Sanctions for Not Providing Essential Information in Credit Contracts - CJEU in Lexitor II (Case C-472/23)

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The case concerned a debt collection agency (Lexitor), acting as an assignee of the rights of a consumer who had concluded a consumer credit agreement with a bank for an amount of approx. 9.000 EUR. In addition, the consumer was required to pay capital interest (approx. 4.500 EUR) and a commission fee (approx. EUR 1.100), whereas the Annual Percentage Rate of Charge (APRC) was specified at 11.18%. Lexitor argued that, since the APRC was partly calculated on the basis of unfair contract terms, the bank had failed to provide the correct APRC in the agreement. Consequently, Lexitor sought to recover the total sum of interest and costs as a sanction prescribed under national law. 

The first question was whether the creditor had failed to fulfil its obligation to provide the APRC in the credit agreement where the APRC was overstated due to certain contract terms being declared unfair. The Court emphasised that, although the actual APRC would indeed be overstated if calculated with reference to non-binding unfair contract terms, Article 19(3) of the Consumer Contract Directive (CCD; Directive 2008/48 on credit agreements for consumers) requires that the APRC be calculated based on the assumption that the credit agreement is to remain valid for the period agreed and that the creditor and the consumer will fulfil their obligations under the terms and by the dates specified in the credit agreement (para 34). Consequently, where the APRC is determined in accordance with the mathematical formula set out in Annex I to the directive - incorporating the total cost of credit to the consumer, including costs payable under the contract’s terms - the creditor does not infringe its obligation to provide the APRC in the credit agreement. This remains the case even if some of the terms on which the APRC was calculated are subsequently declared unfair and therefore not binding on the consumer (para 35).

The Court also addressed the question of whether listing various circumstances under which charges connected with the performance of the credit agreement may increase, without enabling the consumer to determine whether those circumstances have arisen, constitutes a breach of the creditor’s information obligation under the CCD. The Court referred to its established case law, holding that the terms of the credit agreement must be drafted transparently so that an average consumer can foresee, on the basis of clear and intelligible criteria, the changes that may be made to such charges (paras 41–44). Applying this principle to the contract terms in question, the Court concluded that where a credit agreement enumerates specific circumstances justifying an increase in charges without enabling the average consumer to ascertain whether those circumstances have materialised and their effect on the charges, this constitutes an infringement of the creditor’s obligation to provide information (paras 45–47).

Finally, the Court considered whether Article 23 CCD precludes national legislation that, in cases of infringement of the creditor’s obligation to provide information under Article 10(2) CCD, imposes a uniform penalty depriving the creditor of its right to interest and charges, irrespective of the seriousness of the infringement or its effect on the consumer’s decision. The primary concern was whether such a sanction would be proportional (para 51). Drawing upon its previous case law, the Court reaffirmed that Article 10(2) CCD sets out essential information that consumers must receive to assess the extent of their liability. A breach of this obligation may be sanctioned under national law by the forfeiture of the creditor’s entitlement to interest and charges (paras 53–54). The Court then turned to the specific circumstances of the case. Since the obligation to provide the APRC had not been infringed (first question), it focused instead on the conditions under which costs related to the performance of the agreement (such as commission fees) could be changed, considering this equally vital information under the CCD due to its impact on consumers’ financial obligations (para 55). The Court emphasised that the principle of proportionality does not preclude a Member State from imposing a uniform penalty depriving the creditor of its right to interest and charges for breaches of information obligations under Article 10(2) CCD, including those relating to the calculation of charges connected with contract performance, even where the gravity of the infringement may vary (para 57).

A Short Comment

The Court’s answers to the second and third questions are not surprising. It confirmed that the average consumer standard has been employed to assess the transparency of contract clauses under the CCD framework, as seen previously in BMW Bank, and has been extensively applied in consumer credit case law since Kásler. The response to the third question reaffirms that the information contained in a credit agreement (Article 10(2) CCD) is essential for the consumer to make an informed decision; consequently, failure to comply with this obligation may trigger sanctions under national law. The Court appears to have linked the proportionality of the sanction to the essential nature of the information provided.

The Court’s reasoning in relation to the first question, however, may be called into question. A literal interpretation of Article 19(3) CCD does not address the unfairness of terms used by the creditor but instead focuses on two distinct elements: first, that the APRC’s calculation is based on the assumption that the credit agreement remains valid for the agreed period; and second, that both parties will fulfil their respective obligations under the agreement. The unfairness of certain contract terms, on the other hand, means that they are null and void ab initio under Article 6(1) of the Unfair Contract Terms Directive, with the consequence that no obligations arise from them.

