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

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

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

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

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

The (un)fairness of fees - the CJEU in C-565/21 CaixaBank S.A.

On the 16th of March 2023, the CJEU delivered another judgment on the interpretation of Directive 1993/13/EC on Unfair Contract Terms (UCTD), C-565/21 Caixabank S.A v X. As many before, this judgment also concerned mortgage credit.

 

This case is about the validity of a so-called 'arrangement fee' that was charged to the consumer in the amount of EUR 845. According to the applicable Spanish law, an arrangement fee meant all expenses related to the examination of the loan application, the granting, and processing of the mortgage loan, or other similar expenses that are necessarily associated with the loan application. The law required the fee to be a single sum for all associated expenses.

 

It appears that this lex specialis providing for arrangement fees caused uncertainty in terms of how it affects the horizontal, lex generalis rules of the UCTD, and whether the practice of Spanish courts of giving priority to lex specialis in ruling on the validity of arrangement fees is compliant with EU law.7

 

The CJEU took this opportunity to clarify the question and reinforce its earlier by now established case law and to provide novel addition to these by ruling on the interpretation of Articles 4(2), 5 and 3(1) of the UCTD.

 

Is the assessment of the fairness of the arrangement fee excluded based on Article 4(2) of the UCTD?

 

With its first question the referring Spanish Supreme Court essentially asked the CJEU to clarify the scope of the ‘main subject matter’ exception from the test of fairness. As we know, if the term amounts to the ‘main subject matter of the contract’ and is transparent it cannot be assessed for its fairness based on Article 4(2) of the UCTD.

 

The starting premise of the referring court was that the arrangement fee constitutes, along with the compensatory interest, the price of the mortgage loan and is therefore within the concept of ‘the main subject matter of the contract’ and exempted from the scrutiny of the test of fairness. Disregarding the somewhat odd approach to consider the arrangement fee a possible main subject matter of the contract when it is more likely to be the price and therefore fall under the second limb of Article 4(2), the ‘adequacy of the price’ exception, the CJEU gave a useful interpretation of the exception.

 

The CJEU referred to its established case-law, and noted that only those terms are exempted from the test of fairness as the main subject matter of the contract that define the essential obligations of the contract, which in the case of a loan contract would be the amount lent and repaid and the interest. Following this approach, the CJEU noted that in Caixabank and Banco Bilbao Vizcaya Argentaria (C‑224/19 and C‑259/19), the CJEU already ruled that the (Spanish) arrangement fee cannot be considered to be an essential obligation of a mortgage loan agreement only because it is included in the total cost of the loan.

 

The CJEU then highlighted the need to interpret the scope of the Article 4(2) exception restrictively and concluded that the obligation to pay for such services cannot be regarded as forming part of the main obligations arising from a credit agreement. It would be contrary to strict interpretation to include in the concept of ‘the main subject matter of the contract’ all services which are merely associated with the main subject matter itself and are therefore ancillary. The CJEU, therefore, emphasised once again, the main subject matter of the contract must be the main obligation of the contract, which in this case, would be the amount of the loan, as the main obligation of the lender, and the payment of the interest, as the main obligation of the borrower.

What is the meaning and scope of transparency under Articles 4(2) and 5 of the UCTD?

 

The CJEU ruled that whether the term is in plain and intelligible language under Article 5, the national court, taking into account all the relevant facts of the case, should ascertain whether the borrower had been placed in a position to assess the economic consequences for him or her, to understand the nature of the services provided in return for the costs provided for by that term and to ascertain that there is no overlap between the various costs provided for in the contract or between the services for which those costs are paid.

 

The emphasis above is the assessment based on the concrete facts of the case. An arrangement fee should not be regarded as automatically satisfying the transparency requirement arising from both Article 4(2) and Article 5 if the term satisfies the requirements imposed by national legislation. The CJEU emphasized, transparency should be assessed in the light of all the relevant facts, whether the borrower was indeed in a position to assess the economic consequences for him or her which derive from that term, to understand the nature of the services supplied in return for the costs provided for by that term, and to ascertain that there is no overlap between the various costs for which the agreement provides or between the services for which those costs are paid.

