Commission opens official DSA investigation into SHEIN

 While the announced Digital Fairness Act proposal remains so far at the announcement stage, the last few months have brought to light the DSA's potential - if yet to be tested - to contribute to consumer protection beyond content moderation practices. In this sense, it particularly interesting that this month the European Commission has announced an official investigation into Shein's practices concerning several potential violations, namely:

- potential failure to limit the sale of illegal products, "including content which could constitute child sexual abuse material, such as child-like sex dolls";

- potential failure to monitor systemic risks linked to addictive design "including giving consumers points or rewards for engagement", and adequacy measures that Shein has in place in order to mitigate negative effects on "users' wellbeing and consumer protection"; and 

- potential failure to achieve sufficient transparency of the recommender systems in the platform. 

The press release does not provide a detailed legal basis for the specific elements, so we did this for you. 

First, illegal content. Under the DSA, platforms do not have to actively monitor for the presence of illegal content (article 6), but they have have several obligations that are triggered once a notice is filed (article 16 para 4,5,6), and they are assumed to be legally aware of the illegal content once a valid notice has been filed (art 16 para 3). The commission has previously asked Shein to provide information about how they manage their notice & action systems to counter illegal content and the investigation is meant to obtain further insight. 

"rewards for engagement" from couponfollow.com

Second, as concerns the systemic risks, the Commission's framing seems to leverage the understanding of "risk" (assessment, art 34 and mitigation, art 35) referred to in recitals 81 and 83, namely that of addictive features of a platform's design or exploitation of weaknesses, in particular when it comes to children. The gamification mechanisms mentioned in the investigation announcement may structurally encourage consumers to over-spend or just spend more time in the app that normal usage would require. 

Finally, the Commission wants to know more about how Shein informs consumers about the criteria according to which product presentation is organised and selection is ranked. According to art 27 DSA, this information can be provided in the platforms T&Cs *but* "when several options are available" users must be given the a directly and easily accessible option to choose among these alternatives. The Commission here also indicates that users should be provided with *at least one easily accessible option that is not based on profiling* for each recommender system. This requirement does not follow directly from the DSA but seems in line with the requirements for consent under the GDPR (as it seems unlikely that a webshop would be able to rely on a different legal basis for the profiling). 

We do not know how long this investigation will take - the press release makes it clear that the Commission doesn't want to commit to a specific timeline. Of course, the outcome in this file may have broader implications for DSA enforcement and consumer protection, so we will be following (and sharing) any developments with great interest!

"Initial commitment period" of two years in phone subscriptions - aka when is long enough long enough? CJEU in C‑612/23

 Many readers will have had the experience - signing up for a new mobile (phone) contract and opting for the 2-year commitment in order to obtain the best terms, and then again starting a new contract with the same provider when a new and more attractive offer comes about. What happens then with the remaining months on the new contract?

Vodafone Germany thought, we learn through xxx, that these months should just be added to the next contracts. In the case of the two consumers on behalf of whom the German Verbraucherzentrale brought a case, the new contracts they signed after upgrading to a new device and service level were drafted as including a minimum commitment of 26 months, in one case, and "24 months after the expiry of the original commitment period" in the other case. 

German courts disagreed on whether this extension, which meant that even though the parties had agreed mutually to a new contract the old contract would "live on" in terms of commitment, was in line with the Universal Services Directive, according to which (article 30 para 5)

Member States shall ensure that contracts concluded between consumers and undertakings providing electronic communications services do not mandate an initial commitment period that exceeds 24 months. Member States shall also ensure that undertakings offer users the possibility to subscribe to a contract with a maximum duration of 12 months.

Was this maximum "initial commitment" period, the ECJ was hence asked, limited to the first contract between a consumer and a service provider, or did the same capping also apply to subsequent contracts, so that they should not (directly or indirectly) bind the consumer for more than 24 months?

The Court begins its analysis by acknowledging (para 30) that the different language versions may point in more or less ambiguous directions: whereas in some versions it is clear that the rule was meant to regulate *commitment periods* irrespective of contractual form, in some other languages "initial" could refer to both the period and the contract, so that only the first contract would be covered by the restriction. The task is then to solve this ambiguity in a way that secures uniform application throughout the Union. 

In the following paragraphs, the Court takes a deep dive in the competitive reasons behind the rule, under the Universal Services Directive in the original formulation as well as under the more recent amendments and finally the new Directive (EU) 2018/1972 of the European Parliament and of the Council of 11 December 2018 establishing the European Electronic Communications Code (OJ 2018 L 321, p. 36).

The gist of the reasoning is that the rule is meant to make sure that consumers should be able to "change providers when it is in their interests... without being hindered by legal, technical or practical obstacles, including contractual conditions, procedures, charges and so on."(recital 47 Dir 2009/136) While reasonable minimum contractual periods are allowed, they should not be used to make it more difficult "potentially for long periods, for consumers to change provider"and thus to deprive them "of the possibility to take full advantage competition in the field concern" (para 33).

While it can be considered that after the first contract the consumer has sufficient information about the provider, this doesn't mean that they should be prevented from changing provider "if a more attractive offer were to present itself" (para 34). 

This leads the court to conclude that, considering that the level of protection afforded to consumers should not be lowered by their choice to enter a second contract with the same provider (para 35), the provision should be interpreted to mean that "initial commitment period" applies not only to the first contract between a provider and a consumer, but also to any successive contract between the same parties, "including when it was signed and put into effect before the expiry of the initial contract". 

As a rather habit-driven and not so savvy consumer who tries to use their device for at least four to five years (and encourages all readers to do the same!), this blogger has never experienced similar issues. However, it would be interesting to see whether the problem was typically German or also present in other jurisdictions: one can see how it can be tempting for companies to have their cake (the new contract) and eat the last slice of the previous cake too. According to the Court's overview, at least the Italian and Portuguese language version would seem to have left abundant space for an ambiguous interpretation. Wonder whether there will now be hundreds of consumers potentially claiming two or a few months worth of subscription as undue payments? Please let us know if you have stories on this!

National law temporarily exempting travel organisers from full refund in cash ruled not compatible with EU law (Case C-407/21)

As expected, some of the disputes regarding the termination of travel related contracts due to the Covid-19 outbreak have arrived at the attention of the CJEU. On June 8, the Court issued two judgments establishing that national laws which temporarily exempted travel organisers from the obligation of full refund are not compatible with EU law. Here, we look at Case C-407/21.

