1 National Report on the transposition of the Consumer Credit Directive 1 in France Shaun Charlton, LLB (ELFL) Abstract This national report has been prepared as part of the comparative study on the Implementation of the Consumer Credit Directive, as requested by the European Parliament s Committee on the Internal market and Consumer Protection. 2 It covers key aspects of the French transposition, including information requirements, the right of withdrawal, the duty to give explanations to the consumer and the assessment of the consumer s creditworthiness. 1 Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC  OJ L133 2 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012) IP/A/IMCO/ST/ ; PE
2 Shaun Charlton, LLB (ELFL) Legal Research Assistant European Legal Studies Institute, Universität Osnabrück, Süsterstr Osnabrück, Germany.
3 CONTENTS INTRODUCTION 4 1. State of Implementation State and placing of the implementation Main difficulties implementing the Directive Method of implementation 6 2. MANDATORY FULL HARMONISATION Advertising requirements Calculation of the APR Pre-contractual information duties, the SECCI Information to be included in credit agreements Right of withdrawal Conditions for early repayment TRADITIONAL HARMONISATION Sufficient assessment of the consumer s creditworthiness Linked credit agreements: remedies against the creditor where the goods or services do not conform to the contract Penalties Provision of the pre-contractual information in good time before the conclusion of the credit agreement Adequate explanations OPTIONAL FULLY HARMONISED ASPECTS A less stringent regime for certain in-scope agreements Exclusion of the APR in the advertising and pre-contractual and contractual information of overdrafts The notary exception and funds in linked credit agreements only available after lapse of the withdrawal period Limits on compensation for early repayment REGULATED ASPECTS WHICH FALL OUTSIDE THE SCOPE OF THE DIRECTIVE 22 Annex 23 List of Abbreviations and Terms 23 References 24 3
4 INTRODUCTION This report is structured into five chapters substantively mirroring the structure of the Briefing Paper in a simplified form. Chapter 1 presents the transposition of the Directive in general terms. Main difficulties of the transposition are included as well as an explanation of how the transposition of the Directive fits into the national law. The main substantive elements of the transposition follow. The Consumer Credit Directive is an example of a socalled full harmonisation directive. This does not mean, however, that the directive is a regulation in all but name whereby the European Union provisions bulldoze those of the Member States. Instead the Consumer Credit Directive is more nuanced. Some of its provisions do function like those of a regulation and the Member States have practically no room for manoeuvre other than to copy and paste what is written in the Directive. Examples of such provisions are the right of withdrawal, the SECCI form and the advertising requirements. These are treated in chapter 2. Chapter 3 presents elements of the Directive which relate to the more traditional methodology of European Union directives. These elements of the Directive are binding as to the end to be achieved while at the same time leaving some choice as to the form and method of their transposition. The most important of these provisions were the assessment of the consumer s creditworthiness and the duty to adequately explain the information relating to the consumer credit on offer. Then there are provisions which are optional. Although not mandatory, if exercised Member States must take them in their fully harmonised form or not at all. Examples of these provisions include certain limits of compensation as a result of early repayment of the credit by the consumer and the exclusion of the right of withdrawal where the consumer credit agreement is concluded in the presence of a notary. These aspects of the Directive are treated in chapter 4. For the substantive elements of the Directive (chapters 2-4), the sections are extensively cross-referenced with the corresponding sections of the Briefing Paper to allow for ease of comparison. In the final chapter a brief overview is given of the regulation of consumer credit in France which falls outside the scope of application of the Consumer Credit Directive. This national report endeavours to state the law on the basis of materials available as of January 2012.