The first part of Article 19(3) CCD assumes the continued validity of the credit agreement. However, since finding the terms at issue null and void is unlikely to render the agreement invalid - as they do not appear to be essential to the contractual obligation (see Profi Credit Polska III, paras 68–70), although this must be verified under national law - this part of Article 19(3) CCD would not apply here. The same reasoning extends to the second part of Article 19(3) CCD: if obligations based on unfair terms do not exist ab initio, there is no obligation to fulfil on the side of any of the party.

It is also unclear how concluding that the APRC’s calculation, when partially based on unfair contract terms - leading to an overstatement of the APRC - does not infringe the information obligation under Article 10(2)(g) CCD, would contribute to achieving a high level of consumer protection. This raises at least three concerns.

First, in such cases, creditors would not face additional disincentives against using unfair terms in credit agreements. This appears inconsistent with Recital 20 of the CCD Preamble (“Creditors’ actual knowledge of the costs should be assessed objectively, taking into account the requirements of professional diligence”), which suggests that creditors could reasonably be expected to know when they are using unfair terms.

Second, since the APRC was overstated, it is unclear how the average consumer could accurately determine - not merely approximate - the extent to which the stipulated APRC would affect their future rights and obligations under the credit agreement. This appears to contradict the Court’s reasoning in its response to the second question, where the transparency of information is deemed crucial for consumer decision-making.

Third, it also seems to conflict with the Court’s reasoning in Pereničová and Perenič, here it held that an incorrect APRC constitutes false information regarding the total cost of credit and the price under Article 6(1)(d) of the Unfair Commercial Practices Directive (UCPD), as it causes or is likely to cause the average consumer to make a transactional decision they would not have otherwise taken (para 41). However, the Court may have drawn a distinction between cases where the actual APRC is lower than that stipulated in the contract (Lexitor II) and those where it is higher (Pereničová and Perenič), as well as between the transparency requirements under the CCD and those under the UCPD. Yet, these distinctions are not explicitly addressed in the commented judgment. Further clarification from the Court on this point would be necessary to provide much-needed clarity.

Price calculation indications in online offers: Misleading or not? CJEU in NEW Niederrhein Energie und Wasser (Case C‑518/23)

 On 23 January, the CJEU provided further clarity on what amounts to a misleading omission in an invitation to purchase under the UCPD (Case C‑518/23). The case concerns an online electricity tariff calculator operated by the German company NEW Niederrhein Energie und Wasser. Based on customer input, the calculator generates a tariff offer that the customer can accept, resulting in a contract with NEW. However, the generated tariff appears lower than the actual price as it fails to indicate a variable percentage increase – a ‘compensatory’ amount charged by the electricity distribution network operators for the use of low-tariff electricity for high-tariff purposes. The legal question is whether this missing information constitutes a ‘misleading omission’ under Art. 7(1) and (4)(c) UCPD.

The CJEU first confirmed that the tariff offer generated by the calculator qualifies as an ‘invitation to purchase’ under Art. 7(4)(c) UCPD and that information about the compensatory amount constitutes material information thereunder (‘the manner in which the price is calculated’). Thus, this information must be included in the invitation to purchase to enable the average consumer to make an informed transactional decision (para 33). However, Art. 7(4)(c) UCPD does not prescribe how price calculation methods should be communicated (para 37). More broadly, the UCPD does not contain ‘any specific details concerning the question of the degree to which material information must be communicated, and by what medium this must be done’ (para 40). As such, it cannot be implied that pricing indications must enable the consumer ‘to calculate that price himself or herself and thus reach a final numerical result’ (para 39). Instead, such indications can be displayed in various ways, such as a percentage range, a conditional percentage or a fixed percentage with an indication that it may vary over time (para 41).

Then, referring to the general scheme of Art. 7 UCPD, the CJEU established that the required extent of price calculation indications in the invitation to purchase should be assessed ‘on the basis of the factual context of that invitation and the medium of communication used’ (para 46). As to the latter, the tariff calculator does not seem to impose limitations of space or time (Art. 7(3)UCPD). The CJEU continued to highlight a couple of factors as to the ‘factual context’, which, of course, are ultimately for the national court to ascertain. First, since the electricity distribution network operators in Germany retain different and fluctuating percentages for the compensatory amount, it would require ‘disproportionate resources’ for NEW to indicate to consumers the exact percentage in real time (para 49). Second, the generated price offer contains a link to NEW’s general terms and conditions, which do include information on the applicability of the compensatory amount and that it has been set at 25% by the local network operator of the area of NEW’s registered office (para 50). If such information is visibly displayed and consumers’ acceptance is technically conditional on their consent to the terms and conditions, the omission of the percentage increase in the generated price offer does not constitute a misleading omission.

