Sanctions for breaching national rules on consumer credit: the CJEU in C-303/20

Earlier this month the CJEU delivered another judgment on the interpretation of Directive 2008/48/EC on Consumer Credit Agreements. In C-303/20 Ultimo Portfolio Investment SA v KM the CJEU was asked to interpret Art. 23 of the Directive, according to which, penalties for breach of national rules on consumer credit must be effective, proportionate, and dissuasive.

The facts

The consumer, KM concluded a consumer credit agreement with Aasa Polska, from which agreement the debt was assigned to the claimant, Ultimo Portfolio Investment. Although the monthly installments for this loan were only around 88 EUR (408 PLN), it transpired that at the time when the contract was concluded, the consumer was heavily indebted, having 23 loans, and her husband independently extra 24 active loans! These together totaled approximately 98 840 EUR (457 830 PLN) amounting to a monthly figure of approx. 2 153 EUR (2300 PLN). At the time, KN was employed with a net salary of approx. 500 EUR (2300 PLN) and her husband was out of work, with no disposable income.

Unsurprisingly, the consumer was unable to honour her payment obligations, and following the default, the claimant brought an action in front of the competent Polish court. The defendant consumer however alleged that before the loan was approved, the lender did not ask any questions to enquire about her financial situation: her outstanding debts, her disposable income, or the debts of her household. Since the claimant was unable to provide proof to the contrary, the court tackled the issue of sanctions, questioning whether the Polish rules correctly implemented Art. 23 of the Directive. In particular, the referring court specified that the Polish Code of Minor Offences only imposes a fine for breaching responsible lending obligations, and this fine is time-barred and only affects the natural persons within the credit institutions such as the director of the company or the credit intermediary.  

The legal question

The referring court effectively asked whether Art. 23 of the Directive must be interpreted to mean that in determining the effectiveness, proportionality, and dissuasiveness of the penalties courts could only take into account provision(s) of the national law specially adopted to implement Art. 23 of the Directive?

The ruling

The CJEU ruled that in interpreting Art. 23 of the Directive, national courts must take into account not only the special national provisions that are adopted to transpose the Directive but also the other provisions of the relevant law that should be interpreted in the light of the working and objectives of the Directive.

In its reasoning to CJEU acknowledged that the low amount of the penalty or that facts that it only applies to natural persons may be indicative of its shortcomings. Referring to its earlier case law it reiterated, penalities to be effective and dissuasive they must deprive the economic benefit of the infringement and must have a positive effect on the consumer in question.

However, the CJEU reminded that under Art. 288 TEFU, directives are legal instruments that are result-oriented, while binding on the result to be achieved they leave discretion to the Member States in the form and method of implementation. Consequently, transposition does not necessarily require legislative action. The existence of general principles and general rules may render a legislative action superfluous. It follows, that in order to determine whether a national law adequately implemented the obligations resulting from the given directive, it is important to take into account not only the legislation specifically adopted for the purposes of transposing the directive but also 'all the available and applicable legal rules.' National courts must therefore consider the whole body of rules of national law and interpret them in the light of the wording and purpose of the Directive in order to achieve the outcome that is consistent with the objectives pursued by the Directive.

In the present case, the court highlighted that Polish law benefits from a range of civil penalties in addition to those in the Code of Minor Offences. Importantly, the CJEU also highlighted that the case at hand would benefit from the penalty applicable for using unfair terms. Namely, Directive 1993/13/EC on unfair contract terms was implemented in Polish law to render excessive charges not binding on consumers (see our report on Profi Credit Polska).

Our evaluation

This judgment provided an important contribution to our understanding of European consumer credit law. It suggests a holistic or we could call a 'contextual approach' to interpreting the fairly vague and general provision on penalties in Art. 23 of the Directive, giving it a more concrete content in a national context. The important message is that in determining whether the sanction meets the requirements of the Directive, national courts must take into account all available sanctions under the applicable national rules, and the CJEU seems to suggest that if more than one sanction is applicable, national courts should weigh them up according to the criteria provided in Art. 23. The judgment also gives useful hints on how to interpret what is effective and dissuasive in the case at hand, and it could be read in connection with other judgments that tackled the aspect of proportionality of sanctions (see our report on Home Credit Slovakia).

