Judgment of the ECJ on 13th February 2025 – C-472/23
When taking out a loan with a bank, the borrower is required to pay interest. However, the bank may lose its right to claim interest if it has violated its duty to provide information. The bank is obliged to clearly and understandably inform its clients about the annual percentage rate and its calculation, as well as any changes to the contract. The European Court of Justice (ECJ) made this clear in its ruling on 13th February 2025 (Case No.: C-472/23).
For borrowers, it is important to be able to assess their financial burden in connection with the loan. They rely on information provided by the bank. The ECJ emphasized in its ruling that a bank should take its duty to inform seriously. If this duty is violated, the bank can lose its claim to interest and costs, explained MTR Legal, a business law firm specializing in banking law.
Provision of the Annual Percentage Rate
In the case before the ECJ, a consumer in Poland had concluded a loan agreement with a bank for an amount of approximately €9,600. On top of this, interest and additional costs amounted to about €5,600. The effective annual rate for the loan was stated as 11.18%. The loan contract also stipulated that the bank could charge additional fees for processes related to loan processing and changes to contract terms.
According to the contract, the bank was allowed to increase fees and commissions if any of the listed conditions were met. This included, for example, changes in the minimum wage, changes in average wages, price developments in various sectors, or changes in the interest rates set by the Polish National Bank.
The loan contract also specified that the bank not only charges interest on the loan amount but on the total costs of the loan agreement. This resulted in the high effective annual rate.
Bank Violates Duty of Information
The consumer felt disadvantaged and transferred their rights under the loan agreement to a debt collection agency. The agency argued that the bank had violated its duty to inform and demanded the repayment of approximately €2,900, which the consumer had already paid in interest and costs.
The debt collection agency argued that the bank had provided an excessively high effective annual rate and thus violated its obligations under the Consumer Credit Act. The clause used by the bank was deemed abusive. The bank had also failed to specifically state under which conditions the fees for the loan agreement could be increased. Due to these violations, the bank had lost its right to claim interest and costs.
The relevant Polish court was unsure whether a violation of the duty to inform would actually lead to the loss of the bank’s right to claim interest and costs and referred the matter to the European Court of Justice.
ECJ Strengthens Consumer Rights
The ECJ strengthened consumer rights and clarified that the bank can lose its right to interest and costs if it has violated its duty to inform and the borrower is unable to assess the extent of their financial obligations under the loan agreement.
The judges in Luxembourg initially clarified that the effective annual rate and the total amount to be paid by the borrower at the time of concluding the loan agreement must be clearly and concisely stated. A misstatement of the effective annual rate would generally occur if it is stated too low or too high. However, when calculating the effective annual rate, it is assumed that the loan agreement is valid for the agreed period and that both the lender and the borrower fulfill their obligations under the loan agreement. A violation of the duty to inform is not yet established if the effective annual rate is overstated because contract clauses later prove to be abusive.
Borrower Must Be Able to Assess Financial Obligations
However, the bank must clearly and distinctly state the conditions under which the fees can be increased. If the bank refers to indicators that the borrower can hardly verify, this may constitute a violation of the duty to inform, according to the ECJ. If this violation leads to the borrower being unable to assess their financial obligations under the contract, the bank may lose its right to claim interest and costs. The ECJ also confirmed that such a sanction is proportionate, although the sanctions may vary depending on the severity of the violation.
This decision of the ECJ is binding for loan contracts across the entire EU. In cases of erroneous or unclear conditions regarding the effective annual rate, banks may lose their right to interest and costs.
MTR Legal Rechtsanwälte advises on loans and other banking law issues.
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