many cases concerning consumer credit contracts are being referred to the CJEU on the basis of the Unfair Contract Terms Directive, this one relied purely on the framework of the CCD. Namely, consumers in this case decided to repay their credit early. Article 16 CCD regulates early repayment of a consumer credit (within the maximum harmonisation character of the directive). Its paragraph 1 obliges credit providers to reduce total credit costs of consumers in such a situation with 'such reduction consisting of the interest and the costs for the remaining duration of the contract'. The doubts in the case pertained to the interpretation of the notion 'remaining duration of the contract' in this provision. When the consumer credits were granted, credit providers charged consumers with a commission for granting these credits, the amount of which was independent from the duration of the contract. 

The question raised was, therefore, whether consumers paying off their credit early are entitled to the repayment of the part of the commission, proportional to the repayment period, or whether that commission, as a cost that does not depend on the duration of the credit agreement, is outside the scope of credit costs that should be reduced in such cases. 

Polish courts have differed in their interpretation of the repayment obligation resting on credit providers in such cases (para. 19). AG Hogan notes that there are four possible ways to interpret the phrase 'remaining duration of the contract' (see further on these various interpretations in paras 42-46) and argues that the most simple method of calculation of the reduction in credit costs should be applied, as this was demanded by Recital 39 (para. 52). Recital 39 CCD specifically states that 'the calculation method should be easy for creditors to apply'. AG Hogan advises the Court to recommend the Member States to apply one of the two interpretations (as either would be consistent pursuant to him with the objectives of the CCD) (paras 63-67): 

• 'the total credit cost must be reduced in proportion to the remaining contract period' (para. 43), with the phrase only specifying the method of calculation of the reduction, or
• 'the reduction to which the consumer would be entitled corresponds to the one-off or recurring payments not yet fallen due when the early repayment was made' (para. 46). 

Consequently, it would not matter for deciding whether a given fee or cost needs to be included in the reduction following an early credit repayment that it was labelled as not depended on the duration of the credit agreement by credit providers. AG Hogan also does not think that the reduction should be equivalent to the 'amount of expenses saved by the credit institution as a result of the early repayment' (para. 68).  Let us see what the CJEU decides in this case.

DSM directives published

Many of us have been waiting for this moment: on May 22 two Digital Single Market directives have been published in the Official Journal: Digital Content Directive (Directive 2019/770) and the new Consumer Sales Directive (Directive 2019/711). 

 

Time to update our frame of reference.

A consumer's preference for invalidity? AG Pitruzzella on the consequences of unfairness under the UCTD

Last week, AG Pitruzzella submitted an interesting Opinion on unfair terms in case C-260/198 (Dziubak) (the English version of this opinion is not yet available).

This case concerns a foreign currency-indexed loan undertaken by Polish consumers. The consumers claimed that the term establishing the conversion rate was unfair because it essentially allowed the bank to unilaterally determine the conversion rate. The competent Polish court agreed with the claim, raising the problem of what should happen to the contract given that the conversion mechanism determined the main interest rate. Should it be declared invalid?

There are two layers to this question, as correctly observed by the AG: first of all, it is to be ascertained whether the contract really cannot be upheld without the unfair term or a replacement thereof. Whether this was the case in Dziubak is something the referring court, the AG thinks, needs to ascertain in light of its national law. According to Pitruzzella, the Directive requires that this assessment be carried out objectively, ie without reference to the parties' will or preference, but also in light of the applicable national law. In this case, it would depend on Polish law whether the fact that the contract's "type" would change - from a foreign currency-indexed loan to a loan in Polish currency subject to a pretty low - would lead to invalidity of the agreement without the original clause.

Invalidity was the solution preferred by the consumers, while the bank claimed that, rather than invalidating the contract in its entirety, the court should set an exchange rate in accordance with general principles contained in the Polish Civil code, such as preserving the parties' intentions and customs.

In previous case-law, the AG says, the CJEU has repeatedly asserted that in principle unfair terms are never to be replaced, but exceptions can be made when the contract as a whole could become invalid as a result of removing the unfair term and the consumer would be worse off if the contract falls (see para 34 opinion).

The referring court had a number of questions as to the application of these principles to the case at stake: concerning the objective possibility of continuing the contract, is this to be assessed with reference to the moment of adjudicating, or to the moment of concluding the contract? And did the fact that the consumer in this case preferred invalidity over preservation make the "Kásler exception" inapplicable?

