Blog team changes

Dear Readers, we wanted to update you on a few changes that have taken place in our merry blog team. After a few years of productive collaboration with Agnieszka Jabłonowska (Leiden University), she has decided earlier this year to give up this side project. It was a pleasure working with Agnieszka and we keep hope she may return to blog writing in the future. Since then, we have expanded our authors' team, thus you may shortly expect to see posts by new authors. Warm welcome to our three new contributors (in order of joining us): Marina Federico (Ca' Foscari University of Venice), Jie Ouyang (University of Groningen) and Dominik Dworniczak (EUI). 

Reversed burden of proof under strict conditions to exercise early repayment rights of consumer credit- the CJEU in C-326/22

Case C-326/22 Z  arose regarding Article 16(1) of Directive 2008/48/EC on consumer credit and the right to early loan repayment, which provides consumers with a right to repay their loan early and to the costs of the loan reduced accordingly.

The facts

Six consumers assigned to Z their claims regarding 15 consumer credit contracts that were repaid early, who intended to claim the total cost of credit reduction. However, under the applicable Polish law, Z needed to prove the claim's existence, which could have been only done by reference to the contract, but the consumers did not have the contract anymore. Consequently, Z requested access to the contracts, which the bank refused, saying there was no legal duty to do so. However, the referring national court rightly noted that the absence of such duty of the bank would lead to a contrary result to Article 16(1), which may, as in this case, effectively make the right to cost reduction unenforceable.

The legal question

The referring Polish court asked the CJEU whether Article 16(1), read in the light of the principle of effectiveness of EU law, must be interpreted as meaning that a consumer may request, from the creditor, a copy of that agreement and information concerning the repayment of the credit not featured in the contract when this is necessary to verify the calculation of the sum owed by the creditor connected to the early loan repayment right and for allowing that consumer to bring an action for the recovery of that amount.

The ruling

The answer was not apparent from the wording of Art. 16 (1). However, the CJEU noted that in interpreting the provisions of EU law, it is necessary to consider not only the wording but also the context of the provision and the objectives it aims to pursue, which is, achieving a high level of consumer protection.

Crucial is paragraph 26:

In that regard, it is relevant that Article 16(1) of Directive 2008/48 implies that the consumer is entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the agreement, without needing to adduce evidence other than that of the early repayment of the credit. It follows that it is for the creditor to provide the information necessary to establish the amount of the reduction in the total cost of the credit to which the consumer is entitled.

If the information is unavailable in the contract, the creditor must provide that information to the consumer where it is necessary to calculate the amount owed by the creditor (para 27).

The CJEU ruled that Article 16(1) must be interpreted as meaning that a consumer may request, from the creditor, a copy of that agreement and all information concerning the repayment of the credit not featured in the agreement itself which is necessary for verifying the calculation of the sum owed by the creditor under the reduction in the total cost of the credit due to its early repayment and for allowing the consumer to bring a possible action for the recovery of that amount.

The approach was justified by the banks' duty to provide information to consumers via Article 10, which ensures a high level of consumer protection. This duty includes information to be incorporated into the contract and a copy of the agreement provided to the consumer. A credit agreement must be drawn up on a durable medium that should enable the consumer to easily access and store the information provided.

Our analysis 

This rare interpretation of Article 16 follows the only case so far (Lexitor). A seemingly very technical judgment on access to documents turns into a decision that establishes an important legal principle. The court effectively reversed the burden of proof in exercising the rights connected to early loan repayment. Depending on how we define the burden of proof, this might not technically be a reversal of the burden. However, it is based on the same idea of easing the burden of proof. This is based on an understanding that the consumer cannot access the documents and that this access is an essential condition for realising the consumer's rights. The judgment is a significant development, given that the burden of proof was only previously reversed in connection to Article 5 -providing evidence that the creditor complied with pre-contractual information duties (CA Consumer Finance). However, the reversal of the burden of proof here has important limits. It only applies when:

1)    the consumer does not have a copy of the credit agreement or if the agreement does not contain the relevant information, and

2)  the information is necessary for verifying the calculation of the sum owed by the creditor to reduce the total cost of credit due to its early repayment, and

3)   the information is necessary to allow the consumer to take action to recover the sum owed by the creditor. 

The question is whether the judgement will have a broader effect of reversing the burden of proof regarding Article 10 more generally. This seems to be the direction, but it is yet to be confirmed by further CJEU judgments. 