One-stop-shop mechanism of the GDPR clarified by the Court of Justice (case C-645/19 Facebook Ireland)

Last week the Court of Justice delivered an important judgment in case C-645/19 Facebook Ireland. The case offered an opportunity to clarify procedural aspects of the General Data Protection Regulation 2016/679. In particular, it involved topical problems related to the one-stop-shop mechanism provided for in case of cross-border data processing. The GDPR assigns the role of a "lead authority" in this context to the supervisory authority of the main establishment or of the single establishment of the relevant controller or processor. Since many digital companies undertaking large-scale data processing in the EU have their main establishments in Ireland, it is the Irish Data Protection Commissioner that appears to be a lead authority in respective cases. Over past years, however, the authority has come under strong criticism for failing to effectively act on complaints brought before it and particulars of the one-stop-shop mechanism have been a subject of debate (see e.g. our previous posts €50m fine imposed on Google..., Further updates on consumer protection..., BEUC files complaints against Tik Tok). In case C-645/19 Facebook Ireland, the Court addressed some of the issues raised, clarifying when authorities of other Member States are competent to exercise their powers.

 

Facts of the case

 

The background of the case was primarily procedural. The Belgian authority brought a case before a Belgian court against Facebook Ireland, Facebook Inc. and Facebook Belgium, with the aim to bring an end to the collection of information on the internet browsing behaviour of Facebook users and non-users by means of cookies, social plug-ins, pixels, etc. The court of first instance considered itself competent to give a ruling and confirmed the alleged infringements. The trader brought an appeal against the judgment and a question was raised whether the Belgian supervisory authority had the required standing and interest to bring proceedings in the first place, and if so, in relation to which violations (e.g. committed by Facebook Inc., Facebook Belgium, and/or Facebook Ireland; before and/or after 25 May 2018, that is the date on which the GDPR and its one-stop-shop mechanism became applicable). 

Judgment of the Court

  

Since the judgment is rather technical, the present post does not aspire to provide its comprehensive overview. An interested reader is rather advised to consult the judgment directly. In this post we will rather pick up on selected points, partly in a different order from the one adopted by the Court.

 

Firstly, the Court engaged with the argument put forward by the platform operator that the legal action concerning the facts precedings 25 May 2018 was inadmissible, given that the previously applicable provisions of Belgian law were repealed following the entry into force of the GDPR. The Court addressed this problem from the perspective of EU law, finding that a supervisory authority which brought an action related to cross-border processing taking place before 25 May 2018 may continue to pursue such an action on the basis of the previously applicable Directive 95/46 (para. 105). Put differently, the one-stop-shop mechanism established in the GDPR does not stand in way of the proceedings by different DPAs in relation to violations preceding the GDPR's date of application. The Court, however, did not engage with the interpretation of previously applicable Directive 95/46, and the question whether its provisions on supervisory authorities could be deemed to have direct effect. By contrast, such an effect was confirmed in relation to the relevant provisions of the GDPR (para. 113).

Arguably, the most interesting part of the judgment concerns the one-stop-shop mechanism itself (the first question). This is where the judgment gets particularly technical, the reasoning is intertwined with extensive references to GDPR provisions and appears to often change direction. Ultimately, para. 71 and the following deserve particular attention. Here the Court finds that the exercise of the power by a non-lead authority to bring actions before the courts of its state cannot be ruled out in the following situations. Firstly, this is the case when the mutual assistance of the lead supervisory authority had been sought under Article 61 of the GDPR and the lead authority did not provide the other authority with the requested information. Secondly, under Article 64(2) of the GDPR, a supervisory authority may request that any matter that is of general application or that produces effects in more than one Member State be examined by the European Data Protection Board with a view to obtaining an opinion, in particular where a competent supervisory authority does not comply with the obligations for mutual assistance imposed on it by Article 61 of the GDPR. Following the relevant procedure (that is, if the EDPB approves), the supervisory authority should be able to exercise the power conferred on it by Article 58(5) of the GDPR and take the necessary measures to ensure compliance with the GDPR.

