The abuse of power & influence by credit institutions against borrowers and the moral issue of exploiting their psychological condition when concluding loan agreements
by Giorgos Kazoleas, Lawyer LL.M.
One of the
ways to avoid abuse by the credit institutions' position is the requirement
of good faith, in the assessment of which, special attention must be paid to
the negotiating power of both parties. It should be also assessed whether the
consumer was motivated in any way to accept the clause and if the supply of
goods or services was made by a special order of the consumer. The requirement
of good faith can be satisfied by the credit institution when it deals honestly
and fairly with the counterparty whose legal interests it must take into
account. [1]
The purpose
of the legislation is to protect the consumer, in order to strike a balance in
the asymmetric contractual relationship between professional and consumer. This
asymmetry arises from the weaker position of the consumer (borrower) opposite to the professional (lending bank) in terms of
both bargaining power and the level of information, a situation which leads the
consumer to adhere to the conditions already drawn up by the credit institution,
without being able to exercise influence on their content. [2]
It goes
without saying that credit institutions are for-profit companies, although it
is something else to take advantage of the weakness, need and ignorance of the
other. The obligation of the bank not to use on the one hand its asymmetrically
stronger negotiating position and on the other hand the difficulty, need and
psychological state of the prospective borrower, at the stage before the
conclusion of the loan agreement, is in the usual practice required and not
given.
"Abuse
of influence" is defined in law as the exploitation of a power position in
relation to the consumer to exert pressure, even without the use or threat of
physical violence, in a manner that significantly limits the consumer's ability
to make an informed decision.[3]
The meaning
of "coercion" includes in particular the practices that play a
decisive role in the emotions, fears and exploitation of consumer’s trust, such
as psychological pressure, i.e. psychological coercion which is closely linked to
the "abuse of influence" resulting from the exploitation of the
supplier's power.[4]
Although
the relevant case law, European and national, does not generally overlook the
issue of abuse of influence and power by credit institutions, the issue is not
only legal but also ethical and as such should be taken into account by the
courts. The lender has a lot of money, at the same time that the borrower is in
a desperate situation. The lender has at its disposal information, legal
knowledge, legislative influence and geographical presence, on the other hand,
the borrower just urgently needs money. The court must assess the psychological
state and the particular psychosynthesis of the potential borrowers as well as
their specific personal circumstances at the pre-contractual stage shortly before
signing the agreement. These circumstances must be assessed whether they affect
the degree of understanding and consolidation of the true meaning and the legal
consequences of the agreed terms.
The obvious
inequality and imbalance of rights between the parties and the weaker position
of the consumer both in terms of negotiating power and in terms of information
or real knowledge of the terms to be signed with the background of intense psychological pressure to sign the contract in order to get the money, in some
cases perhaps could be viewed as a defect in the borrowers' will to agree to
specific contractual clauses, which if they really understood the exact
content and their consequences, they would never have agreed to.
George
Kazoleas is Lawyer LL.M. (Banking & Capital Markets Law) in Cyprus & Greece
[1] Directive 93/13/EEC on unfair terms in consumer contracts
[2] European Court of Justice judgment of 10 June 2021, VB and Others v BNP Paribas Personal Finance SA and AV and Others v BNP Paribas Personal Finance SA and Procureur de la République, Joined Cases C-776/19 to C-782/19
[3] Greek Law 2251/1994 for Consumer’s protection, article 9A
[4] Consumer’s Law, 2014, Deluka-Igglesi
Comments
Post a Comment