Facts of the case 

In March 2020, at the beginning of the Covid-19 outbreak, the French Government adopted an order aimed at safeguarding the cash flow and solvency of the service providers impacted by the pandemic. The order established that ‘where a travel and holiday sales contract is ‘rescinded’ between 1 March and 15 September 2020, the organiser or retailer may offer, instead of a full refund of any payments made under the ‘rescinded contract’, a credit note [voucher] which the customer may use under certain conditions’ (para 12). The offer would be valid for 18 months and, after that period, if not accepted, the trader would have been required to provide a full refund. The provision derogated from Article 12(2) and (3) of Directive 2015/2302 on package travel and linked travel arrangements. The latter provisions, combined, establish that if the organiser or the traveller terminates the contract due to ‘unavoidable and extraordinary circumstances (…) affecting the performance of the package or which significantly affect the carriage of passengers to the destination’ the traveller is entitled to a full refund. 

Two consumer organisations (Union fédérale des consommateurs – Que choisir (UFC) and Consommation, logement et cadre de vie (CLCV)) brought an application before the referring court (Conseil d’État) against the French Minister for Economic Affairs, Finance and Recovery, requesting the annulment of the order. UFC and CLCV claimed that the order was in violation of Article 12, pursuant to which the consumer is entitled to a full refund within 14 days from the termination of the contract. The referring court noted that immediate full refunds to all consumers may have jeopardised the very existence of the operators and thus the chance for those consumers to obtain it; it stayed the proceedings and referred to the CJEU.

Can the trader provide a voucher instead of a cash refund?

 

The CJEU observes that although the Directive does not define the concept of ‘refund’, the everyday meaning of the term refers to the ‘to the fact of returning to a person a sum of money which that person has paid out or advanced to another person’ (para 25). Further, Article 12(2) and (3) refers to a payment made. According to the Court, it thus follows that the concept does refer to the return of cash. Further, the fact that the reimbursement must be made within 14 days from the termination makes it clear that the refund should consist of cash: that short period in fact guarantees that the traveller will again ‘be able to dispose freely of the sum spent on the package’ (para 30). Receiving a sum of money, writes the Court, better protects consumers than receiving a voucher, and thus ensures a higher level of consumer protection, which is the objective of the Directive (para 33). The Directive must thus be interpreted as providing that the organiser of a travel package is required to provide a full refund in the form of a sum of money. However, this does not preclude the traveller from voluntarily accepting a voucher if the option of the cash refund remains available. 

What if there is a global pandemic? 

The Conseil d’État asks the CJEU whether the Directive must be interpreted as requiring traders to provide a full cash refund within 14 days even when, because of a global pandemic, this would risk jeopardising the existence of the whole travel organisers’ sector. Preliminarily, though, the CJEU must establish whether Article 12(2) and (3)(b) on unavoidable and extraordinary circumstances applies to the French order regarding the Covid-19 outbreak. In essence, it must establish whether the pandemic can be qualified as an unavoidable and extraordinary circumstance. The Court answers the question in the positive and argues that, for sure, it must be considered that a health crisis on a global scale makes ‘it impossible to travel safely to the destination as agreed in the package travel contract’ (Recital 31, Directive). Further, the Covid-19 outbreak certainly is to be regarded as beyond the control of the traveller (Article 3(12), defining what an unavoidable and extraordinary circumstance is). Article 12 thus applies to the contracts terminated due to the global pandemic. 

 

The force majeure hypothesis and consumer protection 

The French government also argues that the Covid-19 pandemic constitutes a case of force majeure thus allowing a derogation from Article 12. However, as observed by the Advocate General, from the travaux préparatoires of the Directive it emerges that the concept of unavoidable and extraordinary circumstance was meant to replace and exhaustively implement that of force majeure (paras 55-56). That being the case, no derogation is allowed since Article 12(2) and (3) does not provide for it. Such a derogation would lower the level of consumer protection for the travellers whose contract is terminated due to the pandemic and whose circumstances are protected under Article 12 (para 61). National legislation of the sort of the French order’s is thus in violation of the Directive (para 62). 

As suggested by the Slovak Government, a force majeure claim may be used also to argue that a Member State has not complied with EU law when ‘the non-conformity of national legislation with the provisions of a directive is justified on the grounds of force majeure so as to ensure that that legislation may continue to apply during the necessary period’ (para 68). This argument cannot be applied to the French order: the latter’s application, by suspending the reimbursement obligation ‘is not confined solely to cases in which such constraints, in particular financial constraints, have actually occurred, but extends to all contracts terminated during the reference period, without taking into account the specific and individual financial situation of the travel organisers concerned’ (para 70). 

The State aid solution 

The Court further observes that the French Government, contrary to other Member States, decided not to recur to any State aid measure allowed under Article 107 (2)(b) TFEU. The use of State aid would have helped overcome the liquidity problem which the Government considered as justifying a derogation from EU law. In light of all of the above, thus, the Directive must be read as precluding Member States from temporarily releasing traders from the full refund obligation in order to overcome the solvency issue emerged due to the global pandemic. 

Principle of sincere cooperation 

Finally, the Conseil d’État asks whether a national court before which an action for the annulment of national legislation contrary EU law has been brought can adjust the temporal effects of its decision, to avoid the damages arising from the annulment. There have been cases in which this has been allowed, in the presence of ‘overriding considerations relating to the protection of the environment or to the need to eliminate a genuine and serious threat of disruption to the electricity supply’ (para 82). The CJEU though decisively excludes that a threat to the economic interests of the travel operators is comparable to a threat to the environment and electricity supply. The French Government itself had in fact noted that the damages would be ‘limited’ (para 84). In light of the principle of sincere cooperation, EU law must thus be interpreted as not allowing the national court to adjust the temporal effects of its decision on the annulment of legislation contrary to Article 12(2) to (4) of the Directive. 

The ruling emphasises the imperative nature of the provisions of the Directive and thus reinforces the pivotal role of consumers within the internal market. By receiving a full cash refund within 14 days from the termination, consumers can freely dispose of that sum and invest it in other purchasing activities not prevented from the pandemic (e.g., Amazon deliveries). Further, once again, it emerges clearly that consumer interests enjoy a prominent position in the Union and their prevalence over traders’ financial interests remains undisputed also in exceptional times such as those of the Covid-19 pandemic. This is true, in particular, when alternative measures such as State aid would have allowed the French Government to prevent the solvency issues potentially encountered by travel operators.

Only natural persons can be consumers – CJEU in Condominio di Milano, via Meda (C-329/19)

On the 2^nd of April 2020, the CJEU decided on the Condominio di Milano case (here). The case concerned the concept of consumer under the Unfair Terms Directive, regarding a contract between Condominio Meda (a commonhold association) and Eurothermo SpA (an energy supplier). The dispute originated in the duty to pay interest for late payment in a contract for the supply of thermal energy. Article 6.3 of the terms and conditions of Eurothermo stated that, in the event of late payment, the debtor must pay ‘default interest at the rate of 9.25% from the expiry of the period for payment of the balance’. Condominio Meda claimed that it is a consumer in the sense of the Unfair Terms Directive and that Article 6.3 of the terms and conditions is unfair.

