Reaffirming Established Case Law, Withholding Guidance? – CJEU in APS Beta Bulgaria (Case C-337/23)

Foto von Linus Nilsson auf Unsplash

The recent ruling in APS Beta Bulgaria (C-337/23) provides another example of the Court of Justice reaffirming its established case law on consumer credit. However, it also illustrates a more subtle tendency: interpretative restraint. 

This post argues that, while the Court preserves the continuity of its case law, its reluctance to provide detailed interpretative guidance risks undermining the aim of achieving a high level of consumer protection.

Facts of the Case

In the case at hand, consumer-borrowers concluded credit agreements with Easy Asset Management AD and Credissimo AD, with an annual percentage rate of charge (APRC) of approximately 40–50% and repayment terms between three and eighteen months.  Under each agreement, consumers were required to provide security, including a guarantee, for which specific fees - exceeding 75% of the total amount repayable under the credit agreement - were charged. The guarantee was to be provided either by two natural persons meeting certain criteria, or by a bank or company selected or approved by the creditor. In each instance, the consumers tendered a guarantee from a company nominated by the creditor, including in one case a subsidiary of the creditor itself. Under Art. 147 ZZD (Bulgarian Law of Obligations and Contracts), a guarantor remains liable only if the creditor brings proceedings against the debtor within six months of the principal obligation becoming due. In the present case, guarantors satisfied the debt - except in one instance - after this period had expired, and subsequently assigned their claims to APS Beta Bulgaria EOD or Agentsia za kontrol na prosrocheni zadalzhenia AD, which then sought repayment from the consumers through order for payment proceedings. In these circumstances, the referring court (Sofia District Court) submitted questions for a preliminary ruling.

Reasserting jurisprudence constante

Some of the questions addressed in APS Beta Bulgaria have already been the subject of established case law in recent years. For example, in response to the fifth question, the Court of Justice reaffirmed that the classification of a commercial practice as unfair, following Pereničová and Perenič, constitutes just one aspect of the broader context within which standard terms are to be assessed for unfairness, under Art. 4(1) and Art. 3(1) UCTD (paras 75-77).

Similarly, the Court reaffirmed that national courts are under a duty to examine the unfairness of standard terms ex officio. However, a mere doubt as to their unfairness is not sufficient to support a finding to that effect. In this regard, the Court confirmed that where national courts are empowered to take investigative measures of their own motion to supplement the case file - provided that the audi alteram partem principle is respected - this power extends to order-for-payment proceedings. This position is consistent with case law beginning with Banco Español de Crédito, in which the ex officio obligations of national courts were recognised in the context of such proceedings. By confirming the relevance of the audi alteram partem principle, the Court also underscored that the parties to the proceedings are expected to assume an active role. In this respect, the Court reaffirmed its jurisprudence constante (e.g., ERSTE Bank Hungary, para 62; Sziber, paras 46-47; Lintner, paras 38–39, 44).

In answering the first question, the Court also reaffirmed its case law established in Kásler (paras 37-38), Matei (para 50) and Andriciuc (para 34), holding that the concept of the main subject matter of the contract under Art. 4(2) UCTD constitutes an autonomous concept of EU law (paras 49–52). The Court once again defined the main subject matter as the essential obligations of the contract, which do not appear to correspond directly to the concept of essentialia negotii under national law, particularly as there is no express reference to the law of the Member States (para 51). The issue arose as to whether the contract of guarantee might be excluded from unfairness control on the basis that it constitutes a separate agreement, whereas a guarantee would merely qualify as an ancillary term under the credit agreement. The Court held that the credit and guarantee agreements should be regarded as forming a single contractual relationship, especially where the costs of the guarantee are payable within the credit instalments. Accordingly, the assessment of whether a contract term constitutes a core term must be undertaken with reference to the essential nature of the obligation within the overall contractual relationship, rather than by isolating the contract of guarantee (paras 55–59). In so doing, the Court opened the way for the assessment of unfairness of the contract of guarantee, without classing it as falling under the scope of the exclusion under Art. 4(2) UCTD (paras 53–54).

A similar observation may be made regarding the Court’s answer to the eighth question. It confirmed that the concept of the total cost of credit to the consumer is defined broadly to include all costs which the consumer is required to pay in connection with the credit agreement. In this regard, it follows that the costs linked to a contract of guarantee - where the conclusion of such a contract is imposed on the consumer by a term in the credit agreement and contributes to the overall consumer’s debt - fall within both the concept of total cost and that of the APRC (paras 86-93). Notably, the Court did not engage with the concept of ‘total cost of the credit’ as an autonomous concept of EU law, although it might have done so, particularly given its approach in Soho Group (paras 39, 51). 

In a similar vein, the Court reasserted its case law on the proportionality of sanctions as developed in Profi Credit Bulgaria, namely that a failure to provide a correct APRC, accurately reflecting the extent of the consumer’s liability, may under national law (that is, it is proportional) result in the creditor being deprived of entitlement to interest and charges connected to the credit agreement. This raises the further question whether any failure to indicate the APRC - irrespective of its seriousness - may justify the same sanction, or whether certain inaccuracies, such as minor discrepancies (as under French law, see Art. R313-1 II Al. 4 C. con.) or errors in favour of the consumer (e.g., where the APRC indicated in the contract is higher than the actual one), could still be regarded as proportionate grounds for forfeiture of interests and charges linked to the credit agreement.

Some Doubts Regarding Interpretative Restraint

Although the Court has reaffirmed its jurisprudence constante, certain aspects of the judgment may nevertheless be viewed critically - particularly in relation to the Court’s interpretative restraint. 