The remaining part of the judgment involved the potential additional prerequisites for the exercise of the power by a national authority other than lead authority in the above described cases; specifically, whether the actions of such non-lead DPAs should be limited to the controllers having a main establishment or another establishment on their territory. The Court looked at this problem from a twofold perspective and opted for a reading that does not significantly restrict the powers of such non-lead authorities (paras. 84 and 96). Put differently, it remains theoretically possible that a non-lead Belgian authority initiates or engages in legal proceedings against a company like Facebook Inc.

 

Editorial content: paid for? - AG Szpunar in Peek & Cloppenburg (C-371/20)

Let us look at another, more recent, case concerning activities of newspapers. On June 24 AG Szpunar delivered an opinion in the case Peek & Cloppenburg (C-371/20), which looked into practices of Grazia magazine and a possibility of an unfair commercial practice, as defined in Point 11 of Annex I to the Unfair Commercial Practices Directive (UCPD). 

Point 11 of Annex I to UCPD specifically prohibits the use of editorial content in the media to promote products, when a trader paid for the promotion without clarifying this fact in the content/images/sounds. A consumer should be able to easily identify any paid for/advertorial content.

Peek & Cloppenburg Düsseldorf (P&C Düsseldorf) company arranged with the Grazia fashion magazine to publish a double-page article inviting Grazia's readers to an exclusive shopping event called 'GRAZIA StyleNight by Peek & Cloppenburg'. This has been published under the title 'reader offer'. Their competitors - Peek & Cloppenburg Hamburg - claimed that there was an infringement of the prohibition resulting from Point 11 of Annex I UCPD (and as we all know, as long as consumers' interests are exposed to harm alongside the interests of the trader's competitors, UCPD framework may be used by competitors, too - para 33).

In preliminary remarks AG Szpunar first considers the character of the above-described commercial practice. He decides that it qualifies as a commercial practice as the trader - P&C Düsseldorf - initiated the practice and used it to promote its sales (para 22). The fact that they cooperated in organising this activity with the magazine and that magazine could benefit from the activity, as well, does not impact that assessment (para 23). AG Szpunar mentions further that it could be possible for the claim to be raised against both operators, as well as Grazia magazine would qualify as a trader, as well (para 24).

Question 1 - nature of payment

First, AG Szpunar considers whether the payment made by a trader for a promotional editorial content could be non-monetary. As literal interpretation does not provide a clear answer (para 45), AG Szpunar looks at systematic, teleological and historical interpretation next. From the point of protecting consumers against deceptive commercial practices (unidentified advertorial content), it should not matter in what form a trader paid for the editorial content. The possibility of consumer's harm is not influenced by the form of the payment (paras 49-50). Further, if it were possible to pay with non-monetary assets, it would be easy to circumvent the protection of the UCPD framework (para 60) and the scope of the prohibition in Point 11 of Annex I UCPD would be significantly restricted (para 58). The preparatory version of the Annex actually referred to payments or 'other reciprocal arrangement' (para 62) and AG Szpunar does not consider its removal from the final text as opposing a broad interpretation of payment (paras 64-66).

Question 2 - is a non-monetary payment consideration for the advertorial?

In the case at hand P&C Düsseldorf made available to Grazia magazine the rights to use images of its stores in the promotional content, which is what AG Szpunar perceives as the non-monetary payment that qualifies as consideration in the case (paras 73-74). It does not matter here, what was the percentage of the costs of publishing the editorial content that was paid for by a trader vs by a media operator as Annex I UCPD does not require any equivalence (para 75).

