General information and a representative example in (mortgage) loan contracts C-85/24

The CJEU was given the opportunity to interpret Directive 2014/17/EU on Mortgage Credit (MCD) in C-85/24 Verein für Konsumenteninformation v BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG.  While mortgage loans are a frequent issue infront of the CJEU, the legal interpretation usually turns on Directive 1993/13/EC on Unfair Contract Terms. This is a rare chance, as far as I am aware, there are only two other cases tackling the MCD. While the judgment was delivered last year, it remains relevant, as there is no more recent case on the issue, and the new Directive 2023/2225 on Consumer Credit (CCD2) contains the exact provision in Article 9(2)(e).

The Austrian bank in dispute offers several credit products to consumers. It provides general information on the products, including in an information sheet. The Austrian Consumer Protection Association brought an action against the bank, asking the court to prohibit the bank from including, in the information sheet only an example of a variable rate credit agreement, without also providing an example of a fixed rate credit agreement and an example of a mixed rate credit agreement, since it offers those three types of interest rates for those credit agreements. The bank argues that the information sheet does not seek to provide consumers with detailed pre-contractual information tailored to individual cases and specific customers. In its view, it cannot be required that a separate example be included for every conceivable form of interest rate in that information sheet.

The legal question for the CJEU was whether Article 13(1)(g) of MCD must be interpreted as meaning that a creditor who offers credit agreements, whether or not secured by a mortgage, at a fixed interest rate, at a variable interest rate or with alternating variable interest rate and fixed interest rate periods, must provide a representative example for each of the three types of credit agreements offered?

Article 13 (1) of MCD entitled ‘General information’, provides ‘Member States shall ensure that clear and comprehensible general information about credit agreements is made available by creditors’. Such general information shall include at least the (g)  a representative example of the total amount of credit, the total cost of the credit to the consumer, the total amount payable by the consumer and the annual percentage rate of charge.

The CJEU noted that the MCD establishes a two-level mandatory information system. The first level consists of ‘general information’, referred to in Article 13 MCD. According to Recital 38, that information should enable consumers to make their decisions in full knowledge by ‘educating [them] in relation to the broad range of products and services available and the key features thereof. Consumers should therefore be able at all times to access general information on credit products available’. The second level of information consists of the ‘pre-contractual information’ in Article 14 MCD, which includes ‘the personalised information needed [by consumers] to compare the credits available on the market, assess their implications and make an informed decision on whether to conclude a credit agreement.’ Thus, the purpose of ‘general information’ is not to provide consumers with detailed explanations tailored to each type of credit agreement offered by the creditor and to each individual case; such explanations must be communicated to them under the ‘pre-contractual information’. They are intended only to inform consumers in the preliminary stage of their credit search.

The CJEU also addressed the question of what constitutes a representative example. In that regard, Recital 53 of MCD is helpful. It explains that ‘when determining the representative example, the prevalence of certain types of credit agreements in a specific market should be taken into account. It may be preferable for each creditor to base the representative example on an amount of credit which is representative of that creditor’s own product range and expected customer base, as these may vary considerably among creditors.’ The CJEU then clarified that ‘in assessing the representative nature of the example to be provided, some factors may be taken into consideration, namely, for example, the average duration and total amount of credit granted for the type of credit agreement under consideration and the prevalence of certain types of credit agreements in a specific market.’ Regarding the annual percentage rate of charge on the information sheet, the consumer's preferences and the information provided should, where possible, be taken into account, and the creditor or credit intermediary should make it clear whether the information provided is illustrative or reflects the preferences and information given. In any event, the representative examples should not contravene the requirements of Directive 2005/29/EC on Unfair Commercial Practices.

Using literal, contextual and teleological interpretations, the CJEU concluded that the practice of creditors who provide different types of credit products is compliant with the requirements of Article 13 Article 13(1)(g) of MCD if they provide by way of general information, only one example of the loans on offer, provided that that example is representative.

Fairness of indexing benchmarks in variable rate loans C -471/24

In a recent judgment delivered on 12 February 2026  in C-471/24 J.J.  v PKO BP S.A., the CJEU delivered further important interpretation on matters affecting loan contracts in variable rates. 

In this Polish case the consumer concluded a mortgage loan contract with variable rate of interest, which was calculated on the basis, first, of the WIBOR 6M benchmark, an interest rate benchmark, within the meaning of Article 3(1)(22) of Regulation 2016/1011, the value of which was set at 1.79% on the date of conclusion of that agreement, and, secondly, of a fixed margin of 1.85%, the applicable rate being adjusted to reflect changes in that index on a six-monthly basis.

As the consumer alleged the unfairness of the term, this gave new opportunities to the CJEU to interpret Directive 1993/13/EC on Unfair Contract Terms.