5 1. STATE OF IMPLEMENTATION 1.1. State and placing of the implementation Before 1993 the primary reference-point for the regulation of consumer credit in France was the Scrivener Law of In 1993, the French consolidated a collection of piecemeal legislation into a Consumer Code (Code de la consommation). As this was not a codification in the strict sense, but rather a collection of laws relating to consumers each with different scopes of application, 4 the content of the Scrivener Law as amended was placed into its own particular section on consumer credit. The transposition of Directive 2008/48/EC (the Directive) 5 has therefore been placed in the Code de la consommation. The transposition of the Directive was taken as the opportunity not only to reform the law on consumer credit but also to tackle the problem of consumer insolvency, preventively as well as regarding insolvency proceedings, and the organisation of consumer organisations. In order to achieve such a reform the transposition was realised through primary legislation. In March 2009, the Consumer Credit Bill was introduced into the Sénat, the upper chamber of the French Parliament, and debated on 18 th June 2009 before being remitted to the Assemblée nationale, the lower chamber. The Bill was amended significantly over a period of one year before being sent for approbation to the Senate whose approval it received on 21 st June The Loi n du 1er juillet 2010 portant réforme du crédit à la consommation (Consumer Credit Reform 2010) was promulgated on 1 st June The transposition was therefore within the deadline for adoption and publication, as amended by a corrigendum to 11 th June Article 27 of the Directive, which provides for the transposition deadline, refers not only to the 11 th June 2010 as the date for the adoption and publication of the transposition, but also to the date from which the adopted provisions apply. This latter date is also known as the date when the provisions come into force. Although the transposition was adopted and published before the 11 th June, many of its provisions required further secondary legislation in order to be brought into force. For example, key elements of the Directive, such as the representative example 7 and the standard forms for pre-contractual and contractual information 8 came into force on 30 th August 2010 and 1 st February 2011 respectively. 3 Loi n du 10 janvier 1978 relative à l'information et à la protection des consommateurs dans le domaine de certaines opérations de crédit 4 Raymond, Bienvenue au Code de la consommation (août-sept. 1983) Contrats, concurrence, consommation, chron. p.1; Raymond, Du Code de la consommation (1997) Contrats, concurrence, consommation, repères; Beauchard, Remarques sur le Code de la consommation in Ecrits en hommage à G. Cornu (1994, PUF) 5 Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC  OJ L133 6 Corrigendum to Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC  OJ L207, 11 August Décret n du 30 août 2010 prévu à l'article L du code de la consommation tel que modifié par l'article 4 de la loi n du 1er juillet 2010 portant réforme du crédit à la consommation relatif au contenu et aux modalités de présentation de l'exemple représentatif utilisé pour les publicités portant sur des crédits renouvelables et fixant les modalités d'entrée en vigueur de l'article 4 de cette même loi 8 Décret n du 1er février 2011 relatif à l'information précontractuelle et aux conditions contractuelles en matière de crédit à la consommation 5
6 1.2. Main difficulties implementing the Directive The main difficulty concerning the transposition of this Directive from a French perspective would appear to be the limited timeframe for its adoption. The travaux préparatoires refer to the unrealistic deadline of the Directive. 9 According to one commentator, the conditions under which the law was adopted force one to reflect upon the authority and worth of parliamentary legislation. 10 Given that the bill as passed by the Assemblée nationale was accepted in one month by the Senate with the transposition deadline looming, it was lamented that legislation which is to affect the lives of millions of citizens is debated in such a short time, with the upper chamber needing to adopt the text of the lower chamber without amendments solely to conform to the deadline for transposition. 11 The legislative text was adopted in the upper chamber amidst a continuing stream of proposals for amendments. 12 The problems of the legislative procedure are in part probably due to the more wide ranging reform of consumer credit in France annexed to the transposition, however, the time which the Member States were allotted to transpose the Directive remained problematic. An impact study was not conducted. 13 The impact study of the transposition of diverse European directives in the areas of civil and commercial law does not make reference to the Directive in question. 14 The Government has, however, published headline information to the public on the adoption of the implementing legislation, highlighting its benefits. 15 Although not a difficulty with the transposition per se, there was strong adverse reaction to the liberalisation of the system of consumer credit entailed by the Directive Method of implementation 16 Two legislative methods of implementing Directive provisions have been coined in recent years. These are the modular and integrated methods of implementation. 17 In a modular implementation, the provisions are inserted more or less in block into the national legislative framework. This means that provisions are not taken out of the legal context of the Directive. In an integrated implementation, provisions are taken apart and inserted into the respective parts in the national legal system which relate to the subject matter of the 9 Commission spéciale (Dominati), Projet de loi portant réforme du crédit à la consommation Rapport n 447 (2009), p.131-2, hereafter Dominati, Report 447 (2009) 10 Raymond, La loi ou la loi? Contrats, Concurrence, Consommation, no.11, novembre 2010, Repère. 11 Ibid. 12 Ibid. 13 cf. Les études d'impact des lois publiées depuis le 1er septembre 2009 (www.legifrance.gouv.fr). 14 Etude d impact portant transposition de diverses directives du Parlement européen et du Conseil en matière civile et commerciale (http://www.legifrance.gouv.fr/html/etudes_impact/lois_en_preparation/2010/ei%20_transpo_dir_civiles_com.pdf) See also, Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [1.2.2.] 17 Wendehorst, Umsetzung der Verbraucherkreditrichtlinie  Zeitschrift für Europäisches Privatrecht 263
