Not that fresh, still hot: last month, the CJEU issued a remarkable decision in Case C-409/23 (Arvato), a preliminary ruling request from the Dutch Supreme Court concerning so called "buy-now-pay-later" (henceforth: BNPL) schemes and their qualification in the context of European consumer credit rules.
While payment in instalments, with our without intermediaries, has been around for a pretty long time, not all European consumer markets are equally permeated BNPL schemes, which are very popular and common - for instance - in the Netherlands. In these schemes, consumers can conclude online transactions in a webshop and only pay at a later stage, when they receive an invoice by a third party that takes up the invoicing and provides payment security to the seller. If this reminds you of a credit card, that's not odd at all: these services essentially aim to provide services akin to those of a credit card, without the long-term credit contracts (and eligibility controls) associated to traditional models. Some, in fact, even go as far as to provide an own app-environment through which consumers can reach web shops.
In return for these services, BNPL companies sometimes charge sellers/service providers a fee; they usually also charge consumers a small - even nominal - fee. According to consumer advocates, however, a significant portion of their revenue comes from consumer non-performance, in the form of late payment interests and debt collection fees. Civil law courts are then confronted with claims aiming to force consumers to pay their growing debts; in the Netherlands, many (but not all!) local courts have started to treat these contracts as credit contracts, even though officially in most cases the BPNL company has formally just been assigned the original credit by the seller. Why?
The advantage of considering BNPL as credit contracts is technical but also quite substantial: in many cases, Dutch courts are then able to invalidate the credit contract based on breach of core information requirements, leaving the consumer with, in essence, only the principal to pay. This is a particularly favourable outcome when, as is not rarely the case, the original purchase is only worth a small amount but the collection fees and default interest have been cumulating for a while.
Whether BNPL should, under current rules, be considered a credit contract depends in no small part on how one interprets the "old" Consumer Credit Directive, which excludes certain transactions from its scope. In particular, Article 2(2)(f) of that Directive excludes contracts "where the credit is granted ‘free of interest and without any other charges’ or [...] under the terms of which ‘only insignificant charges are payable’". Dutch courts, however, have been considering the collection fees and late-payment interest as part of the cost of credit, making the contract (maybe free of interest but) not "without any other charges" or including only "insignificant charges". The Dutch Supreme Court was unsure whether this approach was in line with the Directive and asked the CJEU to solve the question for them - do default interest and out-of-court collection fees count as "cost of credit" in the context of assessing whether a credit contract has been entered?
The Court of Justice answers the question over a succinct few paragraphs: first (para 44), it notes that the letter of the law points to "interest" and "other charges" to only be relevant when "provided for at the time of conclusion of the credit agreement". This suggests excluding default interest and collection fees because "the non-performance by a consumer of his or her payment obligation and the duration of any such non-performance are, in principle, unforeseeable at that time". Second (para 46), considering such interests and charges as part of the cost of credit would largely hollow out the exception established at article 2(2)f since only contracts providing absolutely no consequence for non-performance by the debtor would be covered. Hence, in principle where credit is provided for free or against a negligible fee the fact that fees and interests will have to be paid in case of non-performance does not turn the relationship into a credit contract under the Directive.
However, the Court observes (para 49-50), both the Dutch government and the referring Court suggest that default interest and collection fees are to be considered integral part of the provider's business model; the Directive, at the same time, requires Member States to make sure that its provisions cannot be circumvented "as a result of the way in which agreements are formulated". In light of the above, national courts have to make sure they guarantee the effectiveness of the Directive, and in particular
ascertain whether, in reality, the creditor is seeking to circumvent its obligations under Directive 2008/48 by anticipating, from the time the credit agreement is concluded, the non-performance by the consumer of the payment obligation in order to seek an economic advantage from the latter’s liability for interest and default charges. To that end, it will be for that court to examine all the circumstances present at the time when the agreement in question was concluded and other relevant information, such as, inter alia, the statutory or contractual origin of the interest and default charges, the periods within which that interest and those charges become payable and the amount of that interest and those charges.
This is a difficult task for national courts. Pending a decision by the Dutch Supreme Court, our sources suggest that local courts are reacting in different ways: some are just assuming that they can go ahead with treating the contracts as consumer credit; other courts are asking BNPL providers additional information about their business model in order to ascertain whether they do, indeed, plausibly expect a significant percentage of "their" customers to incur late payment fees; some are de-prioritising affected cases while awaiting a result, and some others, finally, are assuming that the CJEU's decision means BPNL is not credit after all.
The uncertainly is naturally limited in time - the article 2(2)h in the Consumer Credit Directive 2023 explicitly limits the exemption to cases in which deferred payment is offered by the provider of the underlying good or service, with the exclusion of commercial third parties; however, it is also rather consequential for all actors involved - providers, debtors and courts.