For instance, in addressing the second and third referred questions, the Court focused on three types of contract terms that may be considered unfair under the Annex to the UCTD. These include terms (Point 1, (i), (j), (m) of the Annex I UCTD), which: first, irrevocably bind the consumer to provisions of which they had no real opportunity to become aware before the conclusion of the contract; secondly, allow the seller or supplier unilaterally to alter the terms of the contract without a valid reason specified therein; and thirdly, grant the seller or supplier the exclusive right to determine whether the goods or services supplied conform with the contract, or to interpret the terms of the contract unilaterally. As the Court observed, a contract term by which the consumer undertakes to conclude a contract of guarantee with a guarantor chosen by the lender - without being aware, at the time of concluding the credit agreement, of the guarantor’s identity or the terms of the guarantee - does not correspond to any of the contract terms listed in the Annex to the UCTD (paras 62–63). Nonetheless, this does not preclude its classification as unfair. Such a term must instead be assessed under the general unfairness criteria laid down in Art. 3(1) UCTD (para 63). What remains unclear, however, is why the Court refrained from offering more specific guidance on how such terms might be assessed for unfairness, or under what circumstances they could justifiably be found unfair under the criteria of Art. 3(1) UCTD. While it is true that this assessment ultimately falls to national courts, the Court has previously provided tailored guidance on the application of Art. 3(1) UCTD to specific types of terms - such as accelerated repayment clauses in Banco Primus (paras 65–67) or, more recently, in Všeobecná úverová banka (para 86). Its failure to do so in this case may be understood as a form of interpretative restraint, even though such guidance would have been of practical value to other Bulgarian courts in assessing similar clauses in related proceedings, including those not subject to the current reference in the preliminary ruling procedure. It remains to be seen whether more detailed guidance will be offered in the still pending analogous case Financial Bulgaria (C-426/23). 

A comparable concern arises from the Court’s answer to the fourth question on unfair commercial practices. Although the referring court sought only a classification of the practice as aggressive under Annex I to the UCPD (paras 66–71), the Court might have offered broader guidance on whether such a practice could also fall within the general concept of unfairness under this directive. Although such clarification - comparable to the guidance the Court has been providing under the UCTD - would have been of practical relevance for Bulgarian courts, this approach remains arguable, since the Court was bound by the narrowly framed question referred by the national court concerning Annex I of the UCPD. 

A further issue arises from the Court’s response to the sixth and seventh referred questions. The Court held that it could not assess the compatibility of national case law with, inter alia, Art. 5 and 7 UCTD, as both provisions concern contract terms rather than the legal effects that arise from the judicial application of national legislation (para 79). Although this distinction is formally correct, the Court could have engaged with the broader context or, at least, acknowledged that the UCPD framework may be relevant in such circumstances - particularly concerning time limitations. Where guarantors - potentially subsidiaries of the lender and within one overreaching contractual framework - satisfy the debt after the applicable national limitation period has expired, such conduct may effectively circumvent debtor-protective rules. This raises serious concerns whether such commercial practices could not be viewed as unfair commercial practices under the UCPD framework.

Of particular interest is that the Court did not classify the credit agreement and the contract of guarantee as a linked credit agreement within the meaning of Art. 3(n) CCD (2008), thereby excluding the application of Art. 15 of that directive (paras 80–85). While this narrow conclusion is justified on the basis of a literal interpretation of the referral, the Court could have addressed Art. 17 CCD, a provision invoked by the Commission during the proceedings (AG, para 25). A more thorough engagement with this provision would have offered clearer guidance to national courts in cases involving analogous contractual arrangements where one agreement, such as a guarantee, is intrinsically linked to another, such as a credit agreement.

Where Now?

The underlying doubts surrounding the Court’s interpretative restraint in this case may be understood through the lens of judicial dialogue. As AG Collins observed in his Opinion (AG, paras 24–25), it is the responsibility of national courts to formulate the questions referred to the Court of Justice, and the Court limits itself to answering the questions so posed. Nonetheless, the Court’s reliance on a strictly literal reading of both the referred questions and the applicable legal provisions - without situating them in their broader factual and regulatory context - reflects a form of interpretative restraint or even escapism. This approach appears designed to preserve the formal boundaries of judicial dialogue, but it comes at the expense of substantive guidance for national courts. In other words, such interpretative restraint appears to balance judicial dialogue over the need to provide legal certainty for consumers - and, by extension, over the achievement of a high level of consumer protection. This is particularly problematic when it comes to clarifying general clauses or engaging with provisions such as Art. 17 CCD (2008). The issue is especially pressing considering growing concerns about informal debt collection practices, which have recently been the subject of detailed academic analysis (see Stănescu 2025, in OA). What emerges from this case is a broader and more pressing question: does APS Beta Bulgaria reflect an isolated instance of an overemphasis on judicial dialogue, or does it signal a broader shift toward interpretative restraint - or even escapism - in the Court’s ever-evolving case law?

Information duties in consumer credit: the CJEU in C-677/23

At the end of January, the CJEU delivered another judgment interpreting Directive 2008/48 on Consumer Credit. In C-677/23 A. B., F. B. v Slovenská sporitel’ňa a.s. consumers alleged that the credit contract did not contain all the necessary elements provided by the Directive. The dispute thus involved the interpretation of Article 10 (2), which provided the mandatory content for the credit contract. Two subparagraphs came under scrutiny in this case.

Duration of the credit agreement

One problem was that the credit contract did not provide for its entire duration. However, it did lay out the number of instalments to be paid. Under Article 10(2)(c), the credit agreement shall specify clearly and concisely the duration of the credit agreement. The question for the CJEU, therefore, was whether it is sufficient to comply with this provision by indicating the number of instalments. 

 

The CJEU concluded that since the duration of a credit agreement is closely linked to the performance of the parties' contractual obligations “the indication of the duration of the credit agreement, in accordance with Article 10(2)(c) of Directive 2008/48, does not necessarily have to be made through a formal indication of the precise date on which that agreement begins and ends, provided that its terms enable the consumer to determine that duration without difficulty and with certainty” (para. 43).

Assumptions used in the calculation of the APRC

The second question considered by the CJEU was about interpretation of Article 10(2)(g) according to which the credit agreement shall specify in a clear and concise manner “the [APRC] and the total amount payable by the consumer, calculated at the time the credit agreement is concluded; all the assumptions used to calculate that rate shall be mentioned." The wording in the contract was the following: "The credit has been granted immediately, in full; the borrower shall fulfil his or her obligations under the terms and conditions and within the time limits set out in the credit agreement; the interest rate shall apply until the end of the credit relationship". Another part of the contract provided that “the agreement shall be concluded for a … fixed period until the full settlement of all relationships arising in connection with the credit granted". The consumers considered these unclear. 