7 Directive. This means that provisions are taken out of the context of the Directive and put into the respective legal contexts of the national legislative framework. The modular implementation typically involves, for example, inserting a new or amending a pre-existing chapter in a code. Other modular implementations include the introduction of a new consumer credit code or the amendment of a law on consumer credit. It should perhaps be noted that, although a legislative transposition may be termed modular or integrated, the modular or integrated nature of the transposition is necessarily determined by the legislative environment of the Member State. Firstly, as a pre-condition, the legal environment must already be structured, that is to say to some extent codified in the strict sense. Secondly, the legislative environment, into which the subject-matter of a directive is relevant, is modular or integrated. An integrated legal environment contains several elements. The first is a general provision prescribing a particular personal scope, i.e. definition of a consumer, which derogates from the otherwise general scope of citizens having the capacity to enter into legal relations (cf. Bürgerliches Gesetzbuch; Code civil). Secondly, after each civil law contract, or general law contract, particular rules are stipulated where one of the parties falls under the particular personal scope of the first element, i.e. after the loan contract, the special rules on consumer credit. Clearly, where a directive concerns consumer credit, the parts of the directive relevant to the personal scope may require amendment of the national definition of the consumer and the substantive rules of the directive, such as a right of withdrawal, are relevant to the national rules on the credit contract. This accounts for the implementation of parts of a directive in different parts of a code, rather than in one chapter. The second conceivable legislative environment is the modular one. The French legislative environment is modular. First, the French Civil Code (Code civil) provides the default, general rules (le droit commun) of the legal system. This includes rules on the capacity of persons to enter into legal relations. The Code de la consommation provides rules for specific contracts concluded with consumers which are supplementary or derogatory vis-àvis the Code civil. Thus, in Book III, Title III the Code civil sets out the legal rules relating to contracts in general. A number of specific types of contract follow Title III on the general law of contract. Of the specific types of contract there is the loan for consumption (prêt) in Title X, which is historically and traditionally regrouped with the loan for use (prêt à l usage) and deposit (dépôt), so-called real contracts. Within Title X on loans, there are particular rules on the loan for use at a rate of interest (prêt à intérêt). The Scrivener Law of 1978 provided for a particular regime concerning loans concluded by those who lend as part of their regular activity (à titre habituel) 18 to borrowers for non-professional purposes, i.e. consumers (sont exclus [les prêts] destinés à financier les besoins d une activité professionnelle) 19. Given that the creation of the Code de la consommation was not a codification in the strict sense, the particular regime of the Scrivener Law was inserted into a particular chapter on consumer credit (crédit à la consommation). Since 2000, the particular regime for consumer credit has moved even further away from its closest institution of the general law, the loan for consumption, as the highest French court (Cour de cassation) held that consumer credit contracts are not concluded from the delivery of the money lent but from the conclusion of the agreement to lend Article 2, Loi n du 10 janvier Article 3, Loi n du 10 janvier Cass. 1 re civ., 28 mars 2000 : JCP G 2000, II, 10296, concl. Sainte-Rose; Piedelièvre le prêt consenti par un professionnel du crédit n'est pas un contrat réel  Dalloz, jurispr. p
8 As the Code de la consommation is predominantly for contracts which are concluded with consumers, the Directive is only relevant to this particular Code; it does not directly concern any provisions of the Code civil, for example. Since the legal context of national law makes consumer credit a specific part of the law relating to consumers, that is to say modular, rather than integrating the law relating to consumer contracts with the general law of contracts, the resulting transposition must also be modular. However, there have been plans afoot to rethink the structure of the Code de la consommation. These range from incorporation of consumer law into the Code civil 21 along the lines of the German Reform of the Law of Obligations 22 to codifying the provisions of the Code de la consommation in the strict sense. 23 Reform was provided for in the Law of 2008 for the development of competition for the benefit of consumers within 24 months of its publication. 24 It was again provided for in the Consumer Credit Reform However, neither restructuring of the Code de la consommation has taken place at the time of writing. 21 Les contrats de consommation, Travaux, faculté de droit de Poitiers (2002, PUF) 22 Gesetz zur Modernisierung des Schuldrechts (Law on the modernisation of the law of obligations) 26 th November 2001, Bundesgesetzblatt I page This dates as far back as the original proposition for a consumer code: Calais-Auloy, Propositions pour un nouveau droit de la consommation (1985) 24 Article 35, loi n du 3 janvier 2008 pour le développement de la concurrence au service des consommateurs 25 Article 63, loi n du 3 janvier 2008