With the first question, the CJEU was asked whether the term setting out the variable rate of interest can be assessed for its fairness under Article 1(2), given the influence of Regulation 2016/1011, which would qualify a term as one that reflects ‘mandatory statutory or regulatory provisions’.  First, the CJEU importantly noted that although Article 1(2) relates to statutory or regulatory provisions of Member States and not EU law, as stated Recital 13 of the Directive the  'the provisions contained in acts adopted by the EU legislature in the form of regulations must be treated, in that regard, in the same way as the statutory and regulatory provisions of the Member States, in view of the effects of those regulations as laid down in the second paragraph of Article 288 TFEU, where such provisions of EU law seek, in the same way, to determine in a mandatory or supplementary manner the rights and obligations of the parties to certain contracts. The rationale for the exclusion established in Article 1(2) of Directive 93/13, …is, in principle, legitimate to presume that the national legislature struck a balance between all those rights and obligations, a balance which the EU legislature intended to preserve ... also applies where those rights and obligations are determined directly by the EU legislature itself.' (paras 73 and 74).

In answering the first question, the CJEU confirmed its earlier ruling in C-176/23 (see our report here), that '[a]rticle 1(2) must be interpreted as meaning that the exception provided for therein does not cover a term in a mortgage loan agreement stipulating a variable interest rate based on a benchmark, within the meaning of Regulation 2016/1011, and a fixed margin, where the statutory or regulatory provisions applicable to such a term merely establish a general framework for the setting of the interest rate for such contracts, while leaving it open to the seller or supplier to determine the contractual benchmark or the fixed margin which may be added to the value of that index'. 

The second question related to whether a term in a mortgage loan agreement with a variable rate of interest based on a benchmark could be the main subject matter and, as such, exempted from the scrutiny of fairness based on Article 4(2).   According to Article 4(2) the assessment of the unfair nature of the terms may relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other hand, in so far as those terms are in plain, intelligible language. The question, therefore, here was the interpretation of the meaning of plain and intelligible in this context; whether where a mortgage loan agreement contains a term stipulating a variable interest rate based on a benchmark, within the meaning of Regulation 2016/1011, the transparency requirement arising from that provision imposes on the creditor certain specific obligations to provide information as regards the methodology of that index. The claimant alleged that the bank did not provide reliable, intelligible and complete information concerning the risk associated with the application of a variable interest rate and the mechanism for determining the WIBOR 6M benchmark, in particular as regards the influence that the banks providing the input data which was used to set that benchmark; the banks participating in setting the benchmark, including PKO, could exert influence on the benchmark; the input data did not come from transactions actually carried out on the Polish interbank market, but of price offers made on that market, which conferred discretion on the contributors to the benchmark.

The CJEU reiterated its previous position that in this context the transparency requirement must be understood as requiring an average consumer, who is reasonably well-informed and reasonably observant and circumspect, is in a position to understand the specific functioning of the method used for calculating that rate and thus evaluate, on the basis of clear, intelligible criteria, the potentially significant economic consequences of such a term on his or her financial obligations (para 86). Moreover, compliance with the requirement of transparency must be assessed in light of all relevant facts, including not only the terms contained in the agreement concerned but also the promotional material and information provided by the lender during the negotiation  (para 87). Therefore, ‘[a]ccount should also be taken of the fact that the main elements relating to the calculation of a contractual reference index are easily accessible, on account of their publication, on condition that, in the light of the publicly available and accessible information and the information provided, as the case may be, by the lender, an average consumer, who is reasonably well informed and reasonably observant and circumspect, was in a position to understand the specific functioning of the method used for calculating the variable interest rate, in particular in so far as it involves a reference index, and thus to assess, on the basis of clear, intelligible criteria, the potentially significant economic consequences of such a term on his or her financial obligations (para. 88).

Moreover, in order to assess whether a term in a loan agreement which falls within the scope of Article 4(2) satisfies the requirement of transparency imposed by that provision, it is appropriate to take into consideration all the provisions of EU law laying down obligations relating to information for consumers which may be applicable to the agreement concerned. The CJEU then examined information duties in Directive 2014/17/EC and Regulation 2016/1011, and concluded that these read together, lay down precise obligations to provide information to consumers as regards, first the terms of mortgage loan agreements setting a variable interest rate referring to a benchmark covered by that regulation and, second, the benchmarks, and that those obligations are divided between the creditors and the administrators of those benchmarks (para 101). The CJEU concluded that ‘the transparency requirement arising from Article 4(2) does not impose on the creditor certain specific obligations to provide information as regards the methodology of that benchmark. The fact that the creditor has complied with all the obligations to provide information imposed on it by Directive 2014/17 in respect of such a term and, if it has provided additional information, has not provided any information giving a distorted picture of that benchmark is such as to establish that that creditor has satisfied that requirement of transparency as regards that term.’

