On the 16th of March 2023, the
CJEU delivered another judgment on the interpretation of Directive 1993/13/EC
on Unfair Contract Terms (UCTD), C-565/21 Caixabank S.A v X. As many before, this judgment also concerned
mortgage credit.
This case is about the validity of
a so-called 'arrangement fee' that was charged to the consumer in the amount of
EUR 845. According to the applicable Spanish law, an arrangement fee meant all
expenses related to the examination of the loan application, the granting, and
processing of the mortgage loan, or other similar expenses that are necessarily
associated with the loan application. The law required the fee to be a single
sum for all associated expenses.
It appears that this lex specialis
providing for arrangement fees caused uncertainty in terms of how it affects
the horizontal, lex generalis rules of the UCTD, and whether the practice of Spanish
courts of giving priority to lex specialis in ruling on the validity of
arrangement fees is compliant with EU law.7
The CJEU took this opportunity to
clarify the question and reinforce its earlier by now established case law and
to provide novel addition to these by ruling on the interpretation of Articles
4(2), 5 and 3(1) of the UCTD.
Is the assessment of the fairness
of the arrangement fee excluded based on Article 4(2) of the UCTD?
With its first question the
referring Spanish Supreme Court essentially asked the CJEU to clarify the scope
of the ‘main subject matter’ exception from the test of fairness. As we know,
if the term amounts to the ‘main subject matter of the contract’ and is
transparent it cannot be assessed for its fairness based on Article 4(2) of the
UCTD.
The starting premise of the
referring court was that the arrangement fee constitutes, along with the
compensatory interest, the price of the mortgage loan and is therefore within
the concept of ‘the main subject matter of the contract’ and exempted from the
scrutiny of the test of fairness. Disregarding the somewhat odd approach to consider
the arrangement fee a possible main subject matter of the contract when it is
more likely to be the price and therefore fall under the second limb of Article
4(2), the ‘adequacy of the price’ exception, the CJEU gave a useful
interpretation of the exception.
The CJEU referred to its
established case-law, and noted that only those terms are exempted from the
test of fairness as the main subject matter of the contract that define the
essential obligations of the contract, which in the case of a loan contract
would be the amount lent and repaid and the interest. Following this approach,
the CJEU noted that in Caixabank and Banco Bilbao Vizcaya Argentaria (C‑224/19
and C‑259/19), the CJEU already ruled that the (Spanish) arrangement fee cannot
be considered to be an essential obligation of a mortgage loan agreement only because
it is included in the total cost of the loan.
The CJEU then highlighted the need to interpret the scope of the Article 4(2) exception restrictively and concluded that the obligation to pay for such services cannot be regarded as forming part of the main obligations arising from a credit agreement. It would be contrary to strict interpretation to include in the concept of ‘the main subject matter of the contract’ all services which are merely associated with the main subject matter itself and are therefore ancillary. The CJEU, therefore, emphasised once again, the main subject matter of the contract must be the main obligation of the contract, which in this case, would be the amount of the loan, as the main obligation of the lender, and the payment of the interest, as the main obligation of the borrower.
What
is the meaning and scope of transparency under Articles 4(2) and 5 of the UCTD?
The CJEU
ruled that whether the term is in plain and intelligible language under Article 5,
the national court, taking into account all the relevant facts of the case,
should ascertain whether the borrower had been placed in a position to assess
the economic consequences for him or her, to understand the nature of the
services provided in return for the costs provided for by that term and to
ascertain that there is no overlap between the various costs provided for in
the contract or between the services for which those costs are paid.
The emphasis
above is the assessment based on the concrete facts of the case. An arrangement
fee should not be regarded as automatically satisfying the transparency
requirement arising from both Article 4(2) and Article 5 if the term
satisfies the requirements imposed by national legislation. The CJEU
emphasized, transparency should be assessed in the light of all the relevant
facts, whether the borrower was indeed in a position to assess the economic
consequences for him or her which derive from that term, to understand the
nature of the services supplied in return for the costs provided for by that
term, and to ascertain that there is no overlap between the various costs for
which the agreement provides or between the services for which those costs are
paid.
Very
helpfully, the CJEU provided a list of circumstances that the national courts should,
may, or should not consider in ruling on transparency which we summarise and
categorise below:
Information/circumstances
that should be considered:
- the wording of the term,
- the information that the financial institution provided to the
borrower, including mandatory information required by national law,
- advertising in relation to the type of agreement entered into, by taking into account the level of attention which can be expected of an average consumer who is reasonably well informed and reasonably observant and circumspect.
- promotional material provided by a financial institution on the type of agreement entered into.
Information/circumstances
that may be taken into account:
- Information that the financial institution is required to provide to the potential borrower in accordance with national legislation; in general, the information that the financial institution has given to that borrower in the negotiation of an agreement on the contractual terms and the consequences of entering into that agreement
- Attention which the average consumer pays to a term relating to an arrangement fee, In accordance with the case-law, account must be taken, in the context of that assessment, of the level of attention which can be expected of an average consumer who is reasonably well informed and reasonably observant and circumspect.
Information/circumstances that should not be considered:
- The onsumers’ general knowledge of a term unconnected to the way
in which such a term is drafted in the context of a particular agreement. The
fact that such a term is well known is not a factor that may be taken into
consideration in assessing whether that term is plain and intelligible,
- The wording, location, and structure of a term justify the finding that it is an essential element of the agreement (at least in this case because it leads to an incorrect assumption that it is an essential term).
Does
the arrangement fee cause a ‘significant imbalance’ under Article 3(1) UCTD?
The
final question to the CJEU was whether the arrangement fee could be considered
under Article 3(1) as directly affecting the contractual balance in the parties’
rights and duties to the detriment of the consumer.
Referring
to Kiss and CIB Bank (C‑621/17), the CJEU clarified that unless the
services provided in return (the arrangement fee in this case) do not
reasonably relate to services provided in connection with the management or
disbursement of the loan, or the amounts charged to the consumer in
respect of those costs and that fees are disproportionate to the amount of the
loan, in principle, it would not cause significant imbalance. However, this
would have to be verified by the competent court in each individual case based
on the facts of the case.
On
the same grounds, a contractual term governed by national law that establishes
an arrangement fee to remunerate services relating to the examination,
constitution, and personalised processing of an application for a mortgage loan,
does not appear, subject to verification by the court having jurisdiction,
capable of adversely affecting the legal position of the consumer,
unless the services provided in return do not reasonably fall within the
scope of the services described above or the amount charged to the consumer in respect of that fee is disproportionate to the
amount of the loan.
Finally, the CJEU emphasised that national court
practice that would simply declare that a term is not unfair because it is
based on the applicable national law would be contrary to EU law and the UCTD, as
it would prevent national courts to carry out, including of their own motion, an
examination of the potential unfairness of the terms concerned in accordance with
that provision and, consequently, would fail to ensure the full effectiveness of
the UCTD. This final point, the point that caused uncertainty in Spanish judicial
practice, is somewhat surprising. First of all, it seems to go against one of the founding
principles of law according to which special rules prevail over general rules
(lex specialis derogat legi generali). Secondly, it would have been useful to
consider the ‘mandatory terms’ exception here under Article 1(2) UCTD.