9 2. MANDATORY FULL HARMONISATION 2.1. Advertising requirements Introduction and explanation of the Directive Article 4(1) of the Directive provides that any advertising concerning credit agreements which indicates an interest rate or any figures relating to the cost of the credit to the consumer shall include standard information...[in the form of a representative example]. This does not affect the Member States freedom to make other information not relating to the cost of credit mandatory for consumer credit advertising The previous regime The previous regime was to be found in articles L311-4 and L The advertising requirements for consumer credit were already strict before the Directive. Advertising had first and foremost to be fair and informative. The provision of the following information was mandatory: the identity of the lender; the type of credit, its duration, total cost; where applicable the APR (Annual percentage rate of change; taux effectif global annuel du crédit) without any other rate; the amount of periodic repayments in euro, or if not possible then how to calculate the amount; where a fixed loan, then the number of repayments; where in written form, then whether the APR is fixed or subject to revision; The previous regime also subjected the mandatory information of written advertisements to a form requirement that their inclusion be in a size at least as large as the text relating to other financial information. Advertising which indicated that the borrowers would not need to provide information capable of assessing their financial situation was prohibited as well as suggesting that the loan advertised could improve the financial situation of the borrower The Transposition Advertising is a fully harmonised element in which the French legislature had an extremely limited scope for policy choices, the predominant purpose of the Directive being to make certain standard information mandatory. It was noted that mandatory information related to the cost of credit would, firstly, be inconsistent with the full harmonisation of the Directive and, secondly, reduce the significance of the other financial information. 26 The advertising requirements were correctly implemented. Outside the scope of the Directive, a warning to consumers about the dangers of credit in a prominent manner was made mandatory and advertising was prohibited from mentioning any grace period for repayment of over three months unless the State is the lender Appraisal The main criticism of advertising made under the previous regime related to the over complication of the information given and the difficulty of comparing different consumer 26 Dominati, Report 447 (2009), p L311-5, Code de la consommation 9
10 credit advertising. 28 The Directive provisions as transposed should help in this regard. It was noted that the transposition of the mandatory information, the representative example, the conditions of form and the prohibition of implying that the loan could improve the financial situation of the consumer present improvements when compared to the previous regime for consumer credit advertising The scope of the advertising requirements The scope of the standard information of Article 4 is limited to advertising which indicates an interest rate or any figures relating to the cost of credit. Paragraph 2 of Article 4(1) explains that Member States may, as a result, continue to require the mandatory indication of the APR in cases which do not fall within the scope of paragraph 1 and without making the provision of the remaining standard information mandatory. This effectively clarifies that the advertising requirements are fully harmonised, but that the full harmonisation is limited to the precise scope of the Directive. The Member States are free to apply the Directive regime outside the scope of the Directive. 30 In relation to overdraft facilities, Member States had the option of allowing creditors to derogate from providing the APR in certain advertising on the basis of article 4(2)(c). France kept an indication of the APR mandatory for all consumer credit advertising Calculation of the APR 32 Article 19 of the Directive outlines the fully harmonised method for calculating the calculated the total cost of credit to the consumer expressed as an annual percentage of the total amount of credit over a 12 month period (APR). Annex I of the Directive sets out the method in the form of a mathematical formula. A number of assumptions were made for situations in which a definite figure would be impossible to give at the time of calculation. The assumptions contained in the annex are capable of being amended and supplemented by the comitology procedure. The Directive s method for calculating the APR (taux annuel effectif global) is practically the same as that in the pre-existing French legal framework. 33 However, the former regime included notary costs and the percentage rate of change under the previous regime was not necessarily yearly, it could for example have been calculated on a quarterly basis. The APR calculation method was implemented through secondary legislation (décret) 34 by inserting a new article into the Code de la consommation, D No major difficulties 28 Athling Management, Pour un développement du credit renouvelable en France - Rapport réalisé par Athling Management pour le Comité Consultatif du Secteur Financier (2008), p Commission spéciale (Dominati), Projet de loi, modifié par l Assemblée nationale, portant réforme du crédit à la consommation n 538 (2010), p. 25, hereafter Dominati, Report 538 (2010) 30 Also, Recital (10) and (18) of the Directive 31 see further Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.1.E.] 33 Dominati, Report 447 (2009), p. 215: extrêmement proche 34 Décret n du 30 août 2010 prévu à l'article L du code de la consommation tel que modifié par l'article 4 de la loi n du 1er juillet 2010 portant réforme du crédit à la consommation relatif au contenu et aux modalités de présentation de l'exemple représentatif utilisé pour les publicités portant sur des crédits renouvelables et fixant les modalités d'entrée en vigueur de l'article 4 de cette même loi.