The national court highlighted the existence of pre-existing national case law from the Italian Supreme Court that determines that a commonhold association – as a form of co-ownership – is not a legal person but it is considered a ‘distinct subject of the law’. This means that, under Italian law, Condominio Meda is neither a natural person nor a legal person. The Italian Supreme Court has nonetheless previously applied consumer protection rules to contracts concluded by a commonhold association and a trader or supplier. Furthermore, the national court mentioned the CJEU’s previous decisions on the concept of consumer, which were exclusively based on the criterion of being (or not) a natural person. Therefore, the referring court asked whether the Unfair Terms Directive is applicable to this contract.

The CJEU started by analyzing whether a ‘distinct subject of the law’ that is not a consumer is covered by the Unfair Terms Directive. In fact, Article (2)(b) explicitly identifies a consumer with ‘a natural person’. According to past case law, the CJEU reiterated that ‘a person other than a natural person who concludes a contract with a seller or supplier’ cannot be considered a consumer (Cape and Idealservice MN RE, C‑541/99). Therefore, the contract concluded between the commonhold and the energy supplier is excluded from the scope of the Unfair Terms Directive (paragraph 29). This is a literal interpretation of Article 2(b), allowing for a well-defined and consistent notion of consumer.

Additionally, the CJEU extracted a second question from the national court’s request: is it contrary ‘to the spirit of the framework of consumer protection in the European Union’ for a national court to interpret the transposing legislation of the Unfair Terms Directive as covering contracts concluded between a commonhold (not a natural person) and a supplier? Given that the Unfair Terms Directive is a minimum harmonization Directive and that the Italian Supreme Court has developed a line of case law ‘which seeks to afford greater protection to consumers’, the answer is negative. Therefore, even though the contract in question is excluded by the scope of the Unfair Terms Directive, the Unfair Terms Directive does not preclude national case law from applying its transposing legislation to the contract in question. 

Case C‑511/17 Unicredit Bank Hungary: Ex officio unfairness assessment limited to subject matter and to existing legal and factual elements

In  the case C-511/17, the CJEU followed the AG’s opinion closely (about which we wrote here). The case deals with the scope of the obligation to assess the unfairness of contractual terms ex officio, under Directive 93/13/EEC (Unfair Terms Directive).

The CJEU clarified that the Unfair Terms Directive does not oblige national courts to conduct any unfairness assessment beyond the subject matter of the dispute (paragraph 28). In other words, as AG Tanchev also defended, the CJEU highlighted the importance of protecting the ne ultra petita principle. However, the CJEU considered that it is within the subject matter of the dispute that national courts examine ex officio the unfairness of contractual terms in order to guarantee a high consumer protection, particularly to prevent the consumer’s claim from being rejected when it could have been upheld had the consumer invoked the unfair nature of that particular term (paragraph 32).

In addition, the CJEU established that national courts are only obliged to carry out an ex officio assessment of unfairness regarding those contractual terms whose unfairness can be determined by existing elements of law and fact available to the court (Profi Credit Polska case). However, in order to implement the duty of ex officio examination, national courts should not be confined exclusively to the elements of law and fact provided by the parties (paragraph 36). This means that national courts can, of their own motion, take investigative measures in order to complete the case file. However, national courts should only do this if the existing elements of law and fact ‘give rise to serious doubts as to the unfair nature of certain clauses which were not invoked by the consumer but which are related to the subject matter of the dispute’ (paragraph 37).

Finally, the CJEU reiterated that in order to assess the unfairness of a contractual term (on which the claim is based) the national court must take into account all the other terms of the contract (Banif Plus Bank, C‑472/11). This obligation is justified by the fact that the assessment of one or more specific terms must be contextualized, and the ‘cumulative effect of all the terms of that contract’ must be taken into account (paragraph 47). This does not mean, however, that there is an obligation for the national court to ex officio assess the unfairness of all individual clauses in the contract – it is rather a duty to contextualize the assessment of unfairness. The CJEU also calls for a non-formalistic consumer protection, that is, an interpretation of the claim that is based on the comprehension of its content and of the laws it invokes (paragraph 33).

Therefore, the CJEU concluded that Article 6(1) of the Unfair Terms Directive does not require national courts to examine every individual contractual term ex officio. Instead, the Unfair Terms Directive must be interpreted as imposing an obligation to examine only the contractual terms which are connected to the subject matter of the dispute, as long as the national courts have the legal and factual elements required for that assessment (which can be supplemented by measures of inquiry). The CJEU also determined that, while Articles 4(1), 6(1) and 7(1) impose a duty to take all contractual terms into account, there is no duty for the national court to individually assess the unfairness of each term.

In this specific case, the CJEU determined that the terms that the consumer did not challenge but whose unfairness assessment is required of the referring court are not connected to the subject matter of the dispute in the main proceedings. Therefore, the national court does not have a duty to ex officio assess the unfairness of those terms (paragraph 39).

‘Paying’ with personal data – what rights do consumers have?

The recently approved Directive on the modernization of consumer protection rules (available here) explicitly extended the scope of the Consumer Rights Directive to contracts where the consumer ‘pays’ with data, or contracts where the consumer provides personal data in exchange for a digital content product or a digital service. This extension means that consumers who ‘pay’ with their personal data have specific information rights stemming from Article 6 and the new Article 6a of the Consumer Rights Directive, such as the right to get information on the possibility of recourse to a complaint mechanism. Furthermore, these consumers are now entitled to the right to withdraw from the contract, even if they do not pay a monetary price. The advantage of this right when it comes to contracts where consumers ‘pay’ with data is evidently more limited than when consumers pays with money. Nevertheless, this is the latest move by the EU to better protect consumers’ personal data.

In fact, the Digital Content Directive (also recently approved and available here) was the first to 'innovate' in this area, by acknowledging the need for consumer protection in contracts where the consumer ‘pays’ with data. The Digital Content Directive extended the remedies already provided by the Consumer Sales Directive (applicable to the sale of goods and now replaced by the Sale of Goods Directive) to digital content contracts, both where the consumer pays a monetary price and where the consumer ‘pays’ with personal data. According to Article 14, in case of lack of conformity, consumers who provide their personal data in exchange for a digital content product or a digital service are entitled to have the product or service brought into conformity (for example, through an update). Furthermore, consumers are entitled to terminate the contract in case of any lack of conformity (regardless of how minor). In case of termination, the rights in the GDPR must be respected, particularly when it comes to the right to be forgotten (Article 17 GDPR) and the right to data portability (Article 20 GDPR).  