 

The CJEU considered the purpose of the provision and asserted that it is aimed at making the consumers aware of their rights and duties (para. 58). Moreover, reference to the assumptions must enable consumers to verify whether the APRC has been calculated correctly and, if not, to assert their rights, particularly the right of withdrawal, the period of which is extended in case of breach of Article 10 (para 59). Reference to the assumptions should also enable consumers to exercise their other rights provided by national legislation, including sanctions for non-compliance, which in this case, under the applicable Slovakian law, meant that the credit is interest-free (para 59). 

 

The CJEU concluded that assumptions used for the calculation of APRC are "vitally important" for consumers (para. 61), which meant that the "the assumptions used to calculate the APRC must be expressly mentioned in the credit agreement and that it is not sufficient in that regard that the consumer may himself or herself identify them by examining the terms of that agreement" (para. 64).

Concluding thoughts 

 

This judgment reinforced the importance of consumer information for the enforcement of consumer rights. Whilst it is questionable to what extent assumptions in the calculation of APRC are understandable for individual average consumers with no legal and financial background even if they are expressed in clear and precise language, the CJEU rightly held that if information is scattered around the contract and not expressed clearly and straightforwardly it is even more difficult to consumers to comprehend the effect and consequence of the terms of their contract. This judgment is, therefore, a further push towards clearly structured and worded contracts that at least give consumers a chance to understand their rights and duties and enforce their rights accordingly.

The judgment continues to be relevant under the new Directive 2023/2225 on Consumer Credit, which contains the scrutinised provisions in Article 21(1)(d) and (g).

Credit reference agencies, consumer profiling and the GDPR: the CJEU in C-203/22

On February 27, 2025, the CJEU delivered an important judgment on the interpretation of Article 15(1)(h) and Article 22 of Regulation (EU) 2016/679 on General Data Protection (GDPR) in C-203/22 CK Magistrat der Stadt Wien v Dun & Bradstreet Austria GmbH.

The facts

The mobile phone operator refused CK’s request to conclude or extend the mobile telephone contract for a monthly payment of a mere EUR 10. The refusal was justified with CK not passing a creditworthiness check with the credit reference agency D & B, which carried out an automated assessment. Unsurprisingly, CK was unhappy with the decision; her credit score was good. She brought the matter to the Austrian data protection authority and, with this, started a long way to the preliminary reference, going through various instances and avenues for protection.  

The referring court raised several questions, which the CJEU grouped into essentially two questions:

The first question

Must Article 15(1)(h) be interpreted as meaning that, in the case of automated decision-making, including profiling, within the meaning of Article 22(1), the data subject may require the controller to provide, ‘meaningful information about the logic involved’ in the decision making, which would mean an exhaustive explanation of the procedure and principles actually applied in using personal data to obtain a specific result, in this case, a creditworthiness assessment.  

According to Article 15 (h), the data subject has the right to obtain from the controller confirmation as to whether his/her personal data is being processed, information on the use of automated decision-making where applicable, including profiling, referred to in Article 22(1) and (4), and meaningful information about the logic involved, as well as the significance and the envisaged consequences of such processing for the data subject.

Article 22 provides that the data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, and that certain data enlisted in Article 9(1) GDPR such as racial or ethnic origin, religious beliefs cannot be considered in data processing.

Profiling, in this context, means automated processing of personal data, consisting of using personal data to analyse or predict the consumer's economic situation.

In its analysis, the CJEU first turned to a literal interpretation of the wording of Article 15 (h) and concluded that the concept of ‘meaningful information’ under that provision may have various meanings in different language versions of GDPR, which should be taken to be complementary to each other. In addition, the ‘logic involved’ in automated decision-making, which constitutes the subject matter of ‘meaningful information’ is capable of covering a wide range of ‘logics’ concerning the use of personal data and other data with a view to obtaining a specific result by automated means. The CJEU held, that the provision covers all relevant information concerning the procedure and principles relating to the use, by automated means, of personal data with a view to obtaining a specific result.

The CJEU next turned to contextual analysis of the concept of ‘meaningful information about the logic involved’, within the meaning of Article 15(1)(h). In this analysis the CJEU looked at the  Guidelines on automated individual decision-making and profiling for the purposes of Regulation 2016/679 and other provisions of the GDPR providing information duties of data controllers. The CJEU concluded that information duties relate to all relevant information that should be provided in clear, concise, transparent, intelligible and easily accessible form, using plain and clear language

Finally, the CJEU looked at the purpose of the provision, asserting that the purpose of the data subject’s right to obtain the information provided for in Article 15(1)(h) is to enable him or her to effectively exercise the rights conferred on him or her by Article 22(3), namely, the right to express his or her point of view and to contest the relevant decision. This, in turn, requires the right to obtain an explanation of the decision.

The CJEU then concluded that under Article 15(1)(h) the right to obtain ‘meaningful information about the logic involved’ in automated decision-making must be understood as a right to an explanation of the procedure and principles actually applied in order to use, by automated means, the personal data of the data subject with a view to obtaining a specific result, such as a credit profile. In order to enable the data subject to effectively exercise the rights conferred on him/her by the GDPR and, in particular, Article 22(3), that explanation must be provided by means of relevant information in a concise, transparent, intelligible and easily accessible form. Notably, the court further provided guidance on what is considered to be ‘meaningful information about the logic involved’ in automated decision-making. The procedures and principles actually applied must be explained in such a way that the data subject can understand which of his/her personal data have been used in the automated decision-making and the extent to which a variation in the personal data taken into account would have led to a different result. The requirements of Article 15(h) cannot be met by the mere communication of a complex mathematical formula, such as an algorithm, or by the detailed description of all the steps in automated decision-making since neither of those would constitute a sufficiently concise and intelligible explanation.

Second legal question

Another important contribution of the present judgment is the consideration of the relationship between Article 15(1)(h) and Directive 2016/943 on trade secrets, given that D&B argued that the logic of their automated decision-making, including what information is considered in which way, is a trade secret and should, therefore, not be disclosed.  