11 were foreseen in its transposition. Although the taux effectif global was in practice largely calculated on a yearly basis, some advertisements calculated it on a semester or trimester basis. Under the transposition the basis for the percentage rate of change will be uniformly calculated. The exclusion of notary costs from the total cost of credit, even if already known at the date of the conclusion of the contract, has not been carried over to credit falling outside the scope of the Directive as transposed in articles L311-1 to L Thus, notary costs in relation to consumer credit for the purpose of acquiring the ownership of land are included in the total cost of credit and the APR Pre-contractual information duties, the SECCI Introduction and explanation of the Directive Under articles 5 and 6, the Directive made the provision of certain information about the consumer credit on offer before the actual conclusion of the agreement mandatory. A less onerous regime was created for consumer credit given in the form of an overdraft. In Annex II, the Directive provided a standard form laying out a blueprint for all the necessary information. This is called the Standard European Consumer Credit Information form (the SECCI) Previous regime The previous regime also used standard forms for the inclusion of mandatory information to the consumer which varied according to the type of consumer credit. 36 The information contained in the standard forms was already comprehensive. 37 The content and layout of these standard forms was determined by the Banking Regulation Committee (comité de reglémentation bancaire) after having consulted the National Consumer Council (Conseil national de la consommation). However, the key difference between the Directive regime and the previous French regime is that the previous regime of information duties took the form of a preparatory offer system (système de l'offre préalable). In this system there is no distinct pre-contractual stage because the preparatory offer, once signed, forms the contract. As a consequence, this regime did not provide for an obligatory period of time starting from the delivery of the offer to elapse before its signed return, even though the lender was bound not to withdraw the offer for at least 15 days and that once signed the consumer had a right to withdraw within 7 days. This meant that in practice the preparatory offer was given to the consumer and signed contemporaneously Travaux préparatoires The insertion of a distinct pre-contractual phase was commended by the Working Group of the Senate established to examine the Consumer Credit Reform Bill in its 2009 Report (the 2009 Report). 38 Both the Assemblé nationale and the Sénat welcomed the pre-contractual 35 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.1.A.] 36 Dominati, Report 447 (2009) 37 Former article L , Code de la consommation 38 Dominati, Report 447 (2009), pp
12 phrase as une avancée notoire. 39 acknowledged. 40 The enhancement of mandatory information was also Transposition France transposed the Standard European Consumer Credit Information into national law almost verbatim from the appendix of the Directive. Although the requirements of which information is mandatory was stated in the Code de la Consommation, secondary legislation was needed to transpose the standard form. 41 There were only minimal amendments. These relate, for example, to the obligation of the creditor to inform the consumer immediately and without charge of the result of a consultation of a database if credit is subsequently refused. Perhaps due to the fact that a consultation is a pre-condition to the conclusion of a credit agreement and it would be irresponsible to choose to lend after a negative response, the form simply states that the creditor is bound to consult the database created for the purposes of verifying the solvability of borrowers. 42 The information that missing payments could have severe consequences for you (e.g. forced sale) and make obtaining credit more difficult appears although without the example of forced sale. 43 However, it is clear that the particular consequences of default would be dealt with in substance by the duty to give adequate explanations. 44 If the consumer is not given the SECCI before the conclusion of the contract, or the form given does not correspond correctly to the SECCI, then the lender is not able to claim interest on the loan from the consumer Information to be included in credit agreements 46 The information which must be included in credit agreements is mainly a repetition of the pre-contractual information duties without the set format of the SECCI and excluding the information which is only pertinent to the pre-contractual stage. Additional information relates only to: a) the right to a statements of charges, interest and payments; b) early repayment; c) how to exercise the right to withdraw; d) whether there is a dispute resolutions procedure; e) if the agreement is a mixed credit contract, then mention of the rights particular to that type of agreement; f) where applicable, the competent supervisory authority 39 Dominati, Report 538 (2010), p Dominati, Report 538 (2010), p Annexe à l'article R311-3 du Code de la consommation, «Informations précontractuelles européennes normalisées en matière de crédit aux consommateurs» 42 Le prêteur doit, dans le cadre de la procédure d'octroi du crédit, consulter le fichier national des incidents de remboursement des crédits aux particuliers. 43 Article Annexe à l'article R311-3; Décret n du 1er février 2011 relatif à l'information précontractuelle et aux conditions contractuelles en matière de crédit à la consommation 44 cf Article 14, Projet de loi portant réforme du crédit à la consommation 46 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.1.B.]