The increasing efforts by the EU to protect the consumer who ‘pays’ with data are an acknowledgement of the importance that similar data-based business models will play in the contracts of the future. However, the treatment of personal data as a contractual counter-performance is not uncontroversial. For example, although the (previous) European Data Protection Supervisor welcomed the protection of data subjects through consumer law, the EDPS also vocally opposed the treatment of data as a counter-performance. Nevertheless, given the increase in the number of contracts concluded in exchange of (personal) data (think of Spotify, Facebook and other similar platforms that provide digital services), it seems important to develop (and adjust) a general contract law framework applicable to these contracts. This must be done alongside – and not in opposition to – the data protection framework.

BEUC’s 7 recommendations for post-Brexit positive consumer protection

With Brexit finally approaching, the questions surrounding the legal uncertainty that will most likely follow the UK's departure from the EU are louder than ever. BEUC issued a position paper containing seven recommendations to secure positive outcomes for consumers after Brexit (found here). These seven recommendations are intended for the regulatory actors, not consumers themselves. In short, BEUC argues for a close cooperation between the EU and the UK (including the creation of joint surveillance bodies), as well as for the maintenance of the existing level of consumer protection. The seven recommendations are the following (as summarized by BEUC):

1. Inform consumers about what Brexit means for them

BEUC defends that the first step to take is to inform consumers about any changes that their rights will suffer. BEUC suggests preparing concrete guidance documents such as factsheets.

2. Protect consumers when implementing the withdrawal agreement

BEUC highlights the need to maintain current levels of consumer protection when implementing the withdrawal agreement, namely consumer safety when it comes to imported goods. In fact, BEUC reminds that UK customs will be required to ensure compliance of imported products with both UK law and EU law (particularly when it comes to imported products arriving in Northern Ireland and considered "at risk" of entering the EU market). For this, UK customs will need trained staff. Furthermore, BEUC considers that EU authorities will need additional financial and human means to oversee the controls that UK customs will perform. Finally, BEUC stresses that the role of the joint committee of the withdrawal agreement will be essential, given that it will define the criteria according to which goods are at risk of entering the EU market via Northern Ireland.

3. Make consumer protection a key objective of the future relationship

BEUC recommends that there is a chapter dedicated to consumer protection in the withdrawal agreement (which could look like this). The level of consumer protection should not be reduced, to encourage trade and investment in the UK. The level of protection of consumers' privacy and personal data should also remain high, and the EU should explore the possibility of an adequacy decision. BEUC mentions six points that the chapter should contain: i) affordable access to telecommunications for consumers who are traveling or communicating with other countries should be preserved; ii) the security of an affordable energy supply should be protected (namely the integrity of the single electricity market between Ireland and Northern Ireland should be renewed); iii) unjustified geoblocking should be eliminated; iv) access to affordable flights should be ensured; v) consumers should be properly informed about their rights; vi) consumers should have access to redress and online dispute resolution mechanisms.

4.  Ensure consumer choice of goods and services

In addition to the concerns expressed in point 2 regarding the import of safe products, BEUC recommends a baseline of zero tariffs and quotas to avoid that consumers are hit by unexpected high custom duties.

5. Maintain regulatory dialogues to preserve consumer safeguards

BEUC suggests the creation (or maintenance) of regulatory cooperation mechanisms, operating on a voluntary basis, to guarantee the surveillance of the market. These cooperation mechanisms should cover enforcement of consumer rights. Moreover, the UK and the EU should avoid a race to the bottom when it comes to the regulation of competition.

6. Assess the impacts on consumers

BEUC suggests a comprehensive qualitative and quantitative analysis of the effects of a future agreement on consumers.

7.  Involve consumer organizations and be transparent

BEUC states that the "level of transparency provided by the EU during the Brexit negotiations was unprecedented" and that the same level of transparency is expected in the future (also of the UK government). This requires consumer organizations to have access to consolidated negotiated texts, in order to provide recommendations and to inform consumers. To this end, BEUC recommends the creation of an EU-UK trade advisory group.

Ex officio unfairness assessment limited to contractual clauses connected to the dispute – Opinion of AG Tanchev in Case C‑511/17 Unicredit Bank Hungary

On the 19^th of December 2019, AG Tanchev delivered an Opinion on Case C-511/17 (found here), which deals with the scope of the obligation to assess the unfairness of contractual terms ex officio, under Directive 93/13/EEC (Unfair Terms Directive). As AG Tanchev starts by noting, this case is related to other cases on the Hungarian framework on consumer credit agreements denominated in a foreign currency (for example, Sziber C‑483/16, OTP Bank and OTP Faktoring C‑51/17 and Dunai C‑118/17).

The ex officio obligation in question is well established in the CJEU’s case law. This obligation is aimed at ensuring an effective protection of the consumer under the Unfair Terms Directive and it intends to restore the balance between the consumer and the professional party (see, for example, OTP Bank and OTP Faktoring C‑51/17 and Pannon GSM C‑243/08). As the AG acknowledges, the interpretative framework of the obligation to assess unfairness of contractual terms ex officio affects the civil procedure principle that the subject matter of an action is delimited by the parties and the court can go no further than that subject matter (ne ultra petita). In fact, the existence of this obligation means that under national procedural law the court must go beyond the object of the dispute as originally defined by the parties (para 44).

The main question raised in this case was, as summarized by the AG, whether a national court is required under Articles 6(1) and 7(1) of Directive 93/13 to examine ex officio the unfairness of all of the terms of the contract even if they are not necessary to decide on the parties’ claims in the dispute. In other words, the question underlying this case is whether that obligation should be unlimited and, if not, what the limits of that obligation are. Must all contractual terms be examined for unfairness based on the courts’ own motion?

To clarify, there are three different dimensions to this issue. First, whether national courts must only assess the unfairness of the terms invoked by the consumer or also the unfairness of other terms that the consumer did not invoke (ex officio). Second, whether the courts must take the whole contract into account when assessing the unfairness of the terms invoked. Third, whether there is an ex officio obligation regarding investigative measures, if the court does not have all the necessary elements to assess the unfairness of a term.

All the parties’ observations – as well as the AG’s – agreed that an unlimited obligation to assess the unfairness of contractual terms ex officio would largely (and unnecessarily) hinder fundamental principles of national procedural law. Illustratively, UniCredit Bank Hungary defended a triple criterion to limit the ex officio obligation: a national court must examine unfair terms ex officio only if i) the court has ‘the necessary legal and factual elements’ for that examination, ii) if the term concerned is relevant to the decision to be given and iii) if the term has a material and logical relationship with the case. In its statement, Hungary followed the same lines of reasoning, arguing that the court must examine ex officio ‘terms whose unfairness can be clearly established, as a matter of fact, on the basis of the available evidence’.

