Excessive commission for granting a loan or credit may violate consumer rights – CJEU judgment

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On November 23, 2023, the Court of Justice of the European Union (CJEU) issued a judgment in case C-321/22, which responded to preliminary questions posed by the District Court for Warsaw Śródmieście.

The case, leading to the referral of preliminary questions by the Polish court, concerned loans subject to the Consumer Credit Act obtained by consumers from a lending institution. These loans incurred very high non-interest costs, amounting to approximately 75% of the total loan amount, including a commission for granting the loan itself, which was around 50% of the total loan amount.

According to the loan agreements, repayment could only be made in cash, handed directly to the lender’s agent during their visits to the borrower’s residence.

The borrowers’ lawsuit sought a declaration that the terms of the loan agreements, particularly regarding the non-interest costs of the loans, were ineffective due to their unfair nature arising from obviously inflated and unreasonably high fees and commissions. In the plaintiff’s view, the fees and commissions stipulated in the loan agreements were disproportionate to the loan amount, constituting the main source of the lender’s income.

What questions did the referring court ask?

In the context of the aforementioned case, the District Court for Warsaw Śródmieście posed the following preliminary questions:

  1. Whether Article 3(1) of [Directive 93/13] should be interpreted to allow the recognition of a contractual term that grants the entrepreneur a fee or commission in an amount grossly disproportionate to the service offered by it?
  2. Whether Article 7(1) of [Directive 93/13], along with the principle of effectiveness, should be interpreted to preclude national law provisions or their judicial interpretation, stating that a consumer must have a legal interest to bring an action against an entrepreneur to establish the nullity or ineffectiveness of a contract or part thereof containing unfair terms?
  3. Whether Article 6(1) of [Directive 93/13], along with the principles of effectiveness, proportionality, and legal certainty, should be interpreted to allow the finding that a loan agreement, whose only contractual term specifying the repayment method has been deemed an unfair term, cannot be valid after excluding that term, and thus, it is null and void?
  4. Whether a high commission can be an unfair contractual term?

In responding to the first set of preliminary questions, the CJEU stated that a contractual term could be deemed unfair and, consequently, not binding on the consumer if it provides for the payment by the consumer of costs or commission in an amount grossly disproportionate to the service provided in exchange for that commission. The examination of such a contractual term for its unfairness cannot be excluded under Article 4(2) in conjunction with Article 8 of Directive 93/13.

This means that the CJEU left it to the national court’s assessment to determine whether the evaluation of the unfair nature of the term does not concern the main subject matter of the contract or the price and remuneration relationship from one side to the goods or services provided on the other side, provided that these conditions are expressed in clear and understandable language.

Czy wysoka prowizja może być nieuczciwym warunkiem umownym?

Does the existence of another claim exclude the consumer’s legal interest in bringing an action for a declaration?

The most interesting question raised by the CJEU concerned the possibility of a consumer bringing an action for a declaration when the consumer has the option of making a better-protected claim against the entrepreneur.

In Polish jurisprudence, there is a well-established view that a consumer does not have a sufficient legal interest, within the meaning of Article 189 of the Code of Civil Procedure (k.p.c.), justifying them in bringing an action for a declaration when the consumer has a further claim for the return of undue performance to the entrepreneur or when such an entrepreneur asserts, in the context of a mutual claim, a claim for performance whose existence the consumer challenges in the action for a declaration.

In responding to the second set of preliminary questions, the CJEU stated that Article 7(1) of Directive 93/13, in conjunction with the principle of effectiveness, precludes national law provisions interpreted in such a way that, in order to consider a consumer’s action seeking the ineffectiveness of an unfair term in a contract concluded with an entrepreneur, evidence of the existence of a legal interest is required when it is considered that such an interest does not exist if the consumer has a claim for the return of undue performance or if they can invoke the ineffectiveness in defense against a mutual claim for the enforcement of an obligation brought against them by that entrepreneur based on that term.

This could have significant implications for consumers and judicial practice, as it means that a national court cannot dismiss an action for a declaration of the nullity of a contract or its specific provision on the grounds of a lack of the consumer’s legal interest solely because the consumer has the right to bring an action for payment.

Can a loan agreement still be valid if a contractual term specifying the only repayment method is deemed unfair?

In responding to the final set of preliminary questions, the CJEU stated that it is possible to declare the entire loan agreement null and void if it is determined that only one term of this agreement specifying the specific methods of payment of amounts due under periodic installments (in the circumstances of the case, repayment of the loan could only be made in cash at the consumer’s home) has an unfair nature and that such an agreement cannot continue to be valid without this term.

However, if the unfair term can be removed, and the real balance of the parties can be restored without violating the essence of the contract, there are no grounds for declaring the entire agreement null and void. This means that the agreement should continue to be valid without the unfair term, and the consumer should have the option to choose any legally permissible method of loan installment payment under national law.