On November 9th, the CJEU delivered an important ruling on the application of the Unfair Contract Terms Directive (UCTD) to consumer credit agreements. In particular, the request of the Slovakian referring court concerned suspension of the extrajudicial enforcement of the charge of the consumers’ family home which secured their credit agreement with the bank.
In 2012, SP and CI entered into a consumer credit agreement with Všeobecná úverová banka a.s. (VUB). The credit was repayable over 20 years and was secured by a charge on the family home where they lived. SP and CI were not new to consumer credit: they had taken out several other consumer credits with Consumer Finance Holding (CFH) which was linked with VUB. VUB decided to allocate almost the entire sum granted to the consumers under the new agreement to the repayment of the loans given by CFH, which they were unable to repay. After less than a year from the conclusion of the credit agreement, provided that the consumers were in default of payment, VUB used the acceleration clause of the contract to demand repayment in full. SP and CI were notified that VUB would have proceeded with the enforcement of its charge, namely, it would have sold the family home by extrajudicial auction. When a creditor proceeds with this type of extrajudicial auction, an auctioneer sells the immovable property ‘without any judicial process and without a court having first been able to examine whether the amount of the claim is well founded or whether the sale is proportionate to the amount of the claim’. Even when the consumer is opposed, Slovakian law describes this auction – which can be initiated after 30 days after the notice of enforcement of the charge – as voluntary.
The Regional Court of Prešov took the view that ‘protection against disproportionate interference with consumers’ rights, including their right to a home, is particularly important before the sale of property’. It noted how Slovakian law does not provide any ex ante protection to the consumer when the voluntary auction is in place and that, in the case at hand, the consumers were in default of only EUR 1106.50 after less than a year from the agreement. In essence, the Court observed how domestic rules may be ‘contrary to EU law and, in particular, to the principle of proportionality, since they allow the property where the consumer is residing to be sold, even in the event of a minor breach of contract’.
The Court thus referred to the CJEU. It asked whether Articles 3(1), 4(1), 6(1) and 7(1) of the Directive on Unfair Contract Terms, read in light of Articles 7 and 38 of the Charter of Fundamental Rights, ‘must be interpreted as precluding national legislation under which a judicial review of the unfairness of an acceleration clause (…) does not take account of the proportionality of the option available to the seller (…), in the light of criteria relating in particular to the extent of the consumer’s failure to fulfil his contractual obligations, such as the amount of the instalments that have not been paid in relation to the total amount of the credit and the duration of the contract, and to the possibility that the implementation of that clause might result in the seller (…) being able to recover the sums (…) by selling, without any legal process, the consumer’s family home’.
Put simply: can the judicial evaluation of the unfairness of an acceleration clause not consider the proportionality of the creditor’s reaction to the default of the consumer when the family home of the consumer will be sold to repay the creditor?
The question concerns the judicial review of the acceleration clause. The CJEU thus had to:
- Establish whether the UCTD is applicable to the acceleration clause. Article 1(2) of the UCTD in fact provides that the Directive is not applicable to contractual terms which reflect mandatory statutory or regulatory domestic provisions.
- If the UCTD is applicable, establish whether the acceleration clause causes significant imbalance between the parties and what the judicial review must consider to determine if such imbalance exists.
First, the Court observes that, although the acceleration clause does reflect Slovakian provisions, the latter are not mandatory; therefore, the UCTD is applicable.
Second, the Luxemburgish judges noted how the CJEU has consistently held that, to determine if the acceleration term has caused an imbalance, the judicial review must consider whether:
- The right of the creditor to demand repayment in full is conditional upon the consumer having breached an obligation of essential importance in the contract or
- The creditor has the right when the non-compliance by the consumer is sufficiently serious considering the term and the amount of the loan or
- The national law provides the consumer with means to remedy the effects of the repayment being demanded.
In essence, when reviewing if the acceleration clause is fair, the national court must always consider whether the right of the creditor is proportionate to the breach of the consumer. It must consider ‘the amount of the instalments which have not been paid in relation to the total amount of the credit and the duration of the contract’ and when appropriate the judicial review must take into account any additional criteria which may be relevant.
In the case at hand, the national court thus must take into account that the recovery of the credit from the bank may lead to the sale of the consumer’s family home and thus the eviction of the consumers and their family. The national court must take into consideration that the right to accommodation is protected as a fundamental right.
The CJEU thus concludes that the Directive must be interpreted as precluding national legislation which allows for a judicial review of the unfairness of the acceleration clause which does not take into account 1) the proportionality of the creditor’s action to the breach of the consumer and 2) the fact that the implementation of that clause may result in the creditor being able to recover the sums by selling, without any legal process, the consumer’s family home.
The ruling of the Court arrives just a few days after the publication of the New Consumer Credit Directive (commented on our blog here). From the decisions it emerges once again that, given the potential vulnerabilities related to consumer credit, it is crucial to have an adequate interpretation of the provisions directly and indirectly related to it.