To the first question, the AG answers that the assessment must take place with reference to the moment of adjudication. This is, according to the opinion, in line with the Directive's aim to re-establish an effective balance between the parties and in line with the Kàsler requirements.

As concerns the relevance of the consumer's preference for invalidity, according to the AG this is enough to make the Kàsler rule inapplicable - as an exception, the requirements on which it is based must be applied strictly (para 66) and one of them failing no exception to the general rule can be made.

As to the feasibility of the solution preferred by the bank - integrating the contract by means of general rules - the AG takes an interesting approach in his reasoning: he says that the Kásler rule presupposes replacement of the unfair term with terms which enjoy a presumption of fairness under the directive's article 1, ie the somewhat obscure class of "statutory mandatory provisions" that, case-law adds, "apply to the contract when nothing else has been agreed between the parties". From a contract lawyer's perspective, this is essentially a non-sense combination - conflating mandatory and supplementary  (or "default") provisions. However, it is interesting that the AG elaborates on the Leitbild function: replacement, in his view, is only possible when the resulting rules express the legislator's view of what a fair balance of the parties' interests in a specific contract would be. The general principles possibly relevant to this case, however, do not satisfy this requirement. As a consequence, a judge's intervention in the contract according to these principles would represent an excessive interference with contractual autonomy. Such intervention would, furthermore, again go beyond the strict limits set in Kásler, which did not intend to allow for any sort of judicial discretion. (79)

The referring court finally also wants to know whether maintaining the unfair terms in place is an option when this is "objectively" to the consumer's advantage. The CJEU has stated in Pannon that such upholding of the clause is an option when the consumer chooses not to avail themselves of the invalidity - replacing the adjudicating court's assessment for this expression of the consumer's will is, according to the AG, not an option. This is arguably the lease surprising part of the opinion.

Whether the Court will follow the conclusions, and the reasoning therein, is not obvious. As usual, we will keep you posted!  

AG Hogan in Kiss and CIB Bank (C-621/17)... not making transparency better

The questions on the application and effects of the prohibition of unfair contract terms in consumer credit contracts seem incessant. AG Hogan issued a long opinion today in the Hungarian case Kiss and CIB Bank (C-621/17). Mr Gyula Kiss concluded a credit agreement with three different rates stipulated in it: annual interest rate for the amount of loan set at 5.4%, annual management charges of 2.4% per year, and APRC of 8.47%. Moreover, he had to pay a sum of money as a disbursement commission. In his claims, Mr Kiss argues that the standard terms and conditions, which determine the disbursement commission and the management charges are unfair. He finds them unfair due to the fact that the contract does not list services, for which these amounts are supposed to be paid. He further considers that any bank's costs of processing and management of the loan have already been covered by the interest on the borrowed capital. The bank claims that they were under no obligation to list specific services they provided in exchange for these commissions/charges.

The national court filed this issue mainly under the scope of application and interpretation of the principle of transparency. The main question addressed to the CJEU thus inquires whether provisions of the UCTD, which prescribe transparent disclosures, demand not only to provide consumers with exact charges they would have to pay, method of their calculation and time for payment, but also with a list of specific services that will be provided in return for these charges.

AG Hogan continues in this opinion on his quest (started with the opinion in Lovasne Toth case - see our comment) to diminish the importance for consumer protection of the previous judgments of the CJEU. This time he undermines the position that the CJEU has expressed in RWE Vertrieb and Matei cases (previously, it was VKI v Amazon case). At this point it is important to note that the CJEU has not yet issued its judgment in Lovasne Toth, thus it remains to be seen whether AG Hogan may support his argument in Kiss v CIB Bank case by referring to his previous opinion. What are the main issues?

Divergent interpretation of transparency under Art. 4(2) and Art. 5 UCTD and separation from unfairness test under Art. 3(1) UCTD

Already in his previous opinion, AG Hogan did not seem to think much of the requirement expressed in Art. 5 UCTD to ensure that standard terms and conditions are provided in plain and intelligible language. The fact that he does not see the lack of transparency under this provision as resulting in the unfairness of a non-transparent term could be supported, as such a direct consequence is not provided by the UCTD (although it could be under national laws) (para. 59). However, many scholars discussing this provision have argued for such an application of the rule of contra proferentem, which would be most beneficial for consumer protection. This meant they favoured assigning such a meaning to a contested term, which would lead to the recognition of the term's unfairness, in case it were more beneficial to consumers to have the term removed from a contract. AG Hogan adopts a staunch interpretation approach perceiving the contra proferentem rule as requiring the adoption of a consumer-friendly meaning of the term, prior to any consideration of unfairness under Art. 3(1) UCTD, which would not allow the above interpretation technique to apply (para. 60).