The third question called for interpretation of Article 3(1) in this context, according to which a contractual term which has not been individually negotiated is to be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. The question here was whether the very way the benchmark is determined renders the term substantively unfair. The claimant argued that the way the benchmark is determined allows PKO to influence the benchmark and, in turn, the borrower's interest payable. The banks thus afford themselves a ‘hidden margin’ (para 107).

The CJEU noted that Regulation 2016/1011 contains a set of detailed provisions on benchmarks, including the provision of input data, in particular as regards the nature of those data and their reliability, and the use of those benchmarks. Consequently, ‘the use, in a mortgage loan agreement, of a benchmark which, at the time that agreement is concluded, may be regarded as complying with the requirements of the framework established by Regulation 2016/1011, in particular as regards its methodology, in the light of the control provided for by that regulation, cannot, in principle, be, in itself, such as to create, to the detriment of the consumer, a significant imbalance in the parties’ rights and obligations, notwithstanding the fact that the creditor is one of the banks which provide the input data used by the administrator of that index to determine its successive values’ (para. 129).

The answer to the third question is that Article 3(1) must be interpreted as meaning that, 'the lack of information on the part of the consumer concerning certain specific features of the contractual benchmark, in particular the fact that its methodology provides for the use of input data which does not necessarily correspond to actual transactions and the fact that the creditor is one of the banks contributing to the determination of that index' - those specific features themselves are not such as to render that term unfair, provided that that index could be regarded as consistent with that regulation at the time of the conclusion of that contract.

Polish bankruptcy law fails consumers with unfair loan terms - CJEU in Wiszkier (C-582/23)

Photo by Towfiqu barbhuiya on Unsplash

In July 2025, the CJEU issued a judgment in Wiszkier (C-582/23), concerning a Polish case involving a consumer mortgage loan indexed to Swiss francs. In this instance, the consumer had to declare bankruptcy after being unable to meet, among other obligations, their mortgage payments. Although the bankruptcy court found that the contract potentially contained unfair terms, raising the possibility of the contract being null and void, Polish law prohibits this court from examining this issue further. Under Polish law, even if the unfairness of contract terms had not been previously raised by the consumer, the bankruptcy court is only competent to approve or reject a repayment plan based on a list of claims drawn up by the trustee (paras 26-27). At most, the court may stay the proceedings and refer the unfairness' matter to another competent, supervisory authority (paras 29 and 45). 

Unfairness assessment by the bankruptcy court 

Decision: Incompatibility with EU law. Unsurprisingly, the CJEU found Polish law incompatible with EU law. Specifically, it held that the Unfair Contract Terms Directive precludes national provisions that prevent a bankruptcy court from examining the unfairness of contract terms in a loan agreement underlying a claim included in the list of claims, or from amending that list, where no such assessment has been conducted by the authority preparing the list (para 58).

Although EU law leaves enforcement of consumer protection rules against unfair contract terms to the Member States, such national rules must comply with the principles of equivalence and effectiveness (para 40). The CJEU found that the principle of effectiveness was violated in this case. While Polish law allows a bankruptcy court to stay proceedings so that a supervisory court may assess the potential unfairness of contract terms, this process introduces delay and exposes consumers to further financial hardship. During the stay, the bankrupt's salary continues to be withheld by the bankruptcy estate, which may discourage consumers from raising objections based on unfair terms (para 46). Notably, monthly repayments set in bankruptcy proceedings are often lower than the salary amounts withheld during the proceedings (para 47), exacerbating the financial strain. Moreover, in this case, although the consumer had acknowledged all the claims listed by the trustee, this was done without legal representation and likely without understanding that an unfairness objection could be raised (para 52). The consumer only raised this issue. through legal counsel, once the case reached the bankruptcy court (para 53). The CJEU clarified that it is irrelevant whether the list of claims has become res judicata (para 55).

Interim measures by the bankruptcy court

Decision: The CJEU further ruled that national law must enable bankruptcy courts to grant interim measures to protect consumers while the fairness of a claim included in the list is under judicial review.

