In September 2021 the CJEU delivered an important judgment on the interpretation of the creditor's duty to inform and the associated consumer's right of withdrawal in Directive 2008/48/EC. Unfortunately, the judgment took a while to be published in English, and therefore we only managed to create this note now. The judgment remains relevant, also in light of the new Proposal (on which we reported here), which contains equivalent provisions in Articles 21 and 26.
The judgment concerned C-33/20, C-155/20, and C-187/20 joined cases involving consumer credit and further shaped the content and application of Article 10(2) and Article 14(1) of the Directive.
In terms of Article 10, the judgment is fairly technical with answering very specific questions on the content of the credit agreement, adding to the already detailed content of Article 10. The CJEU in this judgment specifies for instance that the contract must state clearly that it is concluded for a fixed term and that the contract does not need to set out all the situations provided by national law in which the contracting parties can terminate the contract. Particularly interesting are two interpretations provided by the CJEU:
On Article 10(1)(l) under which credit agreements must state in a clear and concise way the applicable rate of late payment interest at the time of contract conclusion, the arrangements for adjusting the rate, and any charges payable at default, the question was, in what way should the rate of interest be indicated. In the issue at hand, the contract said that the rate of interest will be 'five percentage points above the relevant base rate'. While the relevant base rate is fairly easy to determine, the CJEU did not agree with this formulation, they reasoned that this is the formula provided for calculating the rate of interest. In order to fully inform consumers, the contract must state the rate of interest in a specific percentage, similar to how the borrowing rate and the annual percentage rate of charge must be presented. In addition to expressing the late payment interest in a percentage then, the contract must also specify the way in which this rate is adjusted, enabling an average, reasonably observant, and circumspect consumers to determine and understand the arrangements for varying the late payment interest. In order to achieve this, two conditions must be satisfied: first, the method of calculation must be set out in a way that is readily understood by an average consumer who does not have specialist knowledge in finance and which enables the average consumer to calculate the rate of late payment interest based on the information provided in the contract; second, although the CJEU seems to be of the opinion that a national base rate is a good benchmark, this is only so, if the contract set out the frequency with which the base rate may be varied, as determined by national provisions.
Another interesting aspect of the judgment was the CJEU developing interpretation of Article 14 on the right of withdrawal. The CJEU ruled that if the information is not dully included in the contract following Article 10 and was neither communicated at a later stage, there is no time limit for the consumer to exercise the right of withdrawal under the Directive nor can the Member States impose such limitation in national legislation. The CJEU's standpoint was that in that case, the consumer was unaware of the limitation of the right, and the consumer could not be held responsible for that lack of awareness. This is true even if the right of withdrawal was exercised following a considerably long period after the conclusion of the contract; the CJEU dismissed the possibility of the consumer being held liable for the abuse of this right under the circumstances.