The CJEU highlighted that the protection of personal data is not an absolute right. Restrictions are possible of the scope of the obligations and rights provided for in, inter alia, Article 15 of the GDPR, but only when such a restriction respects the essence of the fundamental rights and freedoms and is a necessary and proportionate to safeguard the protection of the rights and freedoms of others. However, the result of any consideration on the limits of the protection of personal rights should not be a refusal to provide all information to the data subject.

The CJEU concluded that Article 15(1)(h) must be interpreted as meaning that, where the controller takes the view that the information to be provided to the data subject is a trade secrets, within the meaning of point 1 of Article 2 of Directive 2016/943, that controller is required to provide the allegedly protected information to the competent supervisory authority or court, which must balance the rights and interests at issue with a view to determining the extent of the data subject’s right of access provided for in Article 15 of the GDPR.

Our analysis

This decision is significant in addressing the long-standing problem of the lack of transparency in automated decision-making by credit reference agencies,  an important problem in the EU. Given that in most countries we have access to our credit reports we can know what data is considered in their decision making in producing a credit score and a credit report, however, credit reference agencies have refused disclosing the way this data is processed, the logic behind their decision making, in what way and to what extent various data is considered (weighted) in their decision making.  Although based on this decision, consumers are still not entitled to get hold of that information directly, but a first step has been made by mandating disclosure to the relevant authority who then makes a decision on whether or not to disclose it to the consumer, balancing the rights and interests of the two parties. This and other judgments of the CJEU (see C-634/21 SCHUFA Holding) may be gradually bringing transparency into this traditionally very untransparent area.

As credit reference agencies nowadays use artificial intelligence for automated decision-making, the judgment is relevant for advancing transparency considerations of AI systems.

Finally, given that the judgment tackles the operation of credit reference agencies, which are frequently used by creditors to assess the affordability of loan applications, it is relevant for responsible lending rules in Directive 2023/2225 on consumer credit (CCD2), which in Article 18 refers to creditworthiness assessment based on automated processing of personal data. 

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

Foto von Towfiqu barbhuiya auf Unsplash

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.

CJEU on Buy Now Pay Later (C-409/23): not consumer credit unless it is

Not that fresh, still hot: last month, the CJEU issued a remarkable decision in Case C-409/23 (Arvato), a preliminary ruling request from the Dutch Supreme Court concerning so called "buy-now-pay-later" (henceforth: BNPL) schemes and their qualification in the context of European consumer credit rules. 

While payment in instalments, with our without intermediaries, has been around for a pretty long time, not all European consumer markets are equally permeated BNPL schemes, which are very popular and common - for instance - in the Netherlands. In these schemes, consumers can conclude online transactions in a webshop and only pay at a later stage, when they receive an invoice by a third party that takes up the invoicing and provides payment security to the seller. If this reminds you of a credit card, that's not odd at all: these services essentially aim to provide services akin to those of a credit card, without the long-term credit contracts (and eligibility controls) associated to traditional models. Some, in fact, even go as far as to provide an own app-environment through which consumers can reach web shops. 

In return for these services, BNPL companies sometimes charge sellers/service providers a fee; they usually also charge consumers a small - even nominal - fee. According to consumer advocates, however, a significant portion of their revenue comes from consumer non-performance, in the form of late payment interests and debt collection fees. Civil law courts are then confronted with claims aiming to force consumers to pay their growing debts; in the Netherlands, many (but not all!) local courts have started to treat these contracts as credit contracts, even though officially in most cases the BPNL company has formally just been assigned the original credit by the seller. Why?

The advantage of considering BNPL as credit contracts is technical but also quite substantial: in many cases, Dutch courts are then able to invalidate the credit contract based on breach of core information requirements, leaving the consumer with, in essence, only the principal to pay. This is a particularly favourable outcome when, as is not rarely the case, the original purchase is only worth a small amount but the collection fees and default interest have been cumulating for a while. 

Whether BNPL should, under current rules, be considered a credit contract depends in no small part on how one interprets the "old" Consumer Credit Directive, which excludes certain transactions from its scope. In particular, Article 2(2)(f) of that Directive excludes contracts "where the credit is granted ‘free of interest and without any other charges’ or [...] under the terms of which ‘only insignificant charges are payable’". Dutch courts, however, have been considering the collection fees and late-payment interest as part of the cost of credit, making the contract (maybe free of interest but) not "without any other charges" or including only "insignificant charges". The Dutch Supreme Court was unsure whether this approach was in line with the Directive and asked the CJEU to solve the question for them - do default interest and out-of-court collection fees count as "cost of credit" in the context of assessing whether a credit contract has been entered?

The Court of Justice answers the question over a succinct few paragraphs: first (para 44), it notes that the letter of the law points to "interest" and "other charges" to only be relevant when "provided for at the time of conclusion of the credit agreement". This suggests excluding default interest and collection fees because "the non-performance by a consumer of his or her payment obligation and the duration of any such non-performance are, in principle, unforeseeable at that time". Second (para 46), considering such interests and charges as part of the cost of credit would largely hollow out the exception established at article 2(2)f since only contracts providing absolutely no consequence for non-performance by the debtor would be covered. Hence, in principle where credit is provided for free or against a negligible fee the fact that fees and interests will have to be paid in case of non-performance does not turn the relationship into a credit contract under the Directive. 

However, the Court observes (para 49-50), both the Dutch government and the referring Court suggest that default interest and collection fees are to be considered integral part of the provider's business model; the Directive, at the same time, requires Member States to make sure that its provisions cannot be circumvented "as a result of the way in which agreements are formulated". In light of the above, national courts have to make sure they guarantee the effectiveness of the Directive, and in particular

ascertain whether, in reality, the creditor is seeking to circumvent its obligations under Directive 2008/48 by anticipating, from the time the credit agreement is concluded, the non-performance by the consumer of the payment obligation in order to seek an economic advantage from the latter’s liability for interest and default charges. To that end, it will be for that court to examine all the circumstances present at the time when the agreement in question was concluded and other relevant information, such as, inter alia, the statutory or contractual origin of the interest and default charges, the periods within which that interest and those charges become payable and the amount of that interest and those charges.