The Court reiterated that ensuring effective consumer protection against unfair terms may require granting interim measures, for example, adjusting monthly instalments during prolonged proceedings to prevent consumers from being forced to pay more than the amount actually due if the unfair terms were ultimately invalidated (paras 67-68). As noted by the referring court, the fear of higher interim payments to the bankruptcy estate may deter consumers from raising unfairness objections altogether (para 69). The court responsible for granting interim measures must consider: "whether there is sufficient evidence that the contractual terms concerned are unfair, whether there is a real possibility that the bankruptcy estate is already sufficiently funded to satisfy the creditors, with the exception, as the case may be, of the claim concerned, as well as the bankrupt's financial situation and the risk of that person having to endure a prolongation of the bankruptcy proceedings which could result in an unwarranted deterioration in his or her financial situation pending the conclusion of those proceedings." (para 71)

A milestone for Polish consumers claiming unfairness of Swiss francs mortgage loans - CJEU in Lubreczlik (C-396/24)

Yesterday, the CJEU issued a new judgment in the Swiss franc mortgage loans and their unfair contract terms saga, following a referral from a Polish court, in the case known as Lubreczlik (C-396/24). The referral was based on two cases, in which consumers concluded mortgage loans indexed to the Swiss franc rate. In both cases consumers claimed repayment of sums they had paid to the bank on the basis of their mortgage contracts being void due to unfair contract terms they contained. The bank counterclaimed seeking that consumers paid the full loan amount back to the bank. 

Previously, the Polish Supreme Court issued a judgment with a so-called 'two claims' theory (see declaration III CZP 11/20 from 16 February 2021 - in Polish here). This theory acknowledged that after a loan agreement is declared invalid, both parties (consumer and lender) have a right, "distinct and independent of each other, to repayment of monetary payments made in performance of that agreement. Each of the parties could therefore claim full repayment of the sums paid, whether or not it is still a debtor of the other party and regardless of the amount of its own debt" (para 26).

Imagine now situations (very common in practice), in which consumers have already paid the whole amount of their loan to the bank, or even paid to the bank sums exceeding the total loan value, on the basis of high interest rates. While waiting for their claims of unfairness to be adjudicated by Polish courts or the judgments to become final and the bank to return their money to them, they receive a lawsuit from the bank for the repayment of the full amount of the loan. Often, such a (de facto, repeated) repayment would either be financially impossible or significantly detrimental to consumers (even if made in the expectation of the eventual repayment by the bank of the same or higher sum of money) (para 27). Further procedural rules make it also feasible that any repayment by a consumer of the money to the bank will be immediately enforceable, while the bank's obligation to repay the consumer may take a long time to reach that stage (para 32). Consumers could theoretically argue for a set-off of reciprocal claims, but Polish procedural rules make such a declaration complex and not necessarily favouring consumer interests (para 28).

Repayment of the loan amount by a consumer

The CJEU leaves no doubt that Polish (case) law may not allow banks to claim repayment of the full loan amount, regardless of the value of repayments already made by consumers in performance of the loan agreement and "irrespective of the amount remaining due" (para 44). The CJEU recalls the need for the Member States to ensure that the national protection against unfair contract terms is a deterrent for sellers and suppliers against embedding such terms in their contracts (para 38). Further, national law needs to protect consumers against the detriment of having their contract's annulled as a result of them containing unfair contract terms (para 39). These obligations may result in Polish courts being required to "change established case-law", if following such national case law would lead to undermining EU consumer protection's objectives (para 43).

Polish courts should then disregard the Polish Supreme Court's theory of "two claims" in assessing the banks' claims for repayment of the full amount of loan by consumers, if consumers already had paid back at least part of the mortgage loan to the bank. This should mean in practice that banks claims filed against consumers should be scaled down in consideration of the actual repayments that consumers have already made. Strategic litigation by banks against consumers for the repayment of full loan amounts becomes much more risky as a result of this judgment.

Immediate enforceability of consumer repayments

The CJEU also addressed the matter of Polish courts being required to award of their own motion immediate enforceability to repayment claims made by banks against consumers, if consumers accepted such claims (and they may have good reasons to accept them - see para 51 of the judgment for more information). The Court considers also this practice contrary to EU consumer protection objectives, as long as Polish courts are not allowed to consider in their decision-making detriment to the consumer that such an immediate enforceability order would have (para 58). 

This part of the CJEU's judgment protects consumers against the immediate need to repay the money to the bank, which could have dissuaded them from progressing with their unfairness claims.

Overall, this judgment raises financial risks for these banks that were not keen so far to settle consumer cases and which have used various intimidation tactics to dissuade consumers from pursuing their claims. It may also lead to banks proposing more beneficial settlements to consumers and encourage consumers to negotiate settlement terms.

One size fits all? Average consumer in collective proceedings, CJEU in C‑450/22

 Dear readers, 

it is with genuine excitement (albeit with some delay) that I type out some thoughts in reaction to a very rich new decision by the CJEU, namely Caixabank and others of 4 July 2024 (C‑450/22).

