Facts of the case
The case involed a Slovak consumer, who concluded a loan agreement with a local bank for the amount of EUR 5 700 at an interest rate of 7.90%. Several months from the conclusion of the contract, the consumer began to default on his/her payments. After appox. 4 months of non-payment, the bank declared the early termination of the term of the loan and demanded the immediate repayment of outstanding ammount along with a default interest as well as an ordinary interest.
The court hearing the case in first instance upheld the bank's action in part. Specifically, the court considered the claim for default interest to be valid, but dismissed the claim for ordinary interest, on the ground that Slovak law did not allow such accumulation. Indeed, national law appears to have posed certain limits on what creditors can claim in the event of consumer's default and the claims put forward by the bank arguably exceeded those limits.
Here is where the case get interesting. In the appeal, the bank decided to invoke the previous judgment of the CJEU in joined cases C-96/16 and C-94/97 Banco Santander and Escobedo Cortés (see our earlier comment here). Specifically, the bank argued that the judgment required national legislation to ensure that a borrower who has failed to fulfil his/her contractual obligations should pay not only default interest but also ordinary interest.
Judgment of the Court
The grounds of the judgment essentialy consist of two parts. First, the Court considered the main legal questions in the case at hand. For the Court, these were actually linked not to the provisions of Articles 6(1) and 7(1) of the UCTD, referenced by the national court, but rather to the Directive's scope. Second, doubts about the consequences of Escobedo Cortés were addressed.
In respect of the Directive's scope, the Court referred to Article 1(2) of the UCTD, which provides that contract terms which reflect mandatory
statutory or regulatory provisions shall not be subject to
the provisions of the Directive. This may not be immediately inntuitive, since controversy in the case at hand was rather that the terms did not reflect national provisions. The well-established reasoning of the Court in respect of Article 1(2), however, turned out to be useful to make a more general point: that it is not the goal of the UCTD to analyse the content of national mandatory
statutory or regulatory provisions, which parties can incorportate into their contracts. It is presumed that national legislature has struck a balance between all of the rights and obligations of the parties to certain contracts, and the UCTD does not intend to interfere with that balance (para. 32). This has to be distinguished from the national provisions relating to the control of unfair terms, whose compliance with the UCTD can be investigated. In the case at hand, however, the contested provisions did not appear to relate to the review of unfair terms and were therefore excluded from the scope of the UCTD (para. 35). Therefore, the Court did not even have to recall that the UCTD is a minimum harmonisation directive.
While this would have sufficed to provide the refering court with useful guidance (that the UCTD was not applicable to the national provisions in question), the Court went on to dispell some doubts related to its previous judgment in Escobedo Cortés. The Court reiterated the context of that case: that it involved an assessment whether national case law that did not prevent the accumulation of interest rates complied with the UCTD. The Court considered that it did; however, it did not follow from that judgment that an accumulation of
interests rates must always be ensured under national law (para. 41). It would indeed be rather odd if a directive that seeks to eliminate unfair terms from consumer contracts were to produce such a result.