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.
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).