In conclusion, the UCPD does not require the inclusion of the specific percentage of a variable price component in an invitation to purchase, as long as it ‘indicates the applicability in principle of such a percentage, together with a possible scale and the components having an impact on that percentage’ (para 52). There you go: while a specific percentage is off the hook, some general indication of price variability is nonetheless required. The CJEU seems to suggest that an indication in the company’s terms and conditions is sufficient – thereby expecting the average consumer to read them. But why can’t the CJEU ask for such an indication to be included in the displayed price offer itself? Is the CJEU asking too much from the average consumer? Or do national courts still have the discretion to exercise their faculty of judgment (see para 36)?

Passenger rights when flights are cancelled - CJEU in flightright (C-642/23) and Qatar Airways (C-516/23)

On January 16 the CJEU issued two judgments further interpreting Regulation 261/2004 on air passenger rights, in the cases flightright (C-642/23) and Qatar Airways (C-516/23). 

flightright (C-642/23)

A passenger booked via a tour operator a flight operated by Etihad Airways from Düsseldorf (Germany) to Brisbane (Australia), via Abu Dhabi (UAE) with an open return ticket. The flight from Düsseldorf to Abu Dhabi was cancelled and the tour operator declared insolvency before reimbursing the cost of the ticket. The passenger's father contacted the air carrier on their behalf and agreed to a change of the reservation, as well as a few steps of compensation, consisting of redeemable miles for EA flights to the value of the payment made, additional miles of ca 380 Euro, and further 5.000 Etihad Guest Miles. The passenger was required to set up a loyalty account with EA to obtain compensation, which they did. Unfortunately, the credit of the miles did not take place.

The legal question in this case was whether the passenger validly accepted the offer of the air carrier, to be compensated in redeemable miles/flight vouchers, considering that they have not provided their 'signed agreement' as is required by Art. 7(3) Regulation 261/2004. Could the action of setting up a loyalty account with the air carrier, to which the miles would have been transferred, be equivalent to a handwritten signature? (para 18) The question is highly relevant, considering that the Regulation 261/2004 priorities monetary compensation for passengers, while in practice air carriers often attempt to provide compensation via vouchers. The requirement of a signature can prevent passengers from unknowingly or erroneously agreeing to give up their right to monetary compensation, demanding their free and informed consent (para 22). Previously, the CJEU recognised that also other forms of providing express, definitive and unequivocal acceptance of reimbursement in vouchers are acceptable, e.g., a consumer filling in a form on air carrier's website and choosing in it compensation in vouchers (para 23). A handwritten signature is, therefore, not required (para 25). However, setting up a loyalty account with an air carrier does not need to amount to this form of acceptance, as a passenger may have had other intention when taking this action (para 27).

Qatar Airways (C-516/23)

Passengers in this case reserved return flights with Qatar Airways from Frankfurt am Main (Germany) to Denpasar (Indonesia), with a stopover in Doha (Qatar). They benefitted from a promotional campaign for health professionals, which allowed them to make a reservation by only paying for taxes and charges related to the booking. QA cancelled reserved flights. Further, no flights were operated to Denpasar by this carrier during the following period of 1.5 years. When the flight route was renewed the passenger demanded re-routing of their previously cancelled flights. As the carrier did not comply, passengers reserved the new flights themselves, paying partially with their frequent flyer programme's benefits for the new flights.

As per Article 3(3) Regulation 261/2004 its provisions do not apply to passengers travelling 'free of charge or at a reduced fare not available directly or indirectly to the public', the first question was as to the applicability of passenger protection rules to this situation. The CJEU decided that Regulation 261/2004 remains applicable here. The main arguments are based on the literal and contextual interpretation. First, the phrase 'free of charge' is normally interpreted in a way, which precludes passengers who pay taxes and other charges from being included in its scope (para 25). Second, other rules regulating air travel (Art. 23 of Regulation No 1008/2008) consider taxes and charges as elements of the total price of the plane ticket (para 26). Third, reduced fare is available to the public, even if it is not available to all members of the public, but e.g. only to health professionals (paras 34-36, 38). 

Finally, Article 8(1)(c) Regulation 261/2004 allows passengers to ask for re-routing of their flights at a later date, at the passenger's convenience. Could this occur years later though? The Court highlights that the decisive factors here are: passenger's convenience and wish to be re-routed at a specific date, limited only by seat availability (para 54). There does not seem to be a temporal link required then between the date of the cancellation and when re-routing is to occur (para 55). This interpretation cannot be invalidated by airlines stating that following it may demand from them payment of unreasonable operating costs. The CJEU recalls that passenger protection may justify even substantial negative economic consequences for certain economic operators (para 59).

Both these cases provide a useful clarification of provisions that were previously less challenged but contain terms ripe for various interpretation.

Suppliers sharing names with producers beware - CJEU in Ford Italia (C-157/23)

 

Photo by Benjamin Scheidl on Unsplash

In December the CJEU issued the judgment in the Ford Italia case (C-157/23), which focused on the scope of the notion of an apparent producer, that is a person presenting themselves as a producer by putting their name, trade mark or another distinguishing feature on a consumer product, pursuant to Article 3(1) of the old Product Liability Directive. As the new Product Liability Directive contains the same provision (Article 4(10)(b)), this judgment is bound to shape the interpretation of an apparent producer's notion going forward. 