 

Very helpfully, the CJEU provided a list of circumstances that the national courts should, may, or should not consider in ruling on transparency which we summarise and categorise below:

 

Information/circumstances that should be considered:  

 

• the  wording of the term,
•  the information that the financial institution provided to the borrower, including mandatory information required by national law,
• advertising in relation to the type of agreement entered into, by taking into account the level of attention which can be expected of an average consumer who is reasonably well informed and reasonably observant and circumspect.
•  promotional material provided by a financial institution on the type of agreement entered into.

Information/circumstances that may be taken into account:

 

•     Information that the financial institution is required to provide to the potential borrower in accordance with national legislation; in general, the information that the financial institution has given to that borrower in the negotiation of an agreement on the contractual terms and the consequences of entering into that agreement
•    Attention which the average consumer pays to a term relating to an arrangement fee, In accordance with the case-law, account must be taken, in the context of that assessment, of the level of attention which can be expected of an average consumer who is reasonably well informed and reasonably observant and circumspect.

 Information/circumstances that should not be considered: 

•         The onsumers’ general knowledge of a term unconnected to the way in which such a term is drafted in the context of a particular agreement. The fact that such a term is well known is not a factor that may be taken into consideration in assessing whether that term is plain and intelligible,
•         The wording, location, and structure of a term justify the finding that it is an essential element of the agreement (at least in this case because it leads to an incorrect assumption that it is an essential term). 

Does the arrangement fee cause a ‘significant imbalance’ under Article 3(1) UCTD?

 

The final question to the CJEU was whether the arrangement fee could be considered under Article 3(1) as directly affecting the contractual balance in the parties’ rights and duties to the detriment of the consumer.

 

Referring to Kiss and CIB Bank (C‑621/17), the CJEU clarified that unless the services provided in return (the arrangement fee in this case) do not reasonably relate to services provided in connection with the management or disbursement of the loan, or the amounts charged to the consumer in respect of those costs and that fees are disproportionate to the amount of the loan, in principle, it would not cause significant imbalance. However, this would have to be verified by the competent court in each individual case based on the facts of the case.

 

On the same grounds, a contractual term governed by national law that establishes an arrangement fee to remunerate services relating to the examination, constitution, and personalised processing of an application for a mortgage loan, does not appear, subject to verification by the court having jurisdiction, capable of adversely affecting the legal position of the consumer, unless the services provided in return do not reasonably fall within the scope of the services described above or the amount charged to the consumer in respect of that fee is disproportionate to the amount of the loan.

Finally, the CJEU emphasised that national court practice that would simply declare that a term is not unfair because it is based on the applicable national law would be contrary to EU law and the UCTD, as it would prevent national courts to carry out, including of their own motion, an examination of the potential unfairness of the terms concerned in accordance with that provision and, consequently, would fail to ensure the full effectiveness of the UCTD. This final point, the point that caused uncertainty in Spanish judicial practice, is somewhat surprising. First of all,  it seems to go against one of the founding principles of law according to which special rules prevail over general rules (lex specialis derogat legi generali). Secondly, it would have been useful to consider the ‘mandatory terms’ exception here under Article 1(2) UCTD. 

Consumers' income and mortgage loans: the CJEU in C-778/18

Last week the CJEU delivered its judgment in C-778/18 Association francaise des usagers de banque v Ministre de l'Economie et des Finances, interpreting Directive 2007/64 on Payment Services as repealed by Directive 2015/22366, Directive 2014/17 on Mortgage Credit and Directive 2014/19 on Payment Accounts.

This judgment answers a very interesting question on a practice that may be common in some Member States: is it compliant with EU law to require the transfer of consumers' income to the mortgage provider as a condition for approving their mortgage loan applications? 

