An earlier version of this article first appeared in the May 2017 issue of Butterworths’ Journal of International Banking and Financial Law and is reproduced with permission.
The recent European Court of Justice (ECJ) judgment in Home Credit Slovakia a.s. -v- Bíróová (C-42/15) provides useful clarification on the requirements of the Consumer Credit Directive (2008/48/EC) (CCD).
A Slovakian lender, Home Credit Slovakia (Lender) brought proceedings seeking repayment of capital, interest, and late payment penalties pursuant to a credit agreement which had been concluded with Ms Bíróová (Borrower). The Borrower had failed to comply with her obligations and had only made 2 of 36 required monthly repayments.
Issues arose as to the validity of the Lender’s credit agreement which was on a pre-printed standard form, which did not specify the APR or the exact dates when payments fell due. The agreement did not contain all of the compulsory information listed in Art 10(2) of the CCD but cross referred to a separate document containing the Lender’s general terms and conditions. The Borrower had signed the credit agreement, thus confirming that she had received the general terms and conditions, had read and understood them and agreed to be bound by them, but she did not separately sign those terms and conditions.
What was the ECJ asked to consider?
The Slovak court referred a number of queries to the ECJ for consideration, including these:
- Must all content applicable to a credit agreement be contained in a single document?
- Will a credit agreement be invalid if a national law provision provides that it must be signed by both parties but it is not so signed?
- In circumstances where a lender has failed to provide the information required under Art 10(2) does the CCD preclude national law provisions which deprive the lender of its entitlement to recover interest and charges?
The ECJ decision
The ECJ ruling provides helpful guidance to credit providers on the actual requirements of the CCD:
- Whilst credit agreements do not need to be drawn up in a single document, all of the information listed in Art 10(2) must be set out on paper or on another durable medium and be incorporated by reference
- The CCD does not itself indicate that the credit agreement must be signed by the parties but nor does it preclude national law provisions which require the credit agreement to be signed and, where more than one document is used, for all of them to be signed
- If a lender fails to include in the credit agreement all the information which, under the CCD, must necessarily be included in such an agreement, it may be penalised by the applicable member state by means of forfeiture of entitlement to interest and charges, provided that the information which is missing compromises the consumer’s ability to assess the extent of their liability.
The ECJ explains that if a credit agreement makes reference to another document, stipulated as being an 'integral part' of the credit agreement, that document (for example, general terms and conditions), must be produced and offered to the borrower in a similar format as the agreement itself. This means that the extra document(s) must be on paper or another durable medium, must be incorporated into the agreement, and must actually be given to the customer prior to the conclusion of the agreement, so affording the customer an opportunity to familiarise themselves with their rights and obligations.
The credit provider must provide mandatory information necessary to enable the consumer to assess the extent of their liability. This includes the APR, sureties and insurance details, the number and frequency of payments to be made by the consumer. The lender does not need to stipulate specific payment dates, but must offer sufficient information for the customer to be able to ascertain a date of payment without difficulty.
Whilst terms such as "paper" and "durable medium" have an autonomous meaning under the CCD and cannot be interpreted by reference to national law, member state legislation can provide that a credit agreement is valid only if it is signed by the parties, even where that requirement applies to all the documents containing the essential details of the agreement. Equally, the choice of penalties or sanctions for non-compliance is at the member states’ discretion, albeit national law must respect 'the general principle of proportionality'.
How to interpret the ruling?
UK consumer credit providers will welcome this decision. English law principles already require proper incorporation of other documents into the credit agreement and that the customer be given a reasonable opportunity to read the terms and conditions before entering into any agreement. It is the customer's choice as to whether they actually read that information.
If a UK credit provider does not provide the mandatory information and terms required, section 127(1) of the Consumer Credit Act 1974 ("CCA") will render a credit agreement unenforceable unless the credit provider obtains the court's permission to enforce. The court may grant permission but has the option to reduce or discharge the sum payable by a debtor. In Home Credit Slovakia the ECJ clearly stipulates that any such sanction must respect "the general principle of proportionality"; whether the existing provisions of section 127(1) CCA achieve this may be a moot point.