Reduction of the total cost of consumer credit on early repayment

The Court of Justice of the European Union issued 11 September 2019 material judgment[1] for consumers in Member States on a reduction in the cost of borrowing in the event of early repayment.

The substance of the case was whether it was possible to limit such a reduction in the total cost of the loan to the costs related to the duration of the contract.

In its ruling, the TEU points out that the objective Directive 2008/48 to 23 April 2008 on credit agreements for consumers and repealing Directive 87/102 (Next: Directive 2008/482 ) is, according to the case law of the Court, to ensure a high level of consumer protection.

They are weaker than financial institutions in terms of negotiating capacity as well as the degree of information, and these institutions rarely determine which costs they incur from the costs they incur from consumers.

1. Introduction

A preliminary ruling from the Court of Justice of the European Union for a preliminary ruling was lodged by the District Court of Lublin-East 28 May 2018, in connection with the proceedings of Lexitor sp. z o.o. v Spółdzielna Kasa Os saveno-Kreditowa im. Franciszek Stefczyk, Santander Consumer Bank S.A. and mBank S.A.

Being third the content of the disputes, jointly recognised by the referring court, third cash credit agreements concluded between the consumer and the defendants according to which each of them provided for payment of a specific credit commission to each of the banking institutions, the amount of which was independent of the duration of the contract.

Credit institutions collected these commissions, while consumers repaid these credits before the date laid down in those contracts, after which they transferred their receivables due to early repayment to Lexitor sp.

z o.o., providing legal services to consumers, which in turn called on the defendants to pay part of the commission in proportion to the repayment period, with statutory interest for delay. Credit institutions did not comply with these calls, so Lexitor sp. z o.o.

filed against them to the referring court three lawsuits on the reimbursement of part of the commission that issued the order for payment, for which the defendants objected.

In this situation, the Lublin- East District Court suspended the proceedings and asked the TEU with the following question: whether the interpretation of the provision in Article 16(1) with regard to Article 3 point (g) Directive 2008/48 should the consumer be entitled to a reduction in the total cost of the credit, including costs that are not dependent on the duration of the credit agreement, in the event of early repayment of his obligations under the credit agreement?

2. Total loan cost

The Court of Justice, when examining the provisions of Union and national law, indicated that according to Article 16(1) Directive 2008/48 „the consumer has the right at any time to repay in whole or in part his obligations under the credit agreement.

In such cases, it shall be entitled to a reduction in the total cost of the loan, consisting of interest and costs for the remaining duration of the contract.’ In contrast, Article 3 point (g) This regulation provides for a definition of the total cost of credit incurred by the consumer, namely ‘all costs, including interest, commissions, taxes and any other charges which he is required to incur in connection with a credit agreement, which are known to the creditor, except notarial costs; the costs of ancillary services related to a credit agreement, in particular insurance premiums, shall also be taken into account if, in addition, the conclusion of a service contract is necessary to obtain a credit or to receive it on the terms offered’.

Definition of the total cost of credit, contained in the Act of 12 May 2011 3 about consumer credit (which implements Directive 2008/48) is essentially identical to the one mentioned in the Directive.

3. Credit costs independent of the duration of the contract

The Court of Justice of the European Union has indicated, on the subject of the question referred for a preliminary ruling, that in the definition of the total cost of credit there is no restriction on the duration of a specific credit agreement.

Moreover, in the assessment of the referring court from Article 16(1) Directive 2008/48 it follows that the reduction in this total cost also applies to costs that do not depend on the duration of the contract and that such an interpretation would protect the interests of consumers.

Both in the ruling of the CJEU itself and in the Opinion of the Advocate General of the CJEU 4 attention shall be paid to the referring court cited three judgments of Polish courts on this issue, with two of which they considered that the Consumer Credit Act confers the right to reimbursement of only the part of the costs which depends on the duration of the contract and in third it has been established that the consumer has the right to reduce costs which are also independent of the duration of the contract.

The Court of Justice stressed that Member States should ensure that the provisions they adopted for implementation Directive 2008/48 could not be circumvented by the way in which contracts are formulated, in particular by including payments or credit agreements covered by this Directive in contracts which could provide for the possibility of avoiding the application of its provisions 5 .

Furthermore, the CJEU indicated that the effectiveness of the consumer's right to reduce the total cost of credit would be impaired if this reduction was limited to costs that depend on the duration of the contract, since the amount and distribution of costs are determined unilaterally by the bank and a profit margin can be included in the cost accounting. In practice, such a restriction would mean, as both the TEU and the referring court pointed out, the risk of placing on the consumer ‘higher one-off payments at the time of the conclusion of the credit agreement, as the creditor might have tried to minimise costs dependent on the duration of the contract’.

The Court of Justice of the European Union therefore ruled that ‘Article 16(1) Directive 2008/48 it must be interpreted in this way that the consumer's right to reduce the total cost of credit in the event of early repayment of credit covers all the costs that have been imposed on the consumer’ 6 .

_______________________________________________________________________________

1 Judgment of the Court of Justice of 11 September 2019, Lexitor Sp. z o.o. v. Cooperative Savings and Credit Insurance Company F. Stefczyk, Santander Consumer Bank S.A., mBank S.A.; C-383/18.

2 Official Journal of the European Union L (2008), No. 133, p. 66, dated 22 May 2008.

3 Journal of Laws of 2011, item 715.

4 Opinion of the Advocate General of the Court of Justice of the European Union C-383/18, presented 23 May 2019

5 Article 22(3) Directive 2008/48.

6 On 24 September 2019 UOKiK reported that it had taken first a decision relating directly to that judgment of the TEU. He ordered Aasa to stop the practice of not repaying the proportional portion of the pre-payment fee collected with prior repayment of the loan and asked the customers to submit complaints and request reimbursement of that part.