Following the same logic, the AG concludes that Articles 6(1) and 7(1) of the Unfair Terms Directive require national courts to assess ex officio the unfairness of contractual terms which are related to the object of the dispute and have a link with the legal or factual elements in the case file. This opinion suggests, therefore, a double criterion to limit the ex officio obligation to assess unfair terms: a relation between the clause and the object of the dispute and a link with existing legal or factual elements in the case. In other words, the courts’ obligation to assess ex officio the unfairness of contract terms does not extend to all contract terms, but only those with a link to the case in question. Consequently, AG Tanchev’s opinion is that national courts do not have to examine ex officio all the other contractual terms for unfairness, but merely to take all the other terms into account when examining the unfairness of a specific term, according to Article 4(1) of the Unfair Terms Directive.

This interpretation also means that it is not enough that the contractual term is relevant to the object of the dispute, but it is also necessary that the court possesses some legal and factual elements to determine the unfairness of the term. AG Tanchev also states that Articles 6(1) and 7(1) of Directive 93/13 allow national courts to ‘take ex officio investigative measures to complete the case file’ (e.g. asking for clarification or documentary evidence from the parties) in order to obtain the necessary legal and factual elements to carry out an ex officio examination of unfairness (para 55). The AG’s opinion follows the CJEU decision in VB Pénzügyi Lízing (C‑137/08). According to the AG, it appears that if the national courts do not have the necessary legal or factual elements, they are not obliged to assess the unfairness of the term, although they are able (but not obliged) to request those elements from the parties.

While this interpretation seems reasonable and it strikes a balance between fundamental principles of civil procedure law and EU consumer protection, this last argument regarding ex officio investigative measures is slightly more confusing than the previous ones. In fact, as the AG acknowledges, the CJEU has previously highlighted the need for ‘sufficient evidence’ in order to assess the unfairness of the contractual terms (para 62). The AG addresses this aspect by stating that ‘this may be viewed as lending support for the position that the national court has at its disposal sufficient legal and factual elements for the ex officio examination if necessary by being able to take ex officio investigative measures to that effect’. More clarification on this aspect in the final CJEU decision would be desirable.

The last decade of EU consumer law

IMCO committee of the European Parliament has commissioned a report with Osnabrück University on the last decade of achievements in European consumer protection (2008-2018), which has just been published: Contribution to Growth: Legal Aspects of Protecting European Consumers. The report counts 140 pages and is a good summary of the legislative initiatives for anyone interested in looking up what rights consumers enjoy and what obligations traders and service providers have pursuant to EU consumer law. It is a good starting point to identify various applicable directives and regulations, find out about their main scope, in such diverse areas as e.g. digital services (e.g. geo-blocking), financial markets and services (e.g. market abuse directive, MAD) and product safety (all discussed in part 2). However, it comes short on referencing further scholarship or case law on the referred topics. Thus, readers interested in taking a more in-depth look into these measures would need to look elsewhere. The report also identifies current challenges to consumer protection in the digital world and with regards to the environmental protection, and what is currently being proposed to tackle them (part 3).

It might be worth noting that the report identifies only three instruments as adopted in this time period, which have a straightforward objective to raise the level of consumer protection by providing consumers with substantive consumer rights: Consumer Rights Directive, new Package Travel Directive and the Mortgage Credit Directive (page 23). That does not seem much for a 10 year period. Of course, the report mentions the ongoing legislative process under the DSM and New Deal proposals, but it has been finalised before the adoption of some of these measures, and does not account for their final texts. 

Conference on the New Deal for Consumers

On Thursday 11 and Friday 12 April 2019 the conference 'A New Deal for Civil Justice? The New Deal for Consumers and the Justiciability of EU Consumer Rights' will take place in Amsterdam. Attendance is free of charge; you can register by sending an e-mail to: l.d.kaspar@uva.nl

The final programme is now available:

Confusing Grand Chamber judgment on 'accelerated repayment clauses' in mortgage loan contracts (C-70/17 and C-179/17)

Yesterday the Grand Chamber of the EU Court of Justice gave judgment in two Spanish cases on so-called 'accelerated repayment clauses' (vencimiento anticipado): Joined Cases C-70/17 and C-179/17, Abanca v García Salamanca Santos and Bankia v Lau Mendoza. We have discussed Advocate-General Szpunar's extensive Opinion in these cases in an earlier blog post.

Summary of the preliminary references

In short, both cases pertain to the consequences of a finding of unfairness of a clause allowing for the early termination of a mortgage loan contract - also referred to as an 'acceleration clause' or 'early maturity clause'. Spanish procedural law provides that on the basis of such a clause, the bank can call in the entire loan and initiate enforcement proceedings against the debtor. After Aziz, the minimum time period for access to mortgage enforcement proceedings was changed to 3 months instead of 1 month. Early termination is still allowed, if agreed by the parties. Thus, it is not a default provision.

The question the Spanish Supreme Court put before the CJEU in Abanca was whether the national court could consider only the 1-month period as unfair, so the rest of the 'early maturity clause' would remain valid. In that event, the bank could still claim the full amount in the enforcement proceedings, as long as it respected the statutory 3-month period.

In Bankia, a Court in First Instance in Barcelona questioned the case-law of the Supreme Court that allowed continuation of the enforcement proceedings, because this was arguably more favourable to consumers. According to the Barcelona Court, the enforcement proceedings should be terminated after the clause was found to be unfair. The bank could only claim termination of the contract in ordinary court proceedings, which would possibly result in a favourable outcome for consumers.

Thus, the preliminary reference in Bankia challenged the Supreme Court's approach. The Spanish Government even contested the admissibility, on the ground that the Supreme Court had already made a preliminary reference on this issue.

Summary of AG Szpunar's Opinion

AG Szpunar's clear and elaborate analysis of the issue led to his conclusion that it is not possible for the national court to "replace" the 1-month period in the 'early maturity clause' with the statutory 3-month period. Once the clause is found to be unfair, it must be struck out in its entirety. This would mean there is no longer a basis for enforcement of the full amount and therefore, the bank no longer has access to mortgage enforcement proceedings. However, the decision should ultimately be left to the consumer, who can then decide if she wants to avail herself of the protection offered to her.

As we have noted in our blog post, AG Szpunar rightly observed that when the 'early maturity clause' is struck out, this does not extinguish the creditor's rights. The loan agreement is still valid. The creditor can still claim unpaid instalments due and/or seek termination of the agreement in ordinary court proceedings.

