Consumer Credit Directive allows for ‘subconcepts’ of ‘total cost of the credit’ in national law – CJEU in Mikrokasa (C-779/18)

On the 26^th of March 2020 the CJEU decided on the Mikrokasa case (in French, here). The case concerns a contractual clause on the calculation of the total costs of a credit agreement under the regimes of the Consumer Credit Directive and of the Unfair Terms Directive.

The facts of the case:

In November 2016, the consumer concluded a credit agreement with IPF Polska (who later passed the credit onto Revenue). The credit amount was 3 000 Polish zlótis (around 703 euros), payable until May 2018. According to this credit agreement, the consumer had to pay a commission of 2 084 PLN (around 488 euros). Besides, the consumer must pay 10% annual interest on the total amount of 248 PLN (around 57 euros). In December 2016, the same consumer concluded another credit agreement with Mikrokasa for the amount of 4000 PLN (around 940 euros), payable until June 2019. Additionally, the consumer was obliged to pay 600 PLN (around 139 euros) in preparatory fees and 3 400 PLN (around 790 euros) in administrative fees. Besides, the consumer had to pay 7% annual interest on the total amount of 371,87 PLN (around 86 euros). The consumer did not pay the total amount owed in either contract.

The first question:

In Polish national law, the consumer is made aware of the ‘total cost of the credit excluding interest’. The contractual clause in question, although trying to limit the costs imposed on the consumer, indicates that the total cost of the credit excluding interest should not exceed 55% of the total annual amount of the credit, 85% if for 2 years, and 100% regardless of the duration of the credit. The concept of ‘total cost of credit excluding interest’ does not exist in the Consumer Credit Directive, which refers multiple times to an idea of totality of costs (including taxes and other fees). The national court questions the conformity of applicable national law with the Consumer Credit Directive (considering its maximum harmonization), since national legislation introduces the concept of ‘total cost of the credit excluding interest’. Furthermore, according to Polish national law, the ‘total cost of the credit excluding interest’ is determined according to a formula that does not take into account the installments actually performed, which means that the consumer does not know the real costs of the credit and is not duly informed at the time of the conclusion of the contract (paragraph 29). The national court therefore asked the CJEU whether the Consumer Credit Directive (and its goals) should be interpreted as being incompatible with separating the Polish national law notion of ‘total cost of the credit excluding interest’ from the Directive notion of ‘total cost of the credit for the consumer’.

The CJEU’s argumentation:

The CJEU correctly highlights that the legislator provides a broad definition of the concept of ‘total cost of the credit for the consumer’ in Article 3(g), which encompasses all costs that the creditor knows of (excluding notarial fees). According to the Court of Justice, the ‘cost of the credit excluding interest’ is a subcategory of ‘total cost of the credit’ as defined by Article 3(g) of the Consumer Credit Directive. Furthermore, the CJEU highlighted that Article 5(1) and Article 10(2)(g) regarding pre-contractual information in a credit agreement state that the consumer must be informed of the ‘total amount payable by the consumer’ as meaning the ‘the sum of the total amount of the credit and the total cost of the credit to the consumer’ (as defined in Article 3(h)). The CJEU also states that these provisions do not prescribe a duty to inform on the cost of the credit excluding interest or its calculation method and that, therefore, this issue is not harmonized (paragraph 41-42). The CJEU concludes that Polish national law merely establishes a maximum limit for the total credit cost and its calculation method, as well as the consequences of non-performance. As long as national law does not impose supplementary duties to inform (which is up to the national court to verify), there is no contradiction between national law and the Consumer Credit Directive.

The second question:

Regarding the contractual clause in question, the national court states that in practice professional parties choose the maximum amount allowed, without taking into account the costs actually incurred in by the consumer (paragraph 32), which could mean that the clause is unfair. However, the national court had doubts as to whether this contract term is imposed by Polish national law, in which scenario it would be excluded from the scope of the Unfair Terms Directive (Article 1(2)). Therefore, the national court asked whether the Unfair Terms Directive excludes from its scope contractual clauses that determine the total cost of the credit excluding interest while respecting the maximum limit prescribed by national law, without considering the costs that were actually incurred in by the consumer.

