Consumer credit agreements must specify clearly and concisely the conditions attached to the exercise of a right of a withdrawal from such an agreement by a consumer, the Court of Justice of the European Union has recently affirmed. This is particularly so insofar as to information relating to when such a period starts to run is concerned.

The EU’s consumer credit directive makes provision for safeguards for consumers when entering into consumer credit agreements with banks or other credit service providers. Home loans fall outside the scope of this directive but are instead regulated by another specific law.

The consumer credit directive regulates the type of information which must be provided by creditors when advertising credit services. It also makes provision for the type of information, both pre-contractual and contractual, which must be provided by creditors to consumers.

The directive endows consumers with the right to withdraw from a credit agreement, without giving any reason, but subject to satisfying certain conditions relating to payment of capital and interest. A consumer must exercise such a right within 14 days which start to run from the date that the consumer signs the credit agreement or from the day when they receive in writing or on another durable medium the contractual terms and conditions, if the latter day is later than that when the agreement is signed.

The creditor must at all stages, that is, both at pre-contractual and contractual stage inform the consumer of their right of withdrawal. Furthermore, at contractual stage, the directive obliges the creditor to provide the consumer with the conditions attached to such right, namely, the period during which the right may be exercised and information relating to the obligation of the consumer to pay the capital drawn down and the interest and the amount of interest payable per day.

A consumer is always safeguarded when entering into transactions with goods or service providers

The consumer is in turn obliged not only to notify the creditor before the 14 days are up of their intention to withdraw from the credit agreement but also to affect payment of capital and interest, without any undue delay and no later than 30 calendar days from the day of notification to the creditor.

The facts of this particular case were briefly as follows. A consumer concluded a credit agreement with a credit institution. The agreement provided that the borrower had a period of 14 days to withdraw, which period began to run from the date of conclusion of the agreement but not until the borrower had received all the mandatory information referred to in a certain provision of the German Civil Code which in turn referred to another legal provision. The agreement itself did not include this information but merely referred to a specific legal provision.

The consumer opted to withdraw from the agreement and informed the creditor accordingly. The creditor claimed that the period for withdrawal had expired and that the consumer had been properly informed of the period within which he could exercise such a right. The national court seized of the case filed for a preliminary reference before the CJEU requesting guidance as to whether the creditor was in full compliance with its obligations in terms of the consumer credit directive insofar as the provision of information to the consumer in relation to his right of withdrawal was concerned.

The CJEU affirmed that the objective of the consumer credit directive is to ensure a high level of protection for consumers when entering into credit agreements. This means that credit agreements must include clear and concise information as to how the right of withdrawal, which is one of the rights emanating from the directive, is to be exercised, including the determination as to when such a period starts to run. A reference to a legal provision that itself refers to other legal provisions cannot be said to be in compliance with the directive, the Court asserted.  Where such referencing takes place, the consumer cannot determine, on the basis of the agreement alone, the extent of his/her contractual obligations or ensure that he/she has all the necessary information in the agreement itself, particularly information determining when the period for withdrawal starts to run. The CJEU therefore concluded that the creditor, in this particular case, did not comply with its legal obligation of ensuring that the consumer is made aware, in a clear and concise manner, of the period within which the right to withdraw can be exercised and of the other conditions relating to the exercise of such a right.

The objective of the EU’s consumer acquis is that of ensuring that a consumer is always safeguarded when entering into transactions with goods or service providers. Transparent agreements, containing all the necessary information for a consumer to make a well-informed decision when dealing with the business community, is key to ensuring that this objective is attained.

Mariosa Vella Cardona, M’Jur, LL.D., freelance legal consultant