AG Szpunar then proceeds to consider whether a definite link between a benefit and promotion that needs to be found needs to be direct or could be indirect. It seems that there is some scope for flexibility in this assessment (para 78). Interestingly, AG Szpunar draws attention to the fact that the notion of 'editorial content' has not yet been interpreted by the CJEU (para 84), which is something for the national court to keep in mind.

One of the interesting elements of this opinion is that it promotes a broad understanding of the notion of 'payment' in the interpretation of yet another provision of European consumer law. Moreover, we should remember current debates on the misleading character of many promotional online activities, where the promotional/advertorial character thereof is not clearly identified (e.g. think of practices of digital influencers). Despite the possibly narrow scope of Point 11 Annex I UCPD (which scope will depend on the interpretation of the notion of 'editorial content'), this opinion and the forthcoming judgment may play a significant role in shaping the response to other promotional practices that could harm consumers.

No strict liability for injuries resulting from published wrong health advice - CJEU in Krone (C-65/20)

In our previous post (What's the worst that could happen?...) we have commented on the opinion of AG Hogan in the case Krone (C-65/20). The case concerned an incorrect health advice having been published in a newspaper, which led to a consumer's injury. The national court asked the CJEU whether Product Liability Directive was applicable in this case.

CJEU confirms on June 10 the assessment of AG Hogan that a printed copy of a newspaper providing consumers with an inaccurate health advice, which, if followed, could lead to a consumer's injury, should not be perceived as a 'defective product'. This means that the strict liability of Product Liability Directive does not apply in this case to the newspaper (their publishers, printers or even author of the health advice - para 39). Provision of a health advice is considered as a service by the CJEU, which is excluded from the scope of the PLD (para 32). Incorporation of the advice into a product - a physical copy of a newspaper - does not change this assessment, as 'the defective nature of a product is determined on the basis of certain characteristics inherent to the product itself...' (para 35). Here, the newspaper is only a medium for the provision of the service - health advice - which means that the service does not impact the inherent characteristics of the printed newspaper (para 36).

No, Escobedo Cortés does not imply that double interest rates must be secured for traders (but nice try, Prima banka Slovensko)

Earlier this week the Court of Justice delivered a brief, yet noteworthy judgment in case C-192/20 Prima banka Slovensko. The case seems fairly stratightforward and the Court, in fact, proceeded to the judgment without a written opinion from the Advocate General. The judgment, nonetheless, provides a useful clarification of where Directive 93/13/EEC on unfair terms in consumer contracts (UCTD) and the associated CJEU case law do not reach. 

Facts of the case

The case involed a Slovak consumer, who concluded a loan agreement with a local bank for the amount of EUR 5 700 at an interest rate of 7.90%. Several months from the conclusion of the contract, the consumer began to default on his/her payments. After appox. 4 months of non-payment, the bank declared the early termination of the term of the loan and demanded the immediate repayment of outstanding ammount along with a default interest as well as an ordinary interest. 

The court hearing the case in first instance upheld the bank's action in part. Specifically, the court considered the claim for default interest to be valid, but dismissed the claim for ordinary interest, on the ground that Slovak law did not allow such accumulation. Indeed, national law appears to have posed certain limits on what creditors can claim in the event of consumer's default and the claims put forward by the bank arguably exceeded those limits. 

Here is where the case get interesting. In the appeal, the bank decided to invoke the previous judgment of the CJEU in joined cases C-96/16 and C-94/97 Banco Santander and Escobedo Cortés (see our earlier comment here). Specifically, the bank argued that the judgment required national legislation to ensure that a borrower who has failed to fulfil his/her contractual obligations should pay not only default interest but also ordinary interest.