The CJEU’s argumentation:

Regarding the second question, the Court of Justice reminds that the Unfair Terms Directive is not applicable to contractual terms that are imposed by national legislation (or regulation), as long as such a provision is mandatory, that is, that it applies regardless of the contractual parties’ choice or as a default rule (paragraph 50). This exclusion from the scope of the Unfair Terms Directive is to be interpreted in a strict way, so as to provide consumers with a high level of protection (paragraph 51). As the CJEU repeatedly says, the evaluation of whether the contractual clause results from national law and whether it is a mandatory provision is to be made by the national courts. However, the CJEU conducts that evaluation itself, and states it does not appear that a contract term that applies a calculation method to the maximum limit of the cost of the credit excluding interest results from the relevant national provision in this case, given that that provision does not establish the rights and duties of the parties but simply restricts the freedom to determine the cost of the credit excluding interest above a certain level, which does not seem to prevent the national judge to assess the unfairness of the clause. The CJEU concludes that the Unfair Terms Directive does not exclude from its scope a contract term that determines the cost of the credit excluding interest which respects the maximum limit imposed by national legislation, without necessarily taking int account the costs actually incurred in by the consumer.

Remarks:

While I understand the argumentation of the CJEU regarding the first question, not only does it not offer a high level of consumer protection but also it does not represent the spirit of the Consumer Credit Directive. The CJEU should have further emphasized the goals of the information duties in the Consumer Credit Directive, especially considering that the referring court highlighted that ‘the consumer does not know the real costs of the credit and is not duly informed’. The Consumer Credit Directive – and other consumer instruments at EU level – are very clear on the fact that the information on the total price of the product or service to be acquired must be complete, all-encompassing and final (whenever possible). One of the main goals of the Consumer Credit Directive is to increase transparency regarding contract terms and to guarantee that the consumer is aware of the economic consequences the credit agreement entails, both before the conclusion of the contract and throughout the performance of the contract. See, for example, Recital 19 (‘In order to enable consumers to make their decisions in full knowledge of the facts, they should receive adequate information, (…) on the cost of the credit and on their obligations’). This is particularly true when it comes to the justification behind imposing specific duties to disclose the total cost of the credit. See, for example, Recital 43 (‘In individual Member States different cost factors are taken into account in the calculation thereof. This Directive should therefore clearly and comprehensively define the total cost of a credit to the consumer’). What the CJEU is saying is that it is acceptable to insert a term on the calculation of the total price of the credit excluding interest (and not considering actual performances, therefore preventing the consumer from knowing the actual cost of the credit excluding interest…), as long as there is no explicit obligation to inform the consumers on the matter and as long as the consumers are also informed on all the aspects covered by the Directive. However, the ratio of the obligation to inform consumers on the total amount of the credit seems to directly conflict with this (and not only with an explicit obligation to inform on the total cost of the credit except interest). A contractual clause establishing a certain monetary amount excluding interest will ‘inform’ the consumers anyway (from a practical perspective). If we take the CJEU's reasoning to the extreme, it means that it is acceptable to have in the same contract several concepts (or clauses) that fall under the concept of ‘total cost of the credit’ along with ‘total cost of the credit excluding interest’, such as ‘total cost of the credit excluding taxes’, ‘total cost of the credit excluding commissions’ and ‘total cost of the credit excluding fees’. The fact that the consumer is aware of the total cost of the credit does not guarantee that the consumer understands the information/ economic consequences if he is also informed of all the other ‘total costs’. As we know, consumer biases and information overload stand in the way of a clear, concise and understandable credit agreement. Considering all the research that has been conducted on behavioral economics and on how consumers perceive and contextualize (pre-contractual) information and contract terms, it seems strange to allow this, especially when it seems to contradict the spirit of the Directive. 