This is a difficult task for national courts. Pending a decision by the Dutch Supreme Court, our sources suggest that local courts are reacting in different ways: some are just assuming that they can go ahead with treating the contracts as consumer credit; other courts are asking BNPL providers additional information about their business model in order to ascertain whether they do, indeed, plausibly expect a significant percentage of "their" customers to incur late payment fees; some are de-prioritising affected cases while awaiting a result, and some others, finally, are assuming that the CJEU's decision means BPNL is not credit after all. 

The uncertainly is naturally limited in time - the article 2(2)h in the Consumer Credit Directive 2023 explicitly limits the exemption to cases in which deferred payment is offered by the provider of the underlying good or service, with the exclusion of commercial third parties; however, it is also rather consequential for all actors involved - providers, debtors and courts.  

What will the new Directive 2023/2225 on consumer credit bring to consumers?

Last week the new Directive (EU) 2023/2225 on consumer credits (new Directive) was published in the official journal. The new Directive comes 15 years after the current 2008/48/EC Directive (CCD) that has been only partially effective due to the wording of the CCD itself and the developments linked to digitalisation, the practical application and enforcement in Member States as well as from the fact that certain aspects of the consumer credit market are outside the scope of the current CCD. The new Directive follows the Proposal published at the end of June 2021. Most of the key major changes highlighted in our comment on the Proposal have stayed in the final text.

The new Directive is expected to bring major improvements to consumers in the following areas:

·       Scope (Article 2)- the new CCD now includes very small loans (no lower limit) and interest-free loans - so-called buy now pay later products.

·       Better pre-contractual information - mode detailed rules on information to be included in credit advertisements (Article 8) and the introduction of general information (Article 9)

·       Introduces rules on advisory services (Article 16)

·    Regulates common unfair practicing rules on fair, clear, and not misleading communication in advertising and marketing (Article 7), tying and bundling practices (Article 14)

·       Contains more detailed rules on creditworthiness assessment (Article 18)

·       Introduces information rules on contract modification (Article 22)

·     Require Member States to introduce measures to prevent the excessive charging of borrowing rates, the annual percentage rate of charge, and total cost of credit (Article 31)

·    Lays down professional standards in the ways creditors treat consumers from manufacturing products to executing/performing contracts (Conduct of business rules - Article 32) and requirements for knwoledge and competence for staff of creditors (Article 33) 

·   Requires Member States to support financial education on responsible borrowing and debt management (Article 34)

·       Introduces European rules on arrears and forbearance (Article 35)

·       Contains more detailed rules on credit intermediaries (Article 37, 38)

·       Contains rules on competent authorities (Article 41).

New consumer rights:

One of the rationales for the adoption of the new Directive was market developments in digitalisation that were not foreseen at the time when the CCD was adopted. The rapid technological developments registered since the adoption of CCD have brought significant changes to the consumer credit market such as the emergence of new products and the evolution of consumer behaviour and preferences (Recital 4). The new Directive acknowledges these changes by various measures. To this effect, the new Directive acknowledges that a durable medium can be a machine-readable document (Recital 34), and introduces new consumer rights. When consumers are presented with offers based on automated processing of personal data, consumers have a right to be informed on this in a clear and comprehensible way (Article 13). When the creditworthiness assessment involves the use of automated processing of personal data, consumers now have the right to request and obtain human intervention from the creditor that may include a clear and comprehensive explanation of the assessment of creditworthiness with automated data processing and the review of the credit application.

An area for further improvement:

The most controversial provision in negotiating the new Directive was Article 31 the price regulation measure of the new Directive. As the compromise solution, the current provision is fairly vague, talking about ‘measures’ on the Member State level, leaving room for Member States to determine the best price regulation technique for their circumstances, which may range from usury laws to direct cost caps by way of a percentage of the fixed figure (for more detailed comments on this provision see my paper here).

Lexitor saga takes (perhaps not so) unexpected twist: CJEU in UniCredit Bank Austria v VKI (C-555/21)

 Dear readers, 

while some of you may think this blogger spends too much time online (true), lately social media have been a great source of information concerning new case-law - take Thursday's CJEU decision in case C-555/21 on non-interest costs in the case of early repayment of mortgage credit as an example. Within an hour of the Court issuing a press release, I could see the judgment *everywhere*. People in my bubble were, in general, not happy (see eg fellow consumer lawyer Catalin Stanescu; however, I should say: people were not happy, except some fellow Italians, see * below). What happened? 

In 2019, the CJEU decided Lexitor, a case in which it was requested to decide whether article 16 in the 2008 Consumer Credit Directive, regulating the unwinding of consumer debt in case of early repayment, required also non-interest costs to be returned pro rata tempore. In that case (see our post here), the CJEU ruled that indeed this would be the case: a different interpretation, in particular, would have made it too tempting for credit providers, who are to a large extent unilaterally able to set up the remuneration structure for consumer credit, to set up a business model largely based on low interest and high fixed costs.

This case sent airwaves throughout Europe, even if more visibly so in some systems: in Italy, for instance, it led to a recent decision by the Constitutional Court that may or may not need to be reconsidered after today. Why?

An important question outstanding after Lexitor was whether the established interpretation should be limited to the Consumer Credit Directive or could also be extended to the 2014 Mortgage Credit Directive - this in particular given that the two directives contain textually similar provisions and hence a consistent cross-directive interpretation may be good for legal certainty. Today's decision seems to suggest that it can be extended, as a matter of national law - but such extension is anyway not required by EU law. In particular, the preliminary reference asked whether the Austrian provisions preventing the recovery of non-interest costs unconnected to the duration of the credit contract was compatible with article 25 of the 2014 Directive. The CJEU concluded that it is. 

In the case of mortgage contract, the referring court [see para 18] had already observed, much of the fees that do not depend on the duration of the credit are actually outside of the credit provider's control: think for instance of notary costs, obtaining an assessment of the value of the house and so on. In such context, the CJEU found, the risk of perverse incentives found in Lexitor does not seem so serious to justify the consequences that a strict interpretation of the right to pro rata restitution would entail [see para 32].  