13 g) other contractual clauses. As mentioned above in on pre-contractual information, the previous regime in France was that of the preparatory offer system. Thus, the preparatory offer with its items of mandatory information, once signed, formed the credit agreement. In clearly differentiating the pre-contractual stage from the contractual stage the Directive required France to provide for the information which must be incorporated into the consumer credit agreement. The rules on the formation of the credit contract and information to be included in the contract information are to be found in articles L to L The SECCI itself was transposed through secondary legislation on 1 st February France complied fully with the full harmonisation of information to be included in credit agreements. In making the conclusion of the contract subject to double acceptance, the Consumer Credit Reform 2010 may have created a problem concerning the conformity of the French law with the right of withdrawal. This will be discussed in greater detail in Right of withdrawal 48 Article 14 provides for an unrestricted right of withdrawal from consumer credit agreements within a period of 14 days. It also deals with important related questions of notice and repayment. There has been a right of withdrawal in France since the Scrivener Law The right of withdrawal was, however, limited to 7 days. The extension of the right of withdrawal to 14 days was in itself unproblematic in France. This was accomplished in article L Nevertheless, the French legislation modified the conditions for the conclusion proper or perfection of the contract. There must be double acceptance of the credit agreement, first by the consumer, then by the lender. In order for the credit agreement to be perfected, the consumer must not have withdrawn from the agreement, i.e. 14 days must have passed, and the lender must have already given the consumer notice of the decision to accord credit within 7 days after the consumer first accepted the offer of the lender, or have made the funds available to the consumer after that time. 50 The Directive clearly states that time for calculating the right of withdrawal should run at the earliest from the conclusion of the credit agreement. 51 Given that the French right of withdrawal runs from the consumer s declaration to adhere to the credit agreement, but that the intention of the borrower to be bound by the agreement a contrat synallagmatique is capable of being delayed until 7 days later, this may prove problematic. There may therefore be an argument founded upon the direct effect of the Directive for holding that the real right of withdrawal, not the simple withdrawal of an offer as provided for in L311-13, should run from the clear and express intention of the lender to be bound by the draft agreement. 47 Décret n du 1er février 2011 relatif à l'information précontractuelle et aux conditions contractuelles en matière de crédit à la consommation 48 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.1.C.] 49 Loi n du 10 janvier 1978 relative à l'information et à la protection des consommateurs dans le domaine de certaines opérations de crédit, «loi Scrivener». 50 Article L311-13, Code de la consommation 51 Article 14(1), Directive 2008/48/EC 13
14 2.6. Conditions for early repayment 52 Article 16 of the Directive entitles the consumer to repay the loan either fully or partially at any time during the life of the credit agreement. Most importantly, there is to be a consequential reduction in the interests and costs of the credit in line with the amount paid that is to say, for example, that the consumer is not obliged to pay interest on credit already repaid. The creditor is, however, entitled to capped compensation from the consumer for early repayment. The consumer was already entitled to repay early whether partially or fully, however, without indemnifying the lender. 53 This right was not only applicable for normal consumer credit but also for consumer credit relating to land. The previous regime needed to be amended to provide for a fair and objectively justified indemnity to the lender. France even understood the right to compensation as mandatory, d ordre public, from which individual lenders could not contractually opt out. 54 The right to compensation for early repayment was heavily criticised. The French Parliament had already protested against this aspect of the draft the Directive, but was unable to modify the end-result contained in article On the first reading of the Bill as first introduced, the right to compensation was actually rejected by the Senate. In its transposition the right to compensation for early repayment does not apply to overdrafts, nor to early repayments within a one-year period of an amount under 10,000, nor may exceptional higher compensation be claimed above the limits set by the Directive. 52 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.1.D.] 53 Dominati, Report 538 (2010), chapitre IV, contenu et exécution du contrat de crédit, ( ) 54 Dominati, Report 447 (2009), p Résolution n 27 du Sénat ( ) sur la proposition de directive du Parlement européen et du Conseil relative à l'harmonisation des dispositions législatives, réglementaires et administratives des États membres en matière de crédit aux consommateurs (E 2103)