Online chats may be as efficient as phone talks - AG Pitruzzella in Amazon EU (C-649/17)

Yesterday, AG Pitruzzella issued his opinion in the case concerning Amazon EU's compliance with the information obligations imposed on online traders by the Consumer Rights Directive (C-649/17). Namely, the German federation of consumer associations considered Amazon EU as not transparently informing consumers how to contact it: it did not provide a fax number to consumers, and only displayed a phone number of its general helpline after consumers answered a series of questions, incl. questions related to consumers' identity.

Article 6 CRD requires online traders to provide before the conclusion of the contract a number of information, including in point (c): "the geographical address at which the trader is established and the trader’s telephone number, fax number and email address, where available, to enable the consumer to contact the trader quickly and communicate with him efficiently ". 

The questions that were asked by the national court were as follows: What does it mean that the phone and fax number and email address are to be conveyed to consumers only 'where available'? Could the Member States required traders to always provide consumers with a phone number, not only when 'where available'? Could the trader use different means of communication to contact the consumer and inform consumers about them instead? E.g. Amazon used online chat services and call-back facilities. And finally does the transparency requirement impose an obligation on online traders to supply this information quickly and efficiently?

Using other means of communication

AG Pitruzzella notices that Article 6(1)(c) CRD introduces two separate obligations. First, the traders needs to inform consumers transparently about the methods of contact that consumers may use, which means that consumers need to 'understand unequivocally' how to communicate with traders. Second, online traders need to ensure that the communication with consumers is quick and efficient, whenever consumers require to contact them (para. 47-53). The particularities of which means of communication are prescribed by the trader are of less relevance than their actual ability to ensure quick and efficient communication between the parties (para. 54, 82, 86). This should suggest that online traders could choose other than prescribed in the CRD means of communication (para. 95):

"Provided that those requirements are met, the choice of what means of communication are actually to be made available is left to the trader, who will have regard, inter alia, to the characteristics of the context in which the negotiation with the consumer takes place"

AG Pitruzzella also compares this situation to the rules on the E-commerce Directive, which also refer to the communication with consumers through a phone line, but where the ECJ previously declared that online traders could be more efficiently often contacted through different means of communication (deutsche internet versicherung, C-2987/07, para. 40).

Using means of communications 'where available'

Following both literal, comparative, systemic and teological interpretation of the term 'where available', AG Pitruzzella concludes that Art. 6(1)(c) does not require traders to always provide for communication means such as a phone, fax and email (para. 67). Thus, even if the online trader actually has a phone line, they do not have to make it available to consumers for communication purposes. Consequently, only if online traders have set up a phone line for the purpose of communicating with consumers they need to provide information on that phone number to consumers (para. 78).

Transparency

AG Pitruzzella examines in details the requirements for transparency from the CRD: clarity and comprehensibility. Clarity, pursuant to him, is a requirement of formal transparency: "which must apply to the outward manner in which the information is put before the consumer, and thus to the way in which the information is read and understood in the environment within which the transaction is carried out". Comprehensibility represent material transparency "the specific content of the information, which must inform the consumer of the legal consequences of his choices" (para. 107). By emphasising both formal and material elements of the transparency test, AG Pitruzzella draws a de facto parallel between the methods of interpretation of the requirements of clarity and comprehensibility and these from the Unfair Contract Terms Directive - of providing plain and intelligible information to consumers. Whilst the CRD does not impose an additional obligation on online traders to provide information within a specific time frame to consumers, making the information difficult to access makes it incomprehensible (para. 109). The principle of transparency requires therefore that consumers have access to information on how to contact online traders in a "simple, efficient and relatively rapid manner" (para. 110).