While somewhat irrationally finding solace in the idea that the standardised information to be provided pursuant to the Mortgage Credit Directive would prevent abuse on the side of credit providers by empowering consumer choices [para 33-34; reader, take it from someone who has recently concluded a mortgage contract - it doesn't], the Court also makes space for appreciation of the circumstances of the case and arguably national variations. This emerges from paras 37-38, according to which it is for national courts, seized with a dispute, to ensure that the Directive's protective aims are not circumvented and that costs that are in fact remuneration for the availability of cash over time are not accounted for under different headers to avoid restitution. This is an interesting and imposing task for national courts (with possible further implications such as: what would be the contractual consequences of a misclassification? would it in any event entail an unfair commercial practice? would the courts have to perform this check ex officio if for any reason they are confronted with the case?).

In Italy, the Judgement has drawn particularly much attention - Lexitor had previously led to a consequential decision of the Italian constitutional court and had drawn quite the criticism in Law & Econ circles (see eg here), which means this weeks decision has been quickly celebrated by parts of Italian academia.  

New clarifications on information rules in the Consumer Credit Directive: the CJEU in Volkswagen Bank

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.

Interest free loans: why should they be regulated?

In recent days an increasingly popular high-cost short-term credit called 'buy now pay later' (BNPL) is frequently in the news headlines. BNPL is a type of loan that enables consumers to delay the payment; usually 14 to 30 days in full or to spread the cost over several months in installments. The attractive feature of the loan is that it is interest-free. 

This loan is essentially used when consumers buy goods online. The option to defer or slice up payment comes up at check out (for more see here). Unsurprisingly, the product is very popular with younger generations (so-called millennials and Generation Z). However, 'fashion-conscious' shoppers are not the only consumers of this product; it is increasingly being used by those in financial difficulties. On the provider side, BNPL is a world of fintech, many established and newly emerged financial technology companies such as Klarna and Paypal are offering this product, even the highly successful and popular Revolut is currently working on developing their own BNPL. Most recently Amazon teamed up with Affirm to offer BNPL to their customers.

However, as with any credit product, BNPL is not without dangers. Research shows BNPL users might not be fully aware of the potential of this product to contribute to the accumulation of large debt. The seemingly innocent, interest-free feature of the product encourages consumers to spend irresponsibly and beyond their means. BNPL tends to be heavily advertised, often resulting in unplanned and impulsive purchases. Klarna even commissioned a research study into consumers' shopping behavior, providing evidence for partner retailers on 'how to persuade shoppers to make 'emotional' purchases instead of 'logical' ones'. Although free to enter into the contract; for consumers who do not pay back the loan on time or miss a payment, the BNPL product acts as any other loan. It potentially triggers additional fees and charges such as late payment charges, and even (backdated) interest; impacts the consumer's creditworthiness and credit score; and it is subject to debt enforcement and potentially harmful debt collection practices. In the UK around the third of BNPL customers faced these consequences.

Given the nature of these credit products and the way they are sold, there is no question BNPL loans deserve regulatory attention. It is particularly positive that the EU Commission's newly presented Proposal for a Directive on Consumer Credits now proposes to regulate interest-free credit and thus these types of loans. 

A new era in consumer credit law? The Commission's proposal on the new Directive on Consumer Credits

This summer might prove significant for improving the financial well-being of European consumers. On 30 June 2021 the EU Commission presented its long-awaited Proposal for a Directive on Consumer Credits, a key piece of legal instrument in the area of financial consumer law.

Overall, the proposal does seem to suggest an overhaul of the current consumer credit regime. The proposed scope of the new directive is much wider and far-reaching than the current 2008/48/EC Directive on Credit agreements for consumers (Consumer Credit Directive). The structure and content of the proposed directive resemble more to Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive) than to the current Consumer Credit Directive.

We could highlight the following major improvements:

Article 2 significantly broadens the scope of the new Directive, which would apply to small loans below 200EUR, to loans provided by crowdfunding platforms, and to the increasingly popular 'buy now pay later' credit products.

Article 14 regulated tying and bundling practices, prohibiting the former.

Article 17 bans unsolicited credit sales.

Article 18 introduces a stricter consumer-centric creditworthiness assessment. It now bans lending to consumers where the creditworthiness assessments end with a negative result. Where the assessment involves automated data processing or profiling, consumers will have a right to demand human intervention to review the machine's decision. 

Article 31 requires the Member States to introduce or maintain price caps. The Proposal requires caps on the interest rate, the annual percentage rate of charge, and/or the 'total cost of credit to the consumer'.

Article 32 introduced conduct of business requirements for the staff of financial firms to act honestly, fairly, transparently, and professionally and take account of the rights and interests of the consumers when they create or sell credit products or when the credit contracts are enforced.

Article 34 requires the Member States to promote financial education, especially in relation to responsible borrowing and debt management.

Article 35 requires the Member States that creditors have adequate policies and procedures in place to reasonable forbearance (such as loan extensions or payment deferrals) before enforcement proceedings are initiated when consumers find themselves in financial difficulties. 

Even the above short summary signals that the proposal is much more in line with the times that we live in than the present Consumer Credit Directive. Focusing on the need to enable consumers to make informed decisions, and disregarding modern financial products such as high-cost short-term loans and those brought about with the rapid development of technology such as products provided by crowdfunding platforms. BEUC welcomed the Proposal, emphasizing that it came just at the right time to prevent further predatory lending practices by high-cost short-term credit providers and to address consumers' financial difficulties created by the current coronavirus pandemic.

The Proposal is a result of a long and thorough process; fitness check of the Consumer Credit Directive, stakeholder consultation, use of expertise, and impact assessment. There was a clear and sustained focus around some problematic areas of the Consumer Credit Directive such as its deficiency in the provision of responsible lending. However, some issues have been left out from the process of evaluation, such as the need to carve out the meaning of the 'total cost of credit for consumers' currently in Article 3(g) which was recently shaped by the CJEU. Thus, there may be more work to do in polishing the proposal. Everyone involved in the EU's complex legislative process should take the opportunity to re-evaluate the Proposal's coverage and reach, to make it as good and protective as possible for European consumers.

