Last week the CJEU has also provided us with the judgment in the Ibercaja Banco case (C-452/18) regarding a possibility of novation of a consumer credit contract containing possibly unfair terms, namely floor clauses. We have already explained in details the facts of the case and the AG Saugmandsgaard Øe's opinion (Free and informed consent required to accept an unfair term...), thus here we will only focus on the judgment itself and questions answered in it.
May the parties novate a contract term, which could possibly be unfair?
Whilst Article 6(1) UCTD determines a non-binding effect of unfair contract terms on consumers, the consequence of unfairness is voidability, leaving an option to consumers to oppose to the annulment of an unfair term (para 25). Consumers may prefer to keep the unfair terms in force and as long as they do so in full awareness of the consequences of their decision, providing free and informed consent, their choice needs to be respected by national courts (para 27). By way of analogy, therefore, consumers may enter into a novation agreement the subject of which is a potentially unfair contract term - again provided they do so with a free and informed consent, which involves consumers' awareness of the non-binding character of an unfair term and consequences of waiving that effect (paras 28-29).
What terms are individually negotiated?
The CJEU informs further the Spanish courts that it is rather unlikely that new terms intended to amend potentially unfair contract terms in previous standardised contracts have been individually negotiated between parties, and therefore do not require unfairness assessment themselves (para 34). The national courts must ascertain whether such terms proposing novation of the previous contract have indeed been individually negotiated, which would mean consumers were able to influence their substance (para 35). What indicates that the term was likely not individually negotiated are the following facts: novation of contracts was part of a general policy of renegotiating mortgage loan agreements (para 36), consumers were not given a copy of the new terms in advance or allowed time to examine it after the meeting (para 37). Importantly, the bank may not rely on the handwritten signature by consumer attesting to having read and understood the term as proof of the term having been individually negotiated (para 38).
Transparency by providing information on past changes in the index
Once again the CJEU has a chance to highlight, with reference to the previous case law, the importance of the principle of transparency going beyond terms being simply formally and grammatically intelligible (paras 44-48). The Court reminds its previous assessment that although it cannot be demanded variable rate credit providers to inform consumers precisely on the exact values for the whole duration of the credit, as it is the specificity of a variable interest rate that it fluctuates, such providers should illustrate for consumers 'data relating to past changes in the index on the basis of which the rate is calculated' (para 53). This should then also clearly show to consumers how the application of floor clauses will prevent consumers from taking advantage of rates dropping below the 'floor' rate proposed to them (para 54). The CJEU is convinced that an average consumer having such information will understand the economic consequences of novating a credit agreement with a variable interest rate loan by adopting a new floor clause in it (as compared to not having floor clauses in it at all, as a result of their unfair character) (para 55).
Comment
There is a problem with this assessment by the CJEU. This last point could be true only if the credit provider indeed clearly indicates to consumers the potential unfair character of the original floor clause and informs them of the consequences of finding such unfairness, as well as provides such illustrations of past changes to the index that are transparent to consumers. In its reasoning, however, the Court focuses again on what information needs to be given to consumers (on past changes in the index, although even there the CJEU does not specify that the examples provided to consumers have to show the practical applicability of floor clauses) rather than on how this information is to be provided (when will it be understandable?).
Unfairness of a novation agreement
The CJEU determines that when in order to resolve a dispute parties decide to conclude a novation agreement pursuant to which both parties wave their rights of action under the old contract, this may be perceived as constituting the main subject matter of the new novation agreement pursuant to Article 4(2) UCTD. Consequently, such a waiver could be exempt from the unfairness test, provided it was clear to consumers what rights they were waiving and what were the consequences of such a waiver (principle of transparency) (para 68). The CJEU leaves the assessment of transparency to the national court, but draws its attention to the fact that at the moment of novation, the unfairness of the floor clause was a possibility rather than certainty, and that there was also uncertainty as to the scope of potential reimbursement for consumers (paras 71-73). As such, the bank may not have been able to inform consumers as clearly as consumers could expect on the consequences of unfairness. The CJEU is adamant, further, that any waiver of consumer rights resulting from the newly signed novation agreement is invalid (paras 75-76), as these disputes have not yet arisen.