This case is, shockingly but not incredibly, yet another instalment in the floor clauses saga that we have so often written about. It is especially salient, however, both in that it delivers additional insight in the relationship between the national and European dimensions of the story, and in that it decides important points of law in the still relatively underdeveloped area of collective proceedings. 

Our readers will remember the story: in 2013, the Spanish Tribunal Supremo (TS) declared that commonly used “clausolas suelo”, or “floor terms” which made sure that interest rates in variable interest rate mortgage contract would, counterintuitively, never change below a certain minimum rate – were unfair. The case subsequently reached the CJEU when the same TS tried to limit in time the effects of its judgement - which the CJEU (in its 2016 Gutiérrez Naranjo case) decided it was not the TS's call to make. Years later, the controversy is not over since affected consumers are still trying to recover unduly paid interests.

What was this specific preliminary ruling application about, though? The TS was invested with questions of law concerning a very large cease-and-desist cum damages lawsuit against, eventually, circa one hundred banks. The dispute followed declarations that floor terms included in many contracts were non-transparent and unfair under the Spanish rules implementing the Unfair Terms Directive. Spanish courts had previously found that this unfairness occurred, in particular, when the terms considered were presented in particularly misleading ways - hidden, framed by terms that looked like they reduced their impact, and so forth. The defending banks, however, questioned the rather wholesale application of the transparency test - was it not supposed, according to the UTD and CJEU case law, to be carried out having in mind the specific circumstances of each individual case? How could it be applied, in collective proceedings, to clauses in different contracts, offered to different customers, with different variations of the overall contract drafting?

This question was asked at two levels: first, as to whether in general the idea of collective proceedings for transparency did not clash with the possibility to assess on a case-by-case basis; second, whether in the specific case of this dispute, concerning contracts offered to very different segments of the consumer mortgage markets, it would not be misplaced to apply the same "average consumer" standard to assess all the concerned terms. Ex ante, the first question would have looked moot to an informed observer; the second seems to me less obvious, even though the Court seemed to find it relatively easy to answer. We will look at those questions in order. 

In the first question, the court had to consider whether transparency assessment under the UCTD could be carried out "in the context of a collective action brought against a large number of sellers or suppliers operating in the same economic sector, and concerning a very large number of contracts."

In answering this question, the Court acknowledged that in individual proceedings, assessing whether a term meets the transparency requirement requires considerations of the circumstances surrounding the conclusion of the individual contract. This specific feature of the assessment can obviously not be transposed to collective proceedings. The rest of the test, however, can be transposed. In this sense, national courts will have to assess

"in the light of the nature of the goods or services which are the subject matter of the contracts concerned, whether the average consumer, who is reasonably well informed and reasonably observant and circumspect, is in a position, at the time the contact is concluded, to understand the functioning of that term and to evaluate its potentially significant economic consequences. To that end, that court must take into account all the standard contractual and pre-contractual practices followed by each seller or supplier concerned, including, in particular, the drafting of the term in question and its position in the standard-form contracts used by each seller or supplier, the advertising employed for the types of contract concerned by the collective action, the dissemination of generalised pre-contractual offers aimed at consumers and any other circumstances which the court might consider relevant in order to exercise its power of review with regard to each of the defendants"

The national court, thus, will have to apply the average consumer test to a range of different practices and different actors. This can make the litigation complex, but, according to the Court, does not make collective proceedings non-viable as long as they meet the two requirements set in the directive's article 7(3), namely that they concern similar terms used or recommended by operators or associations of operators in the same sector. A different interpretation would plausibly undermine the whole construction of collective proceedings under the provision. 

So far, so good. The next part of the answer, however, may prove a bit trickier in the future. The second question, the Court said, required essentially to consider whether the average consumer, "who is reasonably well informed and reasonably observant and circumspect" can be used as benchmark to assess the transparency of a term (or similar terms) used in multiple contracts "where those contracts are aimed at specific categories of consumers and that term has been used for a very long period of time during which the degree of awareness of that term was developing." (para 47)

In the case under consideration, the referring court had observed that the concerned contracts had been concluded, over a long period of time, by "consumers who had taken over mortgage loans concluded by real estate developers, consumers coming under social housing finance programmes or public housing access programmes according to certain age brackets, or consumers who had obtained loans under a special scheme on account of their profession" (para 51). 

