Earlier today the European Court of Justice (CJEU) delivered its judgment C-679/18 OPR-Finance s.r.o. v GK on the interpretation of Articles 8 and 23 of Directive 2008/48/EC on Consumer Credit (CCD).
The facts
In April 2017 the consumer concluded a revolving credit agreement with OPR Finance for 192 EUR. After defaulting on payment of due installments, the creditor started enforcement action infront of the District Court of Ostrava (Czech Republic), claiming 307 EUR plus statutory interest. It appeared to be clear for the referring court that OPR Finance did not claim they have assessed the consumers creditworthiness prior to granting the loan, and it was also clear that the consumer did not raise the objection of nullity of the contract, the applicable penalty for failing to assess creditworthiness under Czech law.
The legal issues
The referring national court was unsure whether Article 8 on creditors obligation to assess consumers creditworthiness read in conjunction with Article 23 on the obligation of Member States to provide for effective, proportionate and dissuasive penalties for the breach of national provisions adopted pursuant to the CCD, provides for the national courts ex officio obligation to act i.e. obligation of national courts to examine on their own motion whether the creditors have complied with their obligation to assess consumers creditworthiness and ex officio obligation to apply the appropriate penalties provided by national laws.
At second instance, the national court asked whether the national provisions that provide for an obligation of consumers to raise the objection of nullity of the credit agreement within a 3 year time limit are contrary to the said provisions.
The ruling
The first question the CJEU answered positively, ruling that there is an ex officio obligation of national courts to examine whether creditors have complied with their obligation to assess consumers creditworthiness. Not only that national courts must assess ex officio whether the duty of creditworthiness assessment has been complied with but they should also apply the appropriate penalties ex officio, provided they are compliant with Article 23.
In its reasoning the CJEU referred to its previous case-law on establishing an obligation of national courts to rule ex officio on infringements of EU consumer law (para. 18), reinforcing the justification for such approach the weaker position of consumers vis-a-vis businesses in their contractual relationships (para. 19). It has also considered the importance of ex officio powers for achieving the objectives of the CCD. Importantly, it has highlighted that the purpose of Article 8(1) is to make creditors accountable for their lending decisions and to prevent them from providing consumers with unaffordable credit (para. 20). Moreover, the CJEU emphasized the importance of ex officio powers for the protection of consumers against the risks of over-indebtedness and bankruptcy and for the emergence of a well-functioning internal market in consumer credit with a high level of consumer protection (para. 21).
The CJEU further ruled that where national courts find the infringement of Article 8 on their own motion, they should also apply the appropriate sanctions without waiting for consumers to make applications to that effect, provided that national provisions on penalties are compliant with Article 23 and the associated CJEU on its interpretation (paras. 25-27). As mentioned above, under the applicable provisions of Czech law, the penalty of nullity of the contract only applied under the condition that consumers raised an objection of nullity within the limitation period of 3 years. The sanction of nullity itself relieved consumers from paying interest and associated costs to the credit, only requiring the repayment of the principle sum borrowed (para. 29). The CJEU examined the these requirements from the aspects of equivalence and effectiveness (paras. 32-33) and concluded that they are contrary to principle of effectiveness (para. 36). The said conditions make the sanction impossible or excessively difficult to operate in practice. Importantly, the CJEU dismissed the relevance of administrative penalties of competent supervisory authorities, emphasizing the separation of civil and administrative penalties for breaches of consumer credit law (para. 37), given that such penalties have no effect on harmed consumers, consumers to whom the credit was granted in the infringement of Article 8 of the CCD (para. 38).
Concluding thoughts
This seems to be a well reasoned judgment that provides additional important protection for consumers against the risks involved in borrowing and raises the responsibility of creditors for complying with their obligation to assess consumers creditworthiness. It is now important that national courts follow the judgment and use their powers where appropriate.