The CJEU's judgment: rejection of the Spanish Supreme Court's approach?

Yesterday's preliminary ruling is a Grand Chamber judgment, yet it is much less clear than the AG's Opinion. On the one hand, the CJEU holds that the mere removal of the 1-month period from 'early maturity clauses' is "tantamount to revising the content of those terms by altering their substance", which undermines the dissuasive effect (para 55).

On the other hand, the CJEU expressly leaves the door open for substitution with the statutory 3-month period, if the consumer would otherwise be exposed to unfavourable consequences (para 61). What makes this part of the judgment confusing, is not only that it is doubtful whether the use of an ordinary procedure rather than the special mortgage enforcement procedure does entail "a deterioration of the procedural position of the consumer" (para 62).

[NB: In this respect, it is confusing that the CJEU refers to "the ordinary enforcement procedure", where a declaratory action is meant (cf. para 35).]

Source: bufeterosales.es

Also and more strikingly, the judgment seems to be based on the erroneous presumption that removal of the 'early maturity clause' could potentially mean that the continued existence of the mortgage loan contract is no longer possible (para 60). It seems obvious that the invalidity of the clause at stake does not require the national court to annul the contract in its entirety. Whilst the CJEU reinforces its case law on the modification, revision or replacement of unfair contract terms, in particular Kásler (paras 53-60), it is not relevant for the present cases. The exception of Kásler does not apply here, as - again - AG Szpunar already observed.

The only way forward for the national court is to exclude the application of the terms at stake (cf. para 63). The CJEU's judgment suggests that in that event, the supplementary application of the 3-month period is not possible, and the Spanish Supreme Court's approach must be rejected. We hope this will be clarified in another case on this issue that is still pending: C-486/16.
The 'early maturity clause' must be removed in its entirety, unless the consumer objects. The role of the consumer, who must be consulted in the matter, is indeed an important point. The consumer must be heard in case of non-application of unfair terms, as well as - presumably - in case of substitution of unfair terms, although the CJEU does not say this explicitly. As noted in our previous blog post, the consumer can be informed by the court about the advantages and disadvantages of the mortgage enforcement procedure vs. the ordinary procedure. She can then consent to maintaining the 'early maturity clause', although this seems to be an unlikely scenario.

A New Deal for Civil Justice? The New Deal for Consumers and the Justiciability of EU Consumer Rights

The Centre for the Study of European Contract Law (CSECL) holds its annual conference on Thursday 11 and Friday 12 April 2019 at the University of Amsterdam.

The 2019 CSECL conference revolves around the New Deal for Consumers that was proposed by the European Commission on 11 April 2018. It focuses on issues of civil justice that the New Deal aims to address – and, crucially, the question it appears to raise. A particular focus will be on the interaction and tension between different functions of enforcement mechanisms in consumer law, as well as the public and private interests involved at different levels. What or whom is the New Deal for?

For the provisional programme, click here. 

The conference will bring together researchers and practitioners interested in (the future of) European private law, civil procedure, consumer law and, possibly, others with a more general interest in the enforcement of EU law and EU constitutional law.

Keynote speakers:

• Prof. Colin Scott, University College Dublin
• Dr. Eva Storskrubb, Uppsala University

Second-guess or second instance: Opinion of AG Szpunar in five cases on the EU Court of Justice and differences of interpretation between lower, higher and highest national (civil) courts

"La protection du consommateur est ainsi devenue un des chapitres essentiels du droit de l’Union qui, avec une double dimension – tant économique que sociale –, touche à la vie quotidienne des consommateurs de l’Union." 

~ Advocate General Szpunar, Opinion in Cases C-70/17 and C-179/17 (point 53)

Introduction

Consumer protection has become "an essential chapter of EU law", as Advocate General Szpunar rightly observes in one of his Opinions that were published this week. It is a focal point in the interplay between different actors at different levels in EU law. In 3 Opinions, AG Szpunar discusses 5 separate cases that touch on the relation between the national (civil) courts of the EU Member States and the EU Court of Justice in respect of the interpretation and application of national (procedural) law in the light of the Unfair Contract Terms Directive. It appears that the CJEU provides an avenue for lower courts to 'second-guess' the approach of courts that are higher in hierarchy, to the extent that they challenge the instructions of their own appellate court or the case law of the Supreme Court. Through preliminary references, the CJEU may be called upon to settle differences between courts of different instances. This raises questions as to the division of competences between the EU and the Member States, as well as the link between the substantive and procedural protection of EU citizens in their role as consumers. In the absence of harmonised procedural rules, who is the ultimate interpretor of national provisions governing civil proceedings (involving consumers)? Is there any room for a balancing of interests, other than the 'overriding objective' of the protection of consumers against unfair terms? And who decides what's in the consumers' best interest? 

Five cases, three Opinions

The 3 Opinions this blog post is concerned with pertain to the following 5 cases:

• C-70/17 (Abanca v. García Salamanca Santos) and C-179/17 (Bankia v. Lau Mendoza), hereinafter referred to as the Abanca-case; click here
• C-486/16 (Bankia v. Sánchez Martínez); click here
• C-92/16 (Bankia v. Rengifo Jiménez) and C-167/16 (BBVA v. Quintano Ujeta); click here

Especially the Opinion in the Abanca-case is worth reading. AG Szpunar analyzes the background of consumer protection against unfair terms elaborately, and summarises the development of the CJEU's case law in this area. He also tries to distinguish the legal issues from socio-economical considerations, and to clarify the role of national (civil) courts from an EU law perspective. In this blog post, we will focus on two aspects:

1. the power of national courts to substitute a national legislative provision for an unfair term, or rather: the lack of such a power (cf. Joined Cases C-96/16 and C-94/17, discussed here), and
2. the possibility of lower courts to 'circumvent' guidance given by a higher court by making a preliminary reference to the CJEU.

Both aspects illustrate the tension between the requirements flowing from EU (consumer) law and a more traditional view on private law and civil procedure as a matter of national law. On the one hand, AG Szpunar's answers to the questions posed by the referring courts could be seen as a logical continuation of the CJEU's case law. On the other hand, those answers could be seen as limiting the room for discretion of national (civil) courts even further. However, AG Szpunar carefully considers the different interests involved, and explains that while he understands the concerns, his proposed solution is in line with previous judgments.

First, we will examine the type of contractual terms at issue in these cases. It is not so much about the assessment of the (un)fairness of those terms as such, as it is about the consequences of a finding of unfairness. Secondly, we will take a closer look at the procedural implications. At the end of this blog post, we will get back to the position of lower courts vis-à-vis higher courts.