According to the CJEU, however, it is "exactly the heterogeneity" of the public concerned that makes recourse to the "legal fiction" of the average consumer necessary in order to be able to assess the terms in collective proceedings. (para 52). In contrast, it is possible that different assessments concerning the transparency of a term at the time of concluding the contract could have to be made because of supervening events alerting the general public to the significance of certain terms - here, the floor clauses. National courts can take this into account, to the extent that such a change in perception could be documented on the basis of "concrete and objective evidence" rather than "inferred from the passage of time alone" (para 55).  The judgement recalls that, during oral proceedings, the objective event or matter of common knowledge could consist in the collapse in interest rates, characteristic of the 2000s, which led to the application of the floor clauses and therefore to consumers becoming aware of the economic effects of those clauses, or in the delivery of judgment No 241/2013 of the Tribunal Supremo (Supreme Court) of 9 May 2013, which found that those clauses were not transparent" were suggested as possible relevant moments - it is then for the referring court to ascertain whether such events would have led to a change "over time, in the level of attention and information of the average consumer at the time a mortgage loan agreement was concluded." (para 56). 

The follow-up of this case will be interesting to observe for at least two reasons: on the one hand, the question of what specific developments can be considered to have generated a change, in the degree of attentiveness, alertness or information, relevant to how an average consumer would have understood a certain clause requires a degree of fact-finding that is partially at odds with the abstracting ideal of the average consumer. It also leaves national courts, and potentially lower courts, considerable leeway – especially given the limited reviewability of matters of fact in many jurisdictions. 

 

Second, while instrumental to an overall logical conclusion here – safeguarding the Directive’s explicit indication that collective proceedings should not be confined to entirely homogeneous terms and contracts – the idea that the target consumer doesn’t matter for applying the average consumer test seems to contradict the spirit of the Unfair Commercial Practices directive, which the average consumer notion is ultimately borrowed from. In that context, namely, article 5(2) declares unfair a practice that is likely to affect the economic behaviour of the average consumer or “the average member of the group when a commercial practice is directed to a particular group of consumers” -the so-called “targeted consumer” benchmark. Why would the referring court not be expected or be able to consider these different targeted consumers? Besides being potentially at odds with the UCPD, this insistence on abstraction seems to contradict the Court’s insistence that national courts can distinguish between what average consumers would understand before a certain event and what they would understand thereafter: if empirics matter in this case, why not with reference to targeted consumers?

Don't know about you, but I will be taking this question with me into my holidays! Hopefully many interesting developments to comment on after the summer break. Stay tuned 

Consequences of unfair core terms - CJEU in mBank (C-140/22)

Last Thursday the CJEU issued a new judgment in the saga of Swiss francs mortgage loan contracts (C-140/22 - there is no English language text available yet). It was a Polish court who asked for a clarification of a few issues related to voiding such contracts as a result of them containing an unfair contract term, the removal of which would not enable the contract to remain in force.

Declaring unfairness 

The CJEU recalls its past judgment emphasising the obligation of national courts to assess (un)fairness of contract terms and ensure that any finding of unfairness results is fully remedied (Karel de Grote-Hogeschool Katholieke Hogeschool Antwerpen C-147/16 - with our comment - and Abanca C-70/17 - with our comment) (paras 53-55). Previous case law mentioned that consumers could, however, object to national courts attaching all the consequences resulting from finding of an unfair contract term, pursuant to the UCTD. Namely, when consumers are informed by courts about the presence of an unfair contract term in their contract, they could then decide, while fully informed, to still be bound by that term, which would give effect to the freedom of contract  and the UCTD's protection (para 57). The CJEU rightly emphasises now that this right for consumers to object to courts applying the UCTD provisions should not be interpreted as placing an obligation on consumers to declare that they do not object to the UCTD's application (para 56). This could deter consumers from benefiting from the scope of the UCTD's protection and further discourage traders from agreeing to consumers' out-of-court settlement claims (para 61). The CJEU reminds also that even if consumers are not present at court, the CJEU has an obligation to ex officio assess the unfairness of a contract term and apply the consequences following from the UCTD (para 60).

In short, the CJEU decided that the Unfair Contract Terms Directive should not be interpreted by national courts as requiring consumers to declare: 1) their consent to voiding an unfair contract term; 2) their awareness of the consequences that this voidness would have (voiding the whole contract); and 3) their consent to voiding the whole contract.

Financial consequences of unfairness

The CJEU recalls that when a mortgage loan contract is declared void, due to the finding of an unfair core term, consumers should only reimburse the bank by the amount of a borrowed loan, and possibly also statutory interest if they delay this reimbursement (para 62; also Bank M, C-520/21 - see our comment). Any further claims for reimbursement by banks would limit the deterrent effect of the UCTD (para 63).

Consequently, if as the result of finding an unfair core contract term the entire mortgage loan contract is voided, the UCTD prohibits national courts from calculating the impact of that voidness in a way that deducts from the consumer compensation of loan amounts paid to the bank, amounts of interest that the bank would have received if the contract remained in force.