No additional formal requirements in the Member States

Finally, due to the maximum harmonisation of the CRD, the Member States are of course not allowed to draft additional formal requirements for online traders on how to provide information to consumers and what should the content of that information be. Thus, Germany could not oblige traders to always facilitate a phone line for the purpose of communicating with consumers (para. 114).

This is a very practical interpretation of the provisions of the CRD, which should facilitate sufficient flexibility for online traders to choose which methods of communication suit them best, but also make it future-proof when new means of communication will be created. It does protect traders in cross-border trade, as well, from having to face additional formal requirements set by the Member States. An interesting comment was made on the meaning of transparency, as it goes quite in depth into explaining its requirements and their relation to the duty to inform. Let us see what the Court will take on board from this opinion.

ECJ in Köck: More on maximum harmonisation in the Unfair Commercial Practices Directive

Today the ECJ published its judgment in the Köck case, on the maximum harmonisation of the Unfair Commercial Practices Directive. Cases like VTB-VAB and Mediaprint already showed us, without much surprise, that Member States are not allowed to go further in protecting consumers from unfair commercial practices than provided by the Directive itself. In particular, this means that Member States cannot prohibit certain trade practices (such as combined sales, see VTB-VAB) as such. The Directive has a black list with a limited number of trade practices that are prohibited, and apart from this list, trade practices can only be forbidden if they are unfair in the meaning of the Directive's general provisions.

The Köck case very much follows the reasoning of VTB-VAB and Mediaprint. The Köck case deals with specific rules on shops' "clearance sales" in the Austrian UWG (Gesetz gegen den Unlauteren Wettbewerb; Austrian Unfair Competition Law). According to Articles 33a-d of this law, Austrian shop owners need to obtain a permit if they want to have a clearance sale. Mr. Köck had a clearance sale without filing for a permit, and was subsequently brought before the court by an organisation safeguarding fair competition. The question before the ECJ is whether the Austrian law breaches Directive's maximum harmonisation, by requiring the permit.

The ECJ firstly determines that "clearance sales" can be seen as "commercial practices", and thus clearance sales fall within the material scope of the Directive (25-57). Secondly, the Austrian rule falls within the scope of the Directive in terms of its objective, as it is meant to offer consumers protection against unfair practices (28-33). Finally, it is determined that the rule offers more protection than provided by the Directive, as it gives a general prohibition on "clearance sales" without having a permit, while these are not generally forbidden by the Directive. In some cases, however, Member States are allowed to have a system of ex ante control with permits, but this does nor apply for the present case:

45 Given that anticipatory or preventive measures on the part of the Member State may in certain circumstances prove more adequate and more appropriate than subsequent measures ordering the cessation of a commercial practice that has already been carried out or is imminent, those national measures may consist inter alia in providing for a system of prior authorisation, with penalties for non compliance, of certain practices whose nature makes such measures necessary with a view to combating unfair commercial practices.

46 However, the system laid down by those national measures, which constitutes the transposition of the Directive, cannot result in a commercial practice being prohibited solely because prior authorisation has not been granted by the competent authority, without there having been an assessment of the practice’s unfairness.

47 First, the Directive precludes national legislation which excludes the review against the criteria set out in Articles 5 to 9 of the Directive of a commercial practice not listed in Annex I to the Directive.

48 Secondly, national legislation under which it is not until after the prohibition laid down for failure to comply with the prior authorisation requirement that the commercial practice is examined as to its unfairness is incompatible with the system established by the Directive, as that practice, because of its nature and in particular because of the time factor involved, is thus deprived of economic sense for the trader.

49 National legislation such as that referred to in the preceding paragraph would amount to enacting a general prohibition of the commercial practices made use of in a particular system even though the possible unfairness of those practices has not even been assessed, in accordance with the case-law referred to in paragraph 35 above, against the criteria set out in Articles 5 to 9 of the Directive.

The case is in line with the previous judgments, but it also raises questions. Most importantly, the question now is: under what circumstances and with what kind of procedures can Member States make use of preventive measures?

Click here for the judgment