Art. 5 UCTD only represents formal transparency

To make matters worse, AG Hogan confirms his previous conviction that Art. 5 UCTD does not require the principle of transparency to apply in both its formal and substantive character (para. 61). To remind our readers, formal transparency means that the term will be visible, attracts consumers' attention. Substantive transparency requires the term to be understandable, comprehensible to consumers (readers interested in the differences between formal and substantive transparency may read more about this topic in the forthcoming article by J.Luzak and M. Junuzović - check the Journal of European Consumer and Market Law (EuCML) 3/2019 next month!).

"In this context, the requirement for a term to be drafted in plain, intelligible language has to be understood as a general statement aimed at introducing the interpretative rule laid down in Article 5. What matters, therefore, is not how the consumer understands a term, but rather whether the latter is objectively ambiguous." (para. 61)

This obviously leads the AG to conclude that a bank does not need to list their services to make the consumer understand what they are paying for. However, we continue to hope that the CJEU does not support this diminished understanding of Art. 5 UCTD. 

Understanding economic consequences of a credit contract

What is more convincing in the opinion is the AG Hogan's reasoning that to understand the economic consequences of the concluded contract, so for substantive transparency to be complied with, consumers do not need to know exactly which services are covered by which part of the payment (para. 62). It should suffice that consumers know what the total payment is and what services consumers may expect overall. We may find a consumer-friendly application of the transparency test in para. 41, where AG Hogan states that in case different terms in a contract determine different payments, with different methods of calculation, then these terms should be: "grouped together in one place in the contract or, at least, their combined effect needs to be specified. Indeed, the consumer cannot be considered as being in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from the contract if the price to be paid is stated, for example, partly at the beginning of a very long contract, partly, in the middle and, partly at the end of it.". Moreover, AG Hogan draws attention to the fact that just a mention of the APRC does not signal transparency of the payments in credit contracts, as it is only illustrative (para. 44). Thus just providing consumers with the APRC does not inform them about economic consequences of a credit contract.

Core terms

AG Hogan leaves the assessment whether the clauses on management charges and the disbursement commission are core terms, which could only be tested for unfairness if they are non-transparent, to the discretion of national courts. This would according to him depend on the estimation whether services provided in return for these charges are services primarily provided under the contract (para. 33). This is interesting, as AG Hogan does not see any difficulty in the contract not specifying these services to properly inform consumers, as long as national courts may deduct what these services were (were supposed to be?) (para. 55).

Adequacy of payments - look to UCPD rather than UCTD?

Another controversial statement made by AG Hogan, questions the possibility to engage in unfairness test of adequacy of charges under the UCTD and refers consumers to look into UCPD instead. Consumers may of course only then require unfairness test of the adequacy of price when it was non-transparent, but that is what this case was trying to argue, thus this claim should not be so easily dismissed, in my opinion. AG Hogan draws our attention to the fact that consumers will bear the costs of such management charges either way (whether they will be disclosed separated or hidden within general interest rates) (para. 36) and that banks may structure their payments in a myriad of ways (para. 37). True, but that is one of the reasons why it is important to keep the payment structure transparent and that transparency may be missing, if consumers are not in state to easily compare offers as some banks decided to introduce separate management charges without telling them what these charges are for. Consumers will then not be able to check whether the same services are offered by other banks within other charges. Of course, I agree with AG Hogan that a misleading practices claim may be feasible then (para. 71), but in many national laws it still will not provide consumers with sufficient individual remedies thus availability of remedies under other rules may be useful.

Are credit providers required then to list services for which they charge payments?

Generally, AG Hogan seems to think it is a too far-reaching obligation. He distinguishes Matei case, where the CJEU considered that consumers will only then have understanding of a contract if they are informed why certain terms have been included in it, due to the question in that case whether the charge was provided in exchange of any additional service (para. 47). If it is possible to ascertain that some services are provided in exchange for a given charge, regardless whether the term establishing such a charge specifies these services or they could be inferred from other parts of a contract, the substantive transparency requirement would be fulfilled (see also paras. 49-53).