New EU Commission study on consumer over-indebtedness

At the end of September, the EU Commission published a new, comprehensive, and timely Study on European consumers' over-indebtedness and its implications. The study takes a muti-disciplinary approach aiming to get a clear and updated picture of over-indebtedness among European households and consumers.

The aim of the study was broken into five distinct tasks:

• obtain a granular and updated mapping of the situation of over-indebtedness among European households and consumers in all 27 EU Member States 

• gather improved knowledge of the perspectives, perceptions, and challenges of EU consumers in relation to over-indebtedness, including in light of whether or not they have personally experienced it and their knowledge of financial matters 

• collect more, and more precise, information about the macro-economic drivers of over-indebtedness and their short-, medium- and long-term impact, including an analysis of the impact of the COVID-19 pandemic, as well as recent energy price shocks and rising inflation 

• provide an in-depth legal analysis of concrete interactions between EU and national rules and provisions covering consumer credit, mortgage credit, and other contiguous matters

• conduct a behavioural experiment focused on assessing the capacity of households and consumers to make informed and optimal credit choices.

With almost 300 pages of empirical data, behavioral experiments, legal analysis, and literature review, this study could be useful for everyone working or interested in the area of financial consumer law.

Suspending payments of monthly loan instalments for consumers awaiting finding of unfairness - CJEU in Getin Noble Bank (C-287/22)

Photo by Towfiqu barbhuiya on Unsplash

On June 15th, aside the Bank M judgment (see our previous comment here), the CJEU addressed Polish law implementing the Unfair Contract Terms Directive also in the case Getin Noble Bank (C-287/22). Also in this judgment the CJEU chose for a consumer-friendly interpretation of the UCTD, precluding national courts from dismissing a consumer's application for the grant of interim measures (namely, a suspension of the payment of the monthly instalments due under a loan agreement) when a decision on the invalidity of the loan agreement, due to unfairness of its terms, is pending. Such interim measures should be granted by national courts, if this is necessary to ensure 'the full effectiveness' of the invalidity decision. 

Polish consumers in the given case claimed unfairness of terms in a loan agreement converting the loan amount into Swiss francs at the purchase rate fixed by the bank, with monthly instalments repayable in Polish zlotys at the Swiss francs sale rate, also unilaterally fixed by the bank. What interests us, and the courts, however, is that in their claim they asked for the following interim measures being granted: 1) suspension of the obligation to pay monthly instalments until the final judicial decision; 2) prohibiting the bank to issue consumers with a notice of termination; 3) prohibiting the bank to publish any information that the applicants are in default on their loan payments during this time. The first sought measure could help with the improvement of the financial situation of consumers, who are likely to await the first court's decision for min of 2-3 years (para 53). The second measure would prevent the bank from taking punitive measure as a result of consumers' pursuing their claims. The third measure would not allow the bank to tarnish consumers' credit score.

Polish law allows to grant interim measures only when there is a 'legitimate interest' of the applicants in them, which amounts to showing that "the failure to grant interim measures would prevent or seriously impede the enforcement of the forthcoming judgment in the main proceedings or the achievement of the purpose of the proceedings in that case" (para 19). Polish courts have so far not been willing to recognise the existence of such an interest in Swiss francs loan cases, due to either of the following: 1) invalidity of a contract as a result of unfairness not leading to enforcement; 2) the need for interim measures to help avoid consumer harm, which could e.g. occur if the bank was in a poor financial situation; 3) consumers possibly being required to repay the loan capital when unfairness and invalidity is declared, which means that their continued payment of monthly instalments would be beneficial to them, limiting the final repayment amount (para 20).

The CJEU first refers to the past judgment in Aziz case (see our comment on it here), recalling that it already precluded national law from not allowing to grant interim measures to consumers awaiting a declaration of unfairness (and its consequences), when interim measures were necessary to ensure that the final national judgment is effective in protecting consumers (para 41). In Aziz case the interim measures were related to staying enforcement proceedings when consumers defaulted on paying their mortgages, which in Spain led to accelerated proceedings of mortgage enforcement.

Further, it reminds that in the case Fernández Oliva and Others (joined cases C-568/14-570/14 - see here) it considered granting of interim measures as necessary to protect consumers from the risk of paying higher than necessary monthly instalments during lengthy judicial proceedings (para 42).

As, pursuant to Polish law, consumers may only claim repayment of monthly instalments already paid at the moment of bringing an unfairness claim to court, this means that without the interim measures, they would need to bring a second claim to courts after succeeding in the first one (para 22). They would also be obliged to pay legal costs for the second time (para 50). The CJEU highlights that such an application of Polish law would make at least partially the forthcoming final decision ineffective, as it would "not have the effect of restoring the legal and factual situation of that consumer in the absence of that unfair term" (para 48).