The CJEU followed the advice of AG Campos Sánchez-Bordona, which we commented on previously ('Unintentionally becoming an apparent producer...'). The literal interpretation of Article 3(1) of the PLD requires apparent producers to take action to mislead consumers as to their participation in the production process by 'putting' their name etc. on a product. The CJEU explains that such active steps do not need to be limited to a physical act of placing a name etc. on a consumer product. Instead, we should look into the 'conduct of a person who uses the affixing of his or her name, trade mark or other distinguishing feature on a product in order to give the impression of being involved in the production process or of assuming responsibility for it' (para 40). This is a very liberal approach, as what suffices is the sole fact of apparent producers benefiting from presenting themselves as actual producers, stemming from consumers believing the product's quality will be higher as if they have bought it directly from the actual producer (para 41).

In the given case it did not matter then that Ford Italia did not put their name or trade mark on the car that has been sold to a consumer, which car proved defective. It was sufficient that they shared (a part of) their name and trade mark with the actual producer, Ford WAG, and it was present on the car. Moreover, CJEU emphasised that apparent and actual producers are jointly and severally liable, which means consumers may choose to raise a claim against the apparent producer (para 44). National procedural rules may then allow such apparent producers to have recourse from the actual producer (para 47).

As a side note, it is worth it to note para 45 of this judgment. In it the CJEU addresses interpretation of Art. 3(3) of the PLD, which requires suppliers to promptly identify the actual producer in order not to be held liable instead of them. The CJEU recalls the historical background to this provision, which seems to suggest that more could be required from suppliers in such cases than simply 'referring' consumers to actual producers, with whom consumers may not be familiar. As Italian courts in the Ford Italia cases wanted the supplier to 'implicate' the actual producer in the actual proceedings, rather than simply identifying them, this may indeed prove to be the proper course of action.

European 'consumer' notion: Continued broad application in 2024

Happy New Year to all our Readers! A couple of posts ago we have commented on the changes that the Compass Banca judgment may bring to the average consumer benchmark (see "Who is the average consumer?..."), although we will need to carefully follow the practical application of this judgment by national courts. Still, it was reassuring for the CJEU to emphasise in para 44 of this judgment that a commercial practice contrary to professional diligence would escape prohibition if it were "only to mislead a very credulous or naïve consumer". 

What we failed to find time to comment on last year was a judgment in Zabitoń case (C-347/23) and an opinion of AG Rantos in Arce case (C-365/23); both pertain to the scope of the notion of a consumer.

Photo by Madhur Shrimal on Unsplash   

Zabitoń judgment follows the paradigm shifting cases of YYY. (Concept of 'consumer') (see our comment here) and Lyoness Europe (see our comment here). When a married couple, a police offer and a school principal, purchased a residential property with the purpose of leasing it for consideration, the question arose whether they could be considered consumers when entering into a mortgage loan contract to purchase this property. It was clear that they were not planning to use this property for their own accommodation. The Court indicates that they could indeed be considered consumers, provided they purchased a single residential property for such a purpose, as they would then not be acting in the professional capacity in the field of property management (para 32). This judgment clearly discounts consumers' financial gain from a conclusion of a transaction as a factor in the determination of the consumer's (non-)professional capacity (paras 34-35). The Court further confirms then a broad interpretation of the consumer notion in applying substantive consumer protection framework. 

   Photo by Markus Spiske on Unsplash

This broad interpretation is further confirmed by AG Rantos in his opinion in the case Arce. Here, a teenager, an aspiring basketball player, was represented by their parents, in concluding a contract with a company providing sports development, career support and coaching services. The question was whether this was a B2C contract, considering that the young sportsperson at the moment of its conclusion had not yet begun their professional career and was not employed by any club. There was, however, a clear intention (desire?) of such a professional employment happening soon after the contract's conclusion, which indeed then occurred. AG Rantos draws a distinction between the consumer notion's scope in procedural and substantive matters. While in cases concerning procedural consumer rights, such as Wurth Automotive (C-177/22) the notion of a consumer is interpreted narrowly and, specifically, "current and future purposes of the conclusion of the contract" are considered, this is different when substantive consumer rights are to be applied. AG Rantos recognises this difference and consequently advises the CJEU to consider the teenager a consumer as "at the time when the contract at issue was concluded, the young sportsperson was not a professional" (para 57). After all, Article 4(1) Unfair Contract Terms Directive requires assessment of unfairness at the date the contract was concluded. "Any other more 'dynamic' interpretation of the status of 'consumer', consisting in maintaining that that status may be lost over time, would run counter to the very wording of that provision" (para 58).