Judgment of the Court

The grounds of the judgment essentialy consist of two parts. First, the Court considered the main legal questions in the case at hand. For the Court, these were actually linked not to the provisions of Articles 6(1) and 7(1) of the UCTD, referenced by the national court, but rather to the Directive's scope. Second,  doubts about the consequences of Escobedo Cortés were addressed.

In respect of the Directive's scope, the Court referred to Article 1(2) of the UCTD, which provides that contract terms which reflect mandatory statutory or regulatory provisions shall not be subject to the provisions of the Directive. This may not be immediately inntuitive, since controversy in the case at hand was rather that the terms did not reflect national provisions. The well-established reasoning of the Court in respect of Article 1(2), however, turned out to be useful to make a more general point: that it is not the goal of the UCTD to analyse the content of national mandatory statutory or regulatory provisions, which parties can incorportate into their contracts. It is presumed that national legislature has struck a balance between all of the rights and obligations of the parties to certain contracts, and the UCTD does not intend to interfere with that balance (para. 32). This has to be distinguished from the national provisions relating to the control of unfair terms, whose compliance with the UCTD can be investigated. In the case at hand, however, the contested provisions did not appear to relate to the review of unfair terms and were therefore excluded from the scope of the UCTD (para. 35). Therefore, the Court did not even have to recall that the UCTD is a minimum harmonisation directive.

While this would have sufficed to provide the refering court with useful guidance (that the UCTD was not applicable to the national provisions in question), the Court went on to dispell some doubts related to its previous judgment in Escobedo Cortés. The Court reiterated the context of that case: that it involved an assessment whether national case law that did not prevent the accumulation of interest rates complied with the UCTD. The Court considered that it did; however, it did not follow from that judgment that an accumulation of interests rates must always be ensured under national law (para. 41). It would indeed be rather odd if a directive that seeks to eliminate unfair terms from consumer contracts were to produce such a result.

Towards an EU financial competence framework: will it work?

Following a recent study of FISMA on the development of a financial competence framework for the EU, in April 2021 the EU Commission (DG FISMA) and the OECD International Network on Financial Education announced that they will jointly develop the framework for the EU. The project is part of the EU capital markets union action plan (on which we reported here) where the commission promised to raise trust in EU capital markets by improving financial literacy.

The study defines a financial competence framework for individuals as 'a document outlining key areas of competence pertaining to personal finance (for instance; planning a budget, investing, borrowing and preparing for retirement), and within these categories, specific levels of proficiency.' The study starts from the premise that financial literacy is very important for one's financial wellbeing and is becoming increasingly essential for our everyday lives, especially following the current pandemic that resulted in less intermediation and financial advice. Needless to say, the European levels of financial literacy remain low and show variations between the Member States and groups of the population. Although there are  existing financial competence frameworks that cover key areas such as budgeting and planning, payments and spending, borrowing, as well as risk management and investing, there are considerable differences among each other and a number of Member States do not have any. 

The EU financial competence framework will cover the knowledge/awareness, skills/behaviours and confidence/attitudes/motivation that individuals need to develop and display in order to support their financial well-being throughout their lives. It will be similar for instance to existing language proficiency frameworks that start with a basic A1 level and ends with a C2 level. 

It will be made available for voluntary uptake in the EU by public authorities, private bodies, and civil society to develop policies and educational tools and to assess their effectiveness: It could also provide a basis for public authorities and private bodies to design learning materials and tools for educational purposes for youth and adults. In particular, these could support the inclusion of financial education in curricula in schools, universities, and vocational education institutions in Member States and inform the design of teacher training. The framework could also underpin the setup of awareness-raising campaigns or financial education centres (public or private), and could support the development, implementation and update of national financial literacy strategies. 

The initiative certainly sounds very interesting and perhaps necessary. There are many questions around how and whether the initiative will work, given that the current efforts resulted that on average, adults have major gaps in understanding basic financial concepts. Therefore, in taking these initiatives one must not forget that financial education and financial literacy should not be replacing a high level of consumer protection.