Importantly, it is up to national courts to consider how likely the finding of unfairness is in a given case. If there is sufficient evidence of unfair terms, the removal of which could lead to invalidating the contract, plus there is evidence that consumers are likely to overpay banks without courts granting interim measures - the latter should be awarded (para 59).

Consumers' income and mortgage loans: the CJEU in C-778/18

Last week the CJEU delivered its judgment in C-778/18 Association francaise des usagers de banque v Ministre de l'Economie et des Finances, interpreting Directive 2007/64 on Payment Services as repealed by Directive 2015/22366, Directive 2014/17 on Mortgage Credit and Directive 2014/19 on Payment Accounts.

This judgment answers a very interesting question on a practice that may be common in some Member States: is it compliant with EU law to require the transfer of consumers' income to the mortgage provider as a condition for approving their mortgage loan applications? 

The facts

This claim was initiated by a consumer association representing banking clients. It sought annulment of the relevant French law implementing the above directives on grounds of misuse of power. The organization explained that the law disregards the objective of customer mobility pursued by the directives because it authorizes credit institutions to require consumers to deposit their salaries or other income with them and fixes the maximum period of 10 years for which consumers can ripe advantage of such deposited money irrespective of the amount, maturity and duration of the loan they were applying for.

The scope of Art. 12(2)(a) Directive 2014/17/EU

The CJEU was in effect faced with interpretation of the scope of Art. 12(2)(a) Directive 2014/17/EU. This provision provides an exception from the general rule of the Directive in Art. 12 that prohibits tying practices. The exemption in Art. 12(2)(a) provides creditors with an option to request from consumers or their family members to 'open or maintain a payment or a savings account, where the only purpose of such an account is to accumulate capital to repay the credit, to service the credit, to pool resources to obtain the credit, or to provide additional security for the creditor in the event of default'. Given this exemption, the CJEU noted that the obligation to deposit income is in principle consistent with the Directive (para. 54). However, the CJEU goes on to clarify that the exemption must comply with the requirements of proportionality, that is, it should provide account of the characteristics of the loan concerned, its amount, maturity and duration (para 56). Any different interpretation would jeopardize the achievement of the objectives of the Directive to provide a high level of protection for consumers, and to secure consumer mobility between banks, especially in circumstances when consumers wish to conclude a number of loans with different lenders. Tying them to a single bank would stand on the way of having an opportunity to shop around and  make informed decisions for better deals. The CJEU therefore concluded that Art. 12(2)(a) must be interpreted to preclude national legislation that allows lenders to grant loans conditional on the deposit of all borrowers income on the payment account opened with the creditor (para 58).  In regard to the duration of this obligation to have the account opened with the mortgage lender, the CJEU highlighted that the Directive does not provide  any limitations as to the duration of the loan, and in principle therefore, this requirement is not inconsistent with the Directive, as long as the purpose of the deposit/account complies with the requirements set out in Art. 12(2)(a) (para. 61).

The meaning of ‘charges’ or ‘fees’ in Directive 2007/64, Directive 2015/2366 and Directive 2014/92 

The second question raised in this case related to the meaning of 'charges' and 'fees' within Directive 2007/64, Directive 2015/2366 and Directive 2014/92. To promote consumer mobility and account switching, these rules provide consumers with a freedom to terminate framework contracts such as a current account contract without being liable to pay compensation in the form of fees or charges. French law however provides that if borrowers case to satisfy the income deposit requirement, lenders may terminate for remainder of the duration of the mortgage loan any individual advantages that were conferred on consumers, for instance, a better interest rate. The question infront of the CJEU was whether this denial of the benefit can be understood as a fee or charge within the meaning of the above directives. The CJEU ruled that it cannot.

Our evaluation 

This judgment tackles a very interesting legal question. However, in addition to the bank account being extra security for the provided loan, another important aspect of transferring income in the mortgage provider bank is not considered in the judgment. Namely, not only that consumers' incomes provides additional security for banks that loans are going to be or at least they can be repaid, it also provides banks with additional data on customers. This enables banks to pull on a larger amount of data for profiling customers and monitoring their behavior. On the one hand, this may be beneficial for consumers, data could help banks to identify problems in repayment and income stream of the customer and address this with early intervention measures such as payment holidays. On the other hand, this additional information can help banks to provide new products to consumers that are tailored to their behavior and needs, that are arguably more likely to be taken by consumers than any products or services that does not suit them as much. The use of big data in banking is still in its infancy but having a bank account certainly provides extra opportunities for banks to get to know their customer, and represent a potential for extra profit. Perhaps this aspect could have also been taken into account in shaping the concept of fees and charges in the present context.