Accelerated repayment and mortgage enforcement: differences of interpretation between Spanish courts

The 5 above-mentioned cases are all requests for preliminary rulings from Spanish civil courts: in the Abanca-case, the Spanish Supreme Court (Tribunal Supremo) itself, in the other cases courts in first instance (Juzgados de Primera Instancia). All 5 cases relate to so-called 'early maturity' or acceleration clauses in mortgage loan agreements, i.e. terms containing an advanced expiration date (vencimiento anticipado): when the debtor fails to meet his payment obligations, the creditor can claim repayment of the totality of the loan after the expiration of a stipulated time period and initiate mortgage enforcement proceedings. The CJEU's judgment in Aziz gave rise to a debate in Spain as to, among other things, when the debtor's non-compliance was "sufficiently serious" - in the light of the duration and amount of the loan - to justify the creditor's exercise of the right to invoke accelerated repayment (cf. Banco Primus). Since 2013, Article 693.2 of the Spanish Code of Civil Procedure (Ley de Enjuiciamiento Civil; hereinafter LEC) sets the minimum time period that the parties may agree on at 3 months. However, many contracts predating that provision allowed the creditor to invoke the clause after only 1 month. In this respect, it is relevant to know that in Spain, the creditor needs leave from the court to enforce his security rights. Therefore, the question arose how the court should deal with unfair acceleration clauses. Should the mortgage enforcement proceedings - which were based on the clause - be terminated even when the creditor has waited 3 months or longer?

The Tribunal Supremo. (source: informativojuridico.com)

According to the Tribunal Supremo, the answer to this question was negative. As long as the right to invoke accelerated repayment was exercised fairly, the creditor would still have access to mortgage enforcement. The unfair clause would effectively be replaced by Article 693.2 LEC. One of the reasons given by the Tribunal Supremo was that the mortgage enforcement procedure is also more beneficial for consumers. The parties would not have to resort to ordinary proceedings. Thus, consumers would avoid the risk of having to pay high legal costs and default interest.

Some lower courts disagreed with this interpretation, and openly questioned it before the CJEU. They found that an unfair acceleration clause could not be replaced by reference to Article 693.2 LEC. Where the clause was the basis of the mortgage enforcement, the proceedings should be declared inadmissible or suspended; whether the clause had been invoked after 1, 3 or 38 months did not matter. Moreover, the creditor’s chances of success in ordinary proceedings were regarded to be low; this cast doubt on the Tribunal Supremo’s reasoning as to which procedure was actually more beneficial for consumers. Lastly, the referring court in Case C-92/16 wondered whether giving consumer-debtors procedural advantages in one procedure, as opposed to another, was compatible with the EU Charter of Fundamental Rights if it was up to the creditor, not the consumer, to choose between procedural mechanisms and thus, to decide whether or not the consumer could enjoy those advantages.

AG Szpunar: no ‘reparatory revision’ of unfair terms

AG Szpunar disagrees with the Tribunal Supremo's interpretation as well, and refers to Banesto and in this regard. The Unfair Contract Terms Directive imposes a result obligation on the Member States and their national courts to ensure that unfair terms are not binding on consumers. As we have seen in e.g. Gutiérrez Naranjo, this obligation is far-reaching. The Directive does not have 'direct horizontal effect', i.e. it cannot be relied on directly by private parties in 'horizontal' disputes. Yet, "not binding" really means "not binding", and the deterrent or dissuasive effect of the Directive requires that an unfair term cannot be revised or replaced by the court (only in exceptional circumstances, see e.g. Kásler). The acceleration clause must be struck out from the loan agreement, regardless of when it has been invoked by the creditor. The loan agreement will continue to exist without the clause. 'Reparatory revision' is not possible; the clause cannot be substituted with Article 693.2 LEC. That provision cannot be qualified as 'supplementary law', although this is ultimately for the national court to decide. 

A reference to the so-called 'blue pencil test' of the German Bundesgerichtshof does not help either, because the acceleration clause cannot be split up: it would lose its meaning if the unfair parts were to be crossed out. Without the stipulation of a specific time-period, the clause would practically be deprived of its purpose. 

Procedural implications

If AG Szpunar's conclusion is followed, creditors would be sanctioned for including unfair acceleration clauses in their standard terms and conditions by denying them access to the mortgage enforcement procedure. Once the acceleration clause is struck out, there is no longer a basis for enforcement of the entire loan. This would allegedly negate the creditor's security rights, which are crucial for the financial market. Another argument used by the Tribunal Supremo was that this would have economic repercussions. It should nevertheless be noted that the existence of an acceleration clause in the mortgage loan agreement is not a necessary precondition for enforcement (cf. Articles 578 and 693.1 LEC). Without the acceleration clause, the creditor would not be able to claim repayment of the entire loan at once, but he could still claim unpaid instalments due.

Advocate General Szpunar.
(source: curia.europa.eu)

This raises the question whether it is justified that, as soon as the creditor relies on an unfair acceleration clause, he should be denied access to mortgage enforcement. AG Szpunar acknowledges that this constitutes a limitation of the creditor's rights, but not an extinction, if only because the loan agreement remains valid for the rest. From the Directive's point of view, the legal issue is whether the acceleration clause is unfair and should therefore be declared null and void, rather than whether the creditor would have provided the loan without the clause. According to AG Szpunar, it is not relevant whether the mortgage enforcement procedure is more beneficial to consumers. Yet, he illustrates with clear examples that is doubtful if this is indeed the case. The decision should ultimately be left to the consumer herself, who can be informed by the court about (procedural) advantages and disadvantages and then decide if she wants to avail herself of the protection offered to her; see e.g. Banif Plus Bank.

In Cases C-92-/16 and C-167/16, AG Szpunar observes that there is not enough information available to conclude that the Spanish mortgage enforcement procedure in general is incompatible with the Charter or the principle of effectiveness. If it is true that this procedure awards certain procedural advantages, it may be contrary to the principle of effectiveness. The specific characteristics of court proceedings, which are governed by national (procedural) law, cannot constitute a factor that is liable to affect the legal protection of consumers under the Directive.

Lower courts as EU-judges

In Case C-486/16, the creditor - Bankia - had initiated mortgage enforcement proceedings on the basis of an acceleration clause. The court found the clause to be unfair, and refused to grant leave for the enforcement. Pursuant to Article 552.3 LEC, the creditor then has recourse to ordinary proceedings. Instead, Bankia waited more than two years to try again, arguing that this time the non-compliance was sufficiently serious. We understand this second attempt was based on Article 693.2 LEC (not 693.1).
The court in first instance held that the decision in the earlier proceedings had the status of (formal) res judicata; it was final in the sense that it could no longer be appealed. This entailed that Bankia should be denied a second opportunity. The Court of Appeal, however, allowed the enforcement. The case was referred to the court in first instance, which subsequently made a preliminary reference to the CJEU. In line with his Opinion in the Abanca-case, AG Szpunar considers the Court of Appeal's approach to be contrary to EU (consumer) law. He points out that EU law gives lower courts the possibility to make a request for a preliminary ruling (Article 267 TFEU); they are EU-judges as well. National legislation or case law cannot stand in the way of this possibility.

