Costs which are not dependent on the duration of the agreement are not recoverable by a consumer who affects an early repayment of a home loan, the Court of Justice of the European Union (CJEU) has recently affirmed.
The EU directive on credit agreements for consumers relating to residential immovable property requires member states to ensure that national law provides the consumer with the right to affect an early repayment of a home loan, prior to the expiry of any credit agreement entered into. In such cases, the consumer would be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the agreement.
The facts of this case were briefly as follows. A standard early repayment of credit clause used by an Austrian bank in its credit agreements with clients was challenged by a consumer protection association before the Austrian courts. This clause provides that, in accordance with Austrian law, in the eventuality of early repayment of the credit by the consumer, interest and costs that are dependent on the duration of the agreement are to decrease proportionately. However, processing costs which are not dependent on the duration of the agreement would not be reimbursed.
The association argued that the EU directive permits the proportionate reduction of costs that are not dependent on the duration of the agreement. The national court seized of the case filed a preliminary reference before the CJEU, requesting guidance as to whether the relevant EU directive precludes national legislation which only makes provision for the reimbursement of interests and costs that are dependent on the duration of the agreement, in the eventuality of an early repayment of a home loan by a client.
The CJEU observed that, primarily, in terms of EU law, the total cost of the credit refers to all the costs that the consumer is obliged to pay in connection with the credit agreement and which are known to the creditor. Notarial fees, registration costs in relation to the transfer of ownership of the immovable property, such as the costs of registration in the Land Register and related fees, and the charges payable by the consumer for non-compliance with the commitments laid down in the credit agreement, are excluded from these costs.
The right to reimbursement of costs in cases of early repayment does not, therefore, extend to costs which, irrespective of the duration of the agreement, are payable by the consumer to either the creditor or third parties for services rendered in their entirety at the time of the early repayment.
The court emphasised that it is up to the national courts to ensure that the costs which are imposed on consumers, irrespective of the duration of the credit agreement, do not objectively constitute remuneration of the creditor for temporary use of the capital or for services which, at the time of early repayment, had not yet been provided to the consumer.
The CJEU observed that creditors are obliged, in terms of the EU directive on mortgage credit, to provide consumers with pre-contractual information
The court emphasised that the scope of the reimbursement right as entrenched in the law is not to place the consumer in the situation in which he or she would have been if the credit had originally been granted for a shorter period, were for a smaller sum or had been granted under different conditions. It does, however, aim to adapt the agreement to the circumstances of the early repayment.
The CJEU observed that creditors are obliged, in terms of the EU directive on mortgage credit, to provide consumers with pre-contractual information through the provision of the European Standardised Information Sheet (ESIS). Such information includes a breakdown of the charges payable by the consumer depending on whether they are regular payments or otherwise. This, therefore, means that the degree of flexibility available to credit institutions in terms of invoicing and internal organisation, is greatly reduced.
Consumers and national courts can thus easily ascertain whether a type of fee is objectively linked to the duration of the agreement or not, and the risk of abusive conduct on the part of the creditor is greatly mitigated. Due to this, the reimbursement of costs that are independent of the duration of the agreement is not justified, the court concluded.
The EU’s consumer acquis aims to provide the utmost protection to consumers in Europe, with the latter always being considered as the weaker party in the case of agreements entered with traders. Judgments such as this serve to provide legal certainty on those grey areas which arise when it comes to the practical implementation of the law.
Mariosa Vella Cardona is an independent legal consultant specialising in European law.