Monday, 2 March 2015

Matei (C-143/13), or Kásler explained: what's the core of a (mortgage) credit contract?

Last Thursday, the ECJ published its decision in Matei (C-143/13), a Romanian case on unfair terms concerning two different credit contracts in foreign currency.
The case builds on and clarifies the Court's view on one fundamental question concerning the interpretation of the Unfair Terms Directive, namely what terms have to be considered as exempted from unfair terms control under the Directive's "subject matter and price" exception?

The Court had a chance to reaffirm and clarify a series of points that had been already touched upon in previous decisions, and it made quite good use of such chance.

The case concerned two allegedly unfair terms:
- a so-called "risk charge", calculated as percentage of the outstanding loan and payable every month;
- a term allowing the lender to change the otherwise fixed interest rate in case of "significant changes in the money market". 

The question referred to the Court (para 44) was whether such terms should be exempted from control under the Directive as forming part of the contract's "main subject matter" and/or "price" within the meaning of article 4(2) of the Directive. 

In short, the Court answered that the final decision is for the national judges, but in principle the two terms should not be exempted from control.

Here is a more detailed account.

The question concerned the interpretation of the scope of the exemption as set out in the Directive, with the caveat that it is the national court who finally has to apply the principles articulated by the CJEU to the particular contract at hand "in accordance with the particular circumstances of the case" (para 53). 

According to the ECJ (para 54), the notion of "main subject matter" has to be interpreted distinguishing the terms that lay down the essential obligations in the contract and and clauses "ancillary" to the essential obligations. 

As to the second category (para 55), "the exclusion concerns only the adequacy of the price or remuneration as against the services or good supplied"- thus is excludes a reviewing standard rather then exempting certain terms en bloc. 

As to the terms allowing to change the interest rate (ie the price of credit), the Court had already established their suitability for control in Invitel. Here however the Court articulates its evaluation also with reference to the Directive's annex (para 59 and ff), their nature, and the nature of the challenge to which they are subject. 

As to the "risk charge", the Court observes that several elements point to its ancillary nature- first of all, the fact that its function is to secure the repayment of the debt, or the main obligation (para 67). 

Interestingly, the Court states that, taking into account the Directive's objective if protecting consumers, the mere fact that the "risk charge" materially represents an important part of the profit the lender derives from the contract is not in itself a reason to consider it as "main subject matter" of the contract from a legal point of view (para 68). 

Finally, the Court considers that the fact of the case do not suggest that the dispute concerns the adequacy of that commission vis à vis the services provided to the lender, since what is submitted is that the commission is not justified by any consideration. The court had already held in Kásler that the "price" exception can only apply when a service is being offered in return for the (alleged) price (para 70).

The main difference with Kásler is that here the Court is much more "activist" in suggesting that the information in its hands suggests that the terms should be considered as neither making part of the main subject matter, nor being exempted due to the "adequacy of the price" carve-out (see paras 64 and 70).

In any case, should the terms fall within the exception provided by article 4(2), the referring court would still need to test them if it considered them to be intransparent. The Court then recaps the requirements concerning transparency that it has itself articulated in previous decision- the "novelty", here, is that this is the first time that these requirements are related to transparency as a preliminary step possibly opening  to control instead of being used as a standard of assessment as to the term's fairness (see para 72 and ff).

Thus, again from this decision we can infer little as to the destiny of the terms attacked when the issue will be back in the hands of Romanian courts- but we are a step closer to giving shape to the many open concepts employed in Directive 93/13. To be continued!

 Edit 01.07.2015
I was listening to Kirstin Nemeth's presentation at the 15th IACL conference here in Amsterdam, when, thanks to her, I realised that this post did not address one important issue raised by Matei: what is the relationship between the "main object" exemption in directive 93/13 and the notion of "total cost of credit" contained in Directive 2008/48, so-called consumer credit Directive?
In other words, does the fact that such notion obviously implies that there is more to a credit exchange than loan and basic interests mean that additional fees should be shielded from control?
The ECJ answered this question rather swiftly in Matei on the basis of the two directives' different rationales:
      [The notion of total cost of credit] is in fact defined particularly broadly so that the total amount of all the costs or expenses to the consumer and relating to payments made by the latter both to the lender and to third parties must be clearly stated in consumer credit agreements, such a procedural obligation contributing to the main objective of transparency pursued by that directive.
However, Article 4(2) of Directive 93/13 laying down an exception to the mechanism for reviewing the substance of unfair terms, such as that provided for in the system of consumer protection put in place by that directive, that provision must be strictly interpreted
Thanks Kirstin for bringing the point up in your presentation! 

1 comment:

  1. An important determination that should have significant repercussions for mortgage lenders with regard to their variable rate mortgage clauses. Central banks within the EA should be highlighting this judgment to the financial institutions operating as mortgage providers in their Member States.