The facts

This claim was initiated by a consumer association representing banking clients. It sought annulment of the relevant French law implementing the above directives on grounds of misuse of power. The organization explained that the law disregards the objective of customer mobility pursued by the directives because it authorizes credit institutions to require consumers to deposit their salaries or other income with them and fixes the maximum period of 10 years for which consumers can ripe advantage of such deposited money irrespective of the amount, maturity and duration of the loan they were applying for.

The scope of Art. 12(2)(a) Directive 2014/17/EU

The CJEU was in effect faced with interpretation of the scope of Art. 12(2)(a) Directive 2014/17/EU. This provision provides an exception from the general rule of the Directive in Art. 12 that prohibits tying practices. The exemption in Art. 12(2)(a) provides creditors with an option to request from consumers or their family members to 'open or maintain a payment or a savings account, where the only purpose of such an account is to accumulate capital to repay the credit, to service the credit, to pool resources to obtain the credit, or to provide additional security for the creditor in the event of default'. Given this exemption, the CJEU noted that the obligation to deposit income is in principle consistent with the Directive (para. 54). However, the CJEU goes on to clarify that the exemption must comply with the requirements of proportionality, that is, it should provide account of the characteristics of the loan concerned, its amount, maturity and duration (para 56). Any different interpretation would jeopardize the achievement of the objectives of the Directive to provide a high level of protection for consumers, and to secure consumer mobility between banks, especially in circumstances when consumers wish to conclude a number of loans with different lenders. Tying them to a single bank would stand on the way of having an opportunity to shop around and  make informed decisions for better deals. The CJEU therefore concluded that Art. 12(2)(a) must be interpreted to preclude national legislation that allows lenders to grant loans conditional on the deposit of all borrowers income on the payment account opened with the creditor (para 58).  In regard to the duration of this obligation to have the account opened with the mortgage lender, the CJEU highlighted that the Directive does not provide  any limitations as to the duration of the loan, and in principle therefore, this requirement is not inconsistent with the Directive, as long as the purpose of the deposit/account complies with the requirements set out in Art. 12(2)(a) (para. 61).

The meaning of ‘charges’ or ‘fees’ in Directive 2007/64, Directive 2015/2366 and Directive 2014/92 

The second question raised in this case related to the meaning of 'charges' and 'fees' within Directive 2007/64, Directive 2015/2366 and Directive 2014/92. To promote consumer mobility and account switching, these rules provide consumers with a freedom to terminate framework contracts such as a current account contract without being liable to pay compensation in the form of fees or charges. French law however provides that if borrowers case to satisfy the income deposit requirement, lenders may terminate for remainder of the duration of the mortgage loan any individual advantages that were conferred on consumers, for instance, a better interest rate. The question infront of the CJEU was whether this denial of the benefit can be understood as a fee or charge within the meaning of the above directives. The CJEU ruled that it cannot.

Our evaluation 

This judgment tackles a very interesting legal question. However, in addition to the bank account being extra security for the provided loan, another important aspect of transferring income in the mortgage provider bank is not considered in the judgment. Namely, not only that consumers' incomes provides additional security for banks that loans are going to be or at least they can be repaid, it also provides banks with additional data on customers. This enables banks to pull on a larger amount of data for profiling customers and monitoring their behavior. On the one hand, this may be beneficial for consumers, data could help banks to identify problems in repayment and income stream of the customer and address this with early intervention measures such as payment holidays. On the other hand, this additional information can help banks to provide new products to consumers that are tailored to their behavior and needs, that are arguably more likely to be taken by consumers than any products or services that does not suit them as much. The use of big data in banking is still in its infancy but having a bank account certainly provides extra opportunities for banks to get to know their customer, and represent a potential for extra profit. Perhaps this aspect could have also been taken into account in shaping the concept of fees and charges in the present context.