Financial services concluded at a distance in digital age - the new Directive 2023/2673

In 2023, European lawmakers were busy improving the protection of consumers in financial services. In addition to the new Directive 2023/2225 on consumer credit (on which we reported here), the regime distance marketing of financial service was also revamped. The new Directive 2023/2673 on financial services contracts concluded at a distance repeals the current Directive 2002/65/EC. The Directive entered into force on 18 December 2023, Member States are obliged to implement it by 19 December 2025 and apply the rules from 19 June 2026.

The 2023 Directive was driven by the need to ensure consumer confidence and trust in digital transactions. This need was underscored by the rapid development of digitalisation and the evolving means of distance communication, which have revolutionised how we use technology since the creation of the 2002 Directive. Digitalisation has also changed how products are marketed to consumers, with new products emerging in the online environment.

The other rationale was the progressive introduction of other sector-specific legislation that significantly overlapped the current, 2002 Directive, creating legal uncertainty.

The 2023 Directive clarifies its nature as a horizontal, general instrument that remains a safety net for matters not covered by other EU instruments or subject to exemptions. The Directive is a maximum harmonisation instrument and applies only to contracts concluded at a distance. Importantly, it amends Directive 2011/83/EU, which currently does not apply to financial services.

The Directive follows the current information approach to consumer production, detailing pre-contractual information duties and making the associated right of withdrawal more effective by mandating an easy-to-find 'withdrawal function' on the service provider online interface that should be continuously available during the withdrawal period. In laying down the rules on adequate explanations, the 2023 Directive adds the right to request human intervention when the trader uses online tools such as chatbots. 

Finally, the 2023 Directive recognises the realities of the online world and the difficulties in making informed decisions, thus protecting consumers against dark patterns or deceptive design patterns.

The new directive is a welcomed development of EU consumer law. It is based on the realities of the digital world and aims to tackle the most pressing problems for consumer decision-making.

Validity of limitation periods for claiming mortgage costs back from banks - CJEU in Caixabank (C-484/21) and Banco Santander (C-561/21)

While many consumer lawyers are currently busy analysing the details of the opinion of AG Emiliou in Compass Banca case (C-646/22) (and we will add our own analysis of it in the coming days, too), on the same day (April 25) two judgments were issued by the CJEU clarifying the consequences of terms' unfairness on restitution of costs paid by consumers. Both in Caixabank (Délai de prescription) (C-484/21) and Banco Santander (Départ du délai de prescription) (C-561/21) Spanish courts posed questions concerning validity of various limitation periods for consumers raising a restitution claim for 'the costs clause'. The costs clause included in mortgage loan contracts obliged consumers to pay all the costs relating to the mortgage's creation. This may encompass notary, registry and agency fees.

The CJEU refers back to the Gutiérrez Naranjo and Others case (C-154/15 - with our comment here) to reaffirm the obligation of national courts to facilitate restitution of amounts consumers paid, which were imposed by an unfair contract term (e.g. paras 16-17 in C-484/21). Could national limitation periods stand in the way of such consumer claims? Previously, the CJEU already confirmed that limitation periods could be set in national laws as applicable to restitution claims brought by consumers in enforcing their rights from UCTD, however, these cannot make it in practice impossible or excessively difficult to exercise such rights (para 27 in C-484/21).

In short, regarding limitation periods for restitution claims, which are raised by consumers following a declaration of unfairness of terms setting the payment obligation, CJEU decided as follows:

1. They cannot start running from the date of the payment, irrespective of whether consumers were or could reasonably have been aware of the unfairness of terms at the time of the payment, or before the term was found to be void (paras 30, 32, 34-35 in C-484/21).
2. They cannot start running from the date on which the national supreme court delivered a judgment in a separate, earlier case, declaring a corresponding term unfair (C-484/21 and C-561/21). To pay attention to: The CJEU highlights here the lack of obligation for service providers to inform their consumers that terms in their contracts are equivalent in scope to terms in other contracts that have been found unfair (para 41 in C-484/21). Further, it mentions that average consumers cannot be 'required not only to keep himself or herself regularly informed, on his or her own initiative, of decisions of the national supreme court relating to standard terms contained in contracts of a similar nature to those which or she has concluded with sellers or suppliers, but also to determine, on the basis of a judgment of a national supreme court, whether a term included in a particular contract is unfair' (para 45 in C-484/21).
3. They cannot start running on the date of the CJEU's judgments, which confirmed, in principle, that limitation periods for actions for restitutions are compatible with EU law (provided they are equivalent and effective) (C-561/21). (for similar as above reasons + the fact that CJEU often leaves determination of unfairness to national courts - para 58 in C-561/21)
4. They can start running on the date on which the decision about unfairness of a term in a given case becomes final, without prejudice to the trader's right to prove that consumers were or could have been reasonably aware of the unfairness before the decision was made (paras 35-38 in C-561/21).