Obligation of a creditor to check a consumer’s creditworthiness - Credit agreement void and creditor’s entitlement to payment of the agreed interest forfeited
By Giorgos Kazoleas, Lawyer
A significant decision was issued by the CJEU[1] interpreting Articles 8 and 23 of Directive 2008/48/EC on consumer credit agreements and repealing Council Directive 87/102/EEC as regards the obligation of credit institutions to assess the creditworthiness of consumers before concluding the credit agreement.
‘1. Member States shall ensure that, before the conclusion of the credit agreement, the creditor assesses the consumer’s creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database. Member States whose legislation requires creditors to assess the creditworthiness of consumers on the basis of a consultation of the relevant database may retain this requirement.
2. Member States shall ensure that, if the parties agree to change the total amount of credit after the conclusion of the credit agreement, the creditor updates the financial information at his disposal concerning the consumer and assesses the consumer’s creditworthiness before any significant increase in the total amount of credit.’
Article 23 of that directive, entitled ‘Penalties’, provides:
‘Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive.’
According to the background of the case, a consumer in the Czech Republic entered into a consumer credit agreement for 50,000 Czech crowns (CZK) (approx. 2,000 euros) with JET Money s.r.o., which was succeeded by EC Financial Services. Before concluding the contract, the consumer provided certain information related to his personal and financial situation. He then paid off the loan by paying a total of CZK 85,000 (approx. EUR 3,500), which included the costs incidental to the loan (mainly interest). He did not raise any objection against the agreement during the loan’s repayment period.
It is noted that the claimant was the company Nárokuj, to which the consumer assigned the claims that he could have asserted against the creditor based on the consumer credit agreement. Before the Czech court of first instance, this company claimed the invalidity of the loan agreement on the grounds that the creditor breached its obligation to assess the consumer's creditworthiness. As part of its claim for unjust enrichment, the claimant requested for the payment of CZK 35,000, which is the difference between the principal amount of the credit and the amount ultimately paid by the consumer, plus statutory default interest.
It is also noted that according to Czech law, if the creditor grants consumer credit to a consumer in breach of the obligation to check his/her creditworthiness, the agreement is void. The court takes into account the invalidity of its own motion. In this case, the consumer is obliged to return the consumer credit principal within a period proportional to his/her financial ability.[2]
In view of the above the District Court of Prague decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: ‘Is the purpose of Directive [2008/48] to penalise credit providers for a failure to fully examine a consumer’s creditworthiness, even in cases when the consumer fully paid up the credit and raised no objections against the agreement while paying?’
In its decision, the Court recalls through its jurisprudence, that the creditors’ obligation to check the consumer’s creditworthiness is intended to hold creditors accountable and to prevent the granting of loans to consumers who are not creditworthy.[3]
The Court finds that the fact that, after the credit agreement has been fully performed, the parties thereto are no longer in a position to rely on the mutual obligations arising from that agreement does not affect the existence of a claim based on an obligation to repay sums unduly paid arising from the application of national legislation which, in accordance with the requirements of Article 23 of that directive, penalises failure to comply with the creditor’s obligation to examine the consumer’s creditworthiness, as provided for in Article 8 of that directive.[4]
With this reasoning, the consumer's claim for sanctions against the credit institution to which the breach of a pre-contractual obligation is attributed is disconnected from the loan agreement and remains active even when the loan agreement is considered fulfilled. It is also irrelevant that the consumer did not raise any objections about the agreement during the period of repayment of the credit.
In fact, the Court, weighing the sanctions of the national legislation (cancellation of the contract, return of the interest paid) based on the principle of proportionality, considers that these do not in any way violate this principle, recalling in this case its previous case law that in the light of the vital importance of that obligation in the context of Directive 2008/48, its breach may be penalised, in accordance with national law, by forfeiture of the creditor’s entitlement to interest.[5]
In this case, the Court emphasizes the deterrent purpose of the regulation, otherwise the credit institutions would fail to comply with their obligation pursuant to Article 8 of Directive 2008/48 and could also be dissuaded from carrying out a systematic and exhaustive examination of the creditworthiness of all consumers to whom they grant credit, which would be contrary to the aims of making creditors accountable and preventing irresponsible practices when granting credit to consumers.[6]
The decision of the CJEU is important as it confirms as 'autonomous' the consumer's claim against the creditor for the breach of his pre-contractual obligation to evaluate his/her creditworthiness. This autonomy lies in not taking into account two prima facie important factors: On the one hand, the fulfillment of the loan agreement and on the other hand, the fact that the borrower did not suffer any harmful consequences as a result of the breach of this obligation by the creditor. It is therefore a per se claim that may result in the return of interest paid due to cancellation of the contract. The possibility of exercising the claim depends of course on what kind of sanctions each national jurisdiction provides for. Also, the effectiveness of such a claim depends on what consequences the invalidity of the loan agreement may have for the consumer.
[1] Judgment Nárokuj s.r.o. v EC Financial Services, a.s., C-755/22, 11.1.2024
[2] Law No 257/2016 on consumer credit
[3] Judgments of 18 December 2014, CA Consumer Finance, C‑449/13, EU:C:2014:2464, paragraph 35; of 5 March 2020, OPR-Finance, C‑679/18, EU:C:2020:167, paragraph 20; and of 10 June 2021, Ultimo Portfolio Investment (Luxembourg), C‑303/20, EU:C:2021:479, paragraph 28.
[4] Judgment Nárokuj s.r.o. v EC Financial Services, a.s., C-755/22, 11.1.2024, paragraph 39.
[5] Judgment of 10 June 2021, Ultimo Portfolio Investment (Luxembourg), C‑303/20, EU:C:2021:479, paragraphs 39 and 40 and judgment of 5 March 2020, OPR-Finance, C‑679/18, EU:C:2020:167, paragraph 30.
[6] Nárokuj s.r.o. v EC Financial Services, a.s., C-755/22, 11.1.2024, paragraph 49
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