Sanctions for breaching national rules on consumer credit: the CJEU in C-303/20

Earlier this month the CJEU delivered another judgment on the interpretation of Directive 2008/48/EC on Consumer Credit Agreements. In C-303/20 Ultimo Portfolio Investment SA v KM the CJEU was asked to interpret Art. 23 of the Directive, according to which, penalties for breach of national rules on consumer credit must be effective, proportionate, and dissuasive.

The facts

The consumer, KM concluded a consumer credit agreement with Aasa Polska, from which agreement the debt was assigned to the claimant, Ultimo Portfolio Investment. Although the monthly installments for this loan were only around 88 EUR (408 PLN), it transpired that at the time when the contract was concluded, the consumer was heavily indebted, having 23 loans, and her husband independently extra 24 active loans! These together totaled approximately 98 840 EUR (457 830 PLN) amounting to a monthly figure of approx. 2 153 EUR (2300 PLN). At the time, KN was employed with a net salary of approx. 500 EUR (2300 PLN) and her husband was out of work, with no disposable income.

Unsurprisingly, the consumer was unable to honour her payment obligations, and following the default, the claimant brought an action in front of the competent Polish court. The defendant consumer however alleged that before the loan was approved, the lender did not ask any questions to enquire about her financial situation: her outstanding debts, her disposable income, or the debts of her household. Since the claimant was unable to provide proof to the contrary, the court tackled the issue of sanctions, questioning whether the Polish rules correctly implemented Art. 23 of the Directive. In particular, the referring court specified that the Polish Code of Minor Offences only imposes a fine for breaching responsible lending obligations, and this fine is time-barred and only affects the natural persons within the credit institutions such as the director of the company or the credit intermediary.  

The legal question

The referring court effectively asked whether Art. 23 of the Directive must be interpreted to mean that in determining the effectiveness, proportionality, and dissuasiveness of the penalties courts could only take into account provision(s) of the national law specially adopted to implement Art. 23 of the Directive?

The ruling

The CJEU ruled that in interpreting Art. 23 of the Directive, national courts must take into account not only the special national provisions that are adopted to transpose the Directive but also the other provisions of the relevant law that should be interpreted in the light of the working and objectives of the Directive.

In its reasoning to CJEU acknowledged that the low amount of the penalty or that facts that it only applies to natural persons may be indicative of its shortcomings. Referring to its earlier case law it reiterated, penalities to be effective and dissuasive they must deprive the economic benefit of the infringement and must have a positive effect on the consumer in question.

However, the CJEU reminded that under Art. 288 TEFU, directives are legal instruments that are result-oriented, while binding on the result to be achieved they leave discretion to the Member States in the form and method of implementation. Consequently, transposition does not necessarily require legislative action. The existence of general principles and general rules may render a legislative action superfluous. It follows, that in order to determine whether a national law adequately implemented the obligations resulting from the given directive, it is important to take into account not only the legislation specifically adopted for the purposes of transposing the directive but also 'all the available and applicable legal rules.' National courts must therefore consider the whole body of rules of national law and interpret them in the light of the wording and purpose of the Directive in order to achieve the outcome that is consistent with the objectives pursued by the Directive.

In the present case, the court highlighted that Polish law benefits from a range of civil penalties in addition to those in the Code of Minor Offences. Importantly, the CJEU also highlighted that the case at hand would benefit from the penalty applicable for using unfair terms. Namely, Directive 1993/13/EC on unfair contract terms was implemented in Polish law to render excessive charges not binding on consumers (see our report on Profi Credit Polska).

Our evaluation

This judgment provided an important contribution to our understanding of European consumer credit law. It suggests a holistic or we could call a 'contextual approach' to interpreting the fairly vague and general provision on penalties in Art. 23 of the Directive, giving it a more concrete content in a national context. The important message is that in determining whether the sanction meets the requirements of the Directive, national courts must take into account all available sanctions under the applicable national rules, and the CJEU seems to suggest that if more than one sanction is applicable, national courts should weigh them up according to the criteria provided in Art. 23. The judgment also gives useful hints on how to interpret what is effective and dissuasive in the case at hand, and it could be read in connection with other judgments that tackled the aspect of proportionality of sanctions (see our report on Home Credit Slovakia).

Profi Credit Polska Joined Cases C‑84/19, C‑222/19 and C‑252/19 – An Introductory Class on the Unfair Terms Directive

In Joined Cases C‑84/19, C‑222/19 and C‑252/19 (here), the CJEU mainly interpreted the Unfair Terms Directive. The CJEU’s decision is comprehensive and it covers all central aspects of the regime imposed by the Unfair Terms Directive: its scope of applicability (including the exclusion of terms derived from mandatory legislation, present in Article 1(2)), its unfairness assessment (including its requirements, present in Article 3(1)) and the obligation to draft contract terms in plain, intelligible language (present in Article 4(2)). Overall, this decision does not surprise, but it does summarize relevant recent case law under what can be described as a mini-lecture on the Unfair Terms Directive.

All three cases involved contracts between credit institutions and consumers, particularly the recovery of sums claimed by those credit institutions under consumer credit agreements. In all three cases, the total cost of the credit was between 2000-2500 euros. However, in all three cases there were high non-interest related costs, such as costs contractually designated as ‘commission fee’, ‘initial payment’, ‘fees for the grant of the loan’, ‘management fee’ and ‘administrative fees’. In general, while these costs were mentioned in several contractual clauses, they were not defined or explained. Additionally, all three cases concern a Polish law provision whereby there is a maximum amount of non-interest related credit costs that can be claimed from the consumer (Article 36a of the Law on Consumer Credit). That provision also establishes the formula according to which that amount must be calculated.

Case C‑84/19

In case C-84/19, the referring court asked whether a contract term that establishes non-interest credit costs (such as ‘commission fees’) within the maximum upper limit established by national legislation is excluded from the scope of the Unfair Terms Directive (Article 1(2)). Moreover, the referring court posed a very relevant question regarding the principle of transparency and its materialization. In specific, the referring court questioned whether a contractual term can be considered to be plain and intelligible if the various types of costs it introduces (such as ‘commission fee’ and ‘initial payment’) i) do not explain in return for what specific services they are charged and ii) do not differentiate between similar concepts. Finally, the referring court asked whether the contract term in question is considered a part of the main subject matter of the contract or whether it relates to the adequacy of the remuneration against the service provided, in which case, according to the Unfair Terms Directive, an unfairness assessment would not be possible unless the term was not drafted in plain, intelligible terms (Article 4(2)).