From the perspective of (national) civil procedure, it is quite revolutionary for lower courts to go against the instructions of their own appellate court in the same case. These instructions are, in principle, binding upon the parties and the lower court. It may be seen as problematic if lower courts start to second-guess their appellate courts and/or come to view the CJEU as a second instance, insofar as this undermines legal certainty. Of course, this is not to say that lower courts cannot or should not make preliminary references. It is just to show that the objectives of EU law and national law are not always aligned.

Lower courts and the highest (civil) court of a Member State are both entitled to ask questions to the CJEU. That the Tribunal Supremo was first in the Abanca-case, could not stop the Juzgado de Primera Instancia de Barcelona from making a preliminary reference as well. For the Tribunal Supremo this is a sensitive issue, as it appears to be a direct confrontation by the court in Barcelona. In addition, AG Szpunar's Opinion suggests that the Tribunal Supremo has overstepped its power to give guidance to lower courts as to how to apply national (procedural) law in unfair terms cases. The summary of the Opinion in this blog post does not do justice to its thoroughness, which demonstrates that AG Szpunar is aware of the context in which the CJEU must answer the questions put before it.

Double default: on default interest and default rules

Tuesday 7 August 2018, the last date on the judicial calendar of the CJEU before summer recess, was a busy day. Two of the cases on the dock in which the CJEU gave judgment concerned preliminary references from Spain: Joined Cases C-96/16 and C-94/97 (Escobedo Cortés), discussed earlier on this blog. The judgment relates to, in short, the case law of the Spanish Supreme Court (Tribunal Supremo) on default interest clauses and the Unfair Contract Terms Directive.

Both cases pertained to (mortgage) loan agreements concluded between consumers and banking institutions, containing a default interest clause ("interés moratorio"). This clause entailed that the consumers would have to pay interest rates of 18.50%, 23.50% and 25% respectively in case they were late on meeting their payment obligations. The purpose of this clause was to penalise the debtor's non-compliance, to deter delays in payment and to compensate the creditor in case of such delays.

The Spanish Mortgage Act (Article 114.3) stipulated since 2013 that the maximum default interest rate was three times the statutory interest rate. However, there was still a great degree of divergence in the unfairness assessment of default interest clauses in consumer contracts by Spanish courts, as well as in the determination of the consequences of a finding of unfairness. This resulted in legal uncertainty and arbitrary differences in treatment.
Therefore, the Tribunal Supremo had defined criteria. First, it had examined the national default rules that would be applicable in the absence of agreement between the parties, in order to determine a default rate of interest which could reasonably be agreed to and was not disproportionate. It found that a default interest rate exceeding more than two percentage points of the ordinary interest rate agreed between the parties was unfair. [Note that the criterion is linked to the ordinary interest rate agreed between the parties, not the statutory interest rate.] Secondly, it held that after a finding of unfairness, the increase that the default interest represents (as compared with the ordinary interest) must be eliminated entirely.

The referring courts doubted whether the judicial interpretation given by the Tribunal Supremo was compatible with the Unfair Contract Terms Directive. This had to do with the question whether the judge-made criteria were binding or mandatory on lower courts.
As regards the first criterion, the CJEU concludes that national courts were not deprived of the possibility of considering that terms not exceeding more than two percentage points are still unfair, and have to be set aside; the Tribunal Supremo had merely established an "irrebuttable presumption" (paras 58-59 of the judgment). Yet, as we observed earlier on this blog, there does not seem to be much space for lower courts to deviate from this presumption in an individual case. The CJEU seems to be aware of this, but considers that the Directive is based on the idea that the consumer is in a weak position vis-à-vis her professional counterparty (para 64). The criteria developed by the Tribunal Supremo are consistent with the objective of consumer protection pursued by the Directive. To ensure consistency in the interpretation of law and in the interests of legal certainty, the supreme courts of Member States may elaborate certain criteria for the assessment of the unfairness of contractual terms. The CJEU adds (para 69):

"It follows from Article 3(1) of Directive 93/13 and from the general scheme of the directive that the latter does not so much aim to guarantee an overall contractual balance between the rights and obligations of the parties to the agreement as to prevent an imbalance between those rights and obligations from arising to the detriment of consumers."

As regards the second criterion, the CJEU holds that the Directive intends to restore the balance between the parties by not applying contractual terms declared to be unfair, whilst maintaining, in principle, the validity of the other terms of the agreement at issue. It does not follow that the unfairness of a default interest clause also brings about the unfairness of a clause fixing the ordinary interest (paras 75-76). The case law of the Tribunal Supremo implies that the national court must simply refrain from applying (a) the unfair default interest clause or (b) the increase it represents by comparison with the ordinary interest [NB: there is a significant difference between (a) and (b): a percentage of 0% vs. 8.50%, 11.20% and 4.75% respectively]. The national court cannot substitute supplementary national provisions for an unfair contractual term or revise the term in question (para 78). Thus, the term cannot be replaced by the statutory interest rate that would have applied by default if there had been no agreement.

It could nevertheless be asked whether the criteria formulated by the Tribunal Supremo are sufficiently deterrent. Creditors could be incentivised to increase the ordinary interest rates, with a view to both the 'unfairness' criterion and the 'comparison' criterion, allowing them to claim a higher interest, also in case of default.

Lastly, the CJEU finds the Directive does not apply to business practices consisting in the assignment or purchase of consumer debt, if there is no term in the contract at issue providing for this (para 40). The assignment was made on the basis of a regulatory provision in the Civil Code, which is excluded from the scope of the Directive. Article 1.2 of the Directive extends to national default rules that apply in the absence of other arrangements made by the parties (para 43). The procedural rules in question do not appear to affect the scope of the national court's powers to exercise unfair terms control (para 45). The CJEU does not address the referring court's reference to Article 38 of the EU Charter of Fundamental Rights.
This outcome may be understandable from a purely legal standpoint, but is disappointing from the perspective of consumer protection in respect of the sale of loans; see further our blog on this topic.

* * *

We commented earlier on party names in CJEU case law. It was recently announced that requests for preliminary rulings involving natural persons will be anonymised from 1 July 2018 onwards. This means we will have to refer to this kind of cases in the future as Banco Santander II (C-96/16) or even V (see here, here, here and here for previous cases involving the same bank); or we may need to think of a different system.