Regarding the first question, the CJEU highlighted that in order to trigger the exclusion from the Unfair Terms Directive’s scope two conditions must be met by the contractual term in question. First, it must reflect a statutory or regulatory provision; second, that statutory or regulatory provision must be mandatory (para 59). The fulfillment of these conditions must be checked by the national court. However, the CJEU stated that the Polish law provision in question does not ‘determine the rights and obligations of the parties’ but rather ‘confines itself to restricting their freedom to set the non-interest credit costs above a certain level’ (para 61). Just like in the recent Mikrokasa case (which the CJEU often cited; see our blogpost on it here), the CJEU concluded that the contract term in question is not excluded from the scope of the Unfair Terms Directive.

The case gets interesting regarding the CJEU’s discussion of the transparency obligations present in Article 4(2) of the Unfair Terms Directive. The CJEU reformulated the transparency-related question and left out the two interesting dimensions concerning explanation and differentiation of credit-related concepts. In the words of the CJEU, the referring court asked whether it is possible, under Article 4(2), to assess the unfairness of a contract term that ‘imposes on the consumer costs other than the payment of contractual interest’ but that does not ‘specify either the nature of those charges or the services which they are intended to reimburse’. It would have been interesting to see the CJEU directly address the original transparency-related question, since it asked about the meaning of the obligation to inform transparently (or to draft contractual terms transparently) in two different levels: explanation of concepts and differentiation of concepts.

Answering the question, the CJEU highlighted, once again, that the exception in Article 4(2) must be interpreted strictly, since a broad interpretation would result in decreased consumer protection (para 66). After that, the CJEU reminded that a term that forms the main subject matter of the contract must be a term that characterizes the contract in question and that describes the essential obligations of B2C contracts (para 67). Interestingly, the CJEU defines ‘adequacy’ in the context of Article 4(2) as ‘the relationship between the payments required and the service to which they relate’ (para 81). In this case, since the contract terms did not specify the service to which the charges referred to as ‘front-end fee’ and ‘commission’ related, the CJEU concluded that it was not possible to discuss an adequacy problem. Furthermore, the CJEU states that it is up to the national court to determine whether the obligation to make payments concerning additional services (external to the loan) is an essential element of the agreement (para 71). Still concerning transparency, the CJEU repeated what it has said on multiple other judgements and reiterated the idea of substantive transparency: contract terms should not only be grammatically (or formally) intelligible, but they must allow the consumer to assess the economic consequences deriving from them (para 73). In paragraph 75, the CJEU specified that for the contract term to be considered transparent it is important that the nature of the services provided in return for the costs imposed can be ‘reasonably understood’ or inferred from the contract. Besides, the consumer must be able to understand that there is no overlap between the different costs or between the different services for which the costs are due. In a way, the CJEU states that the duty to draft contract terms in plain, intelligible terms imposes the duty to differentiate between costs or services. All this seems, according to the CJEU, unclear; the CJEU considered it difficult to assume that the consumer had an ‘understanding of his payment obligations and of the economic consequences of the terms providing for those charges’ (para 78). In conclusion, if the contract terms give rise to confusion on the part of the consumer concerning her obligations – which is for the national court to determine – then those contract terms are not drafted in plain, intelligible language and, therefore, do not fall under the scope of the exception of Article 4(2).

Case C‑222/19

In case C-222/19, the referring court asked the CJEU whether a contractual term which has not been individually negotiated and which imposes non-interest related credit costs (including costs related to the lender’s professional activity) below a statutory maximum upper limit may be regarded as unfair under Article 3 (para 89). The CJEU reminded that it is up to the national court to consider a given contractual term unfair, and that the CJEU merely provides guidelines (para 91). Additionally, the CJEU stated that, in order to determine whether there is a significant imbalance created by the contract terms that impose costs beyond interest on the consumer, it is important to go beyond a quantitative economic assessment. In particular, it is not enough to compare the total value of the contract and the costs charged to the consumer based on that term (para 92). There must be a ‘sufficiently serious impairment of the legal situation’ of the consumer, which can be, for example, the restriction of rights that the consumer contractually enjoys or the constraint on the exercise of those rights (para 92). Moreover, in order to determine whether the imbalance is contrary to good faith, the national court must assess whether the professional party could reasonably expect that the consumer would have agreed to such a term during negotiations (para 93). The CJEU noted, nonetheless, that the contract term in question (which sets a non-interest related credit cost) could give rise to a significant imbalance (even if it is below the maximum upper limit established by national law) if, for example, the amount charged to the consumer for granting and managing the credit was not proportional to the amount of the credit. In order to determine this, the CJEU concludes, the national court should take the remaining contractual terms into account (para 95).

Case C‑252/19

Finally, in case C-252/19, the referring court asked the CJEU whether the applicable Polish law provisions are compatible with the Consumer Credit Directive. In particular, the referring court wondered whether, based on Article 3(g) (definition of ‘total credit costs’) and on Article 22(1) (maximum harmonization of the Consumer Credit Directive), Polish law can impose a calculation of the upper limit of non-interest credit costs that includes not only the credit costs usually associated with the conclusion of a consumer credit agreement but also costs related to the lender’s professional activity. The referring court therefore questioned whether this method of calculation was in fact creating a new type of cost that is not compatible with the harmonized areas, which would undermine consumer protection.

The CJEU briefly addressed this question by once again referring the answer to the Mikrokasa case. In particular, the CJEU stated that the concept of ‘total cost of the credit’ in Article 3(g) of the Consumer Credit Directive is intentionally broad and it is meant to cover all costs that the consumer must pay in connection with the credit (except notarial fees). Article 3(g) does not impose any limitation on the type of costs that may be imposed on the consumer. Therefore, the CJEU concludes, the Consumer Credit Directive does not exclude that costs associated with the lender’s business activity are imposed on the consumer, which means that there is no incompatibility with Polish national law.