15 3. TRADITIONAL HARMONISATION 3.1. Sufficient assessment of the consumer s creditworthiness 56 Article 8 (1) of the Directive provides that, 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. According to L311-9,...the lender must check the solvency of the borrower from a sufficient amount of data. 57 There is no express reference to what constitutes a sufficient amount of information for verifying creditworthiness. However, the training mentioned in relation to adequate explanations in 3.5 should help in ensuring that creditworthiness is correctly analysed. Nevertheless, France has provided for the creation of a form, the so-called fiche de dialogue, to be filled in by the borrower relating to his financial situation, i.e. resources and debts, which must be assessed as to its exactitude. 58 Once a certain limit has been reached, the form must also be attested to through documentary evidence. Although the fiche de dialogue was neither provided for in the law before the implementation of the Directive, nor provided for by the Directive itself, it should be seen as reinforcing the assessment of the consumer s creditworthiness and contributing to an environment of responsible lending. It was noted in the travaux préparatoires that this is a major innovation of the Consumer Credit Reform The information to be included effectively amounts to sufficient information for verifying creditworthiness. This is because no other information other than that of the form can be used to justify a refusal to lend to a prospective borrower. Furthermore, in assessing the creditworthiness of the consumer, the lender can check the national database 60 according to the conditions of the consultation as determined by an arrêté du ministre mentioned at article L Only authorised credit establishments which also provide data to the database are able to consult it for assessing consumers creditworthiness Linked credit agreements: remedies against the creditor where the goods or services do not conform to the contract 61 Article 15 resolves issues in relation to linked credit agreements. Linked credit agreements under the Directive are defined in article 3(n) as agreements where the credit is to be used exclusively to purchase specific goods or services and where the supply contract objectively 56 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.4.B.] 57 le prêteur vérifie la solvabilité de l emprunteur à partir d un nombre suffisant d informations 58 L311-10, Code de la consommation 59 Dominati, Report 447 (2009), p L333-4, Code de la consommation 61 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.2.B.] 15
16 forms a commercial unit with the credit agreement. A typical example of a linked credit agreement would be where a car dealer cooperates with a lender to provide credit to a consumer in order to buy one of his cars. In linked credit agreements, the credit may be used to pay the full purchase price of the goods or services, or only a part of the price. In the latter case, consumers pay the remainder from their own pockets. Article 15(2) provides a minimum standard of protection for linked credit consumers for whom the goods or services are either not subsequently supplied or are supplied, but not in conformity with the contract. In such cases the Directive allows the consumer to pursue remedies against the lender where lawful remedies have first been sought from the supplier, but for whatever reason are not fully performed. However, article 15(3) specifies that article 15(2) is clearly only minimum harmonisation. It stipulates that the Member State is free to make the lender joint and severally liable meaning in part that the consumer does not need to pursue the supplier first before pursuing remedies against the lender as under the minimum standard. The 1987 Consumer Credit Directive contained an almost identical provision to the 2008 Consumer Credit Directive. 62 The provision for secondary or subsidiary liability was the result of a compromise made instead of providing a regime for the joint and several liability of seller (or service provider) and lender. 63 France had in any case gone beyond the requirements of the 1987 Directive in this regard. 64 The former regime was contained in articles L to L of the former Code de la consommation. The French regime for linked credit protects the consumer by acting preventively to ensure that consumers are not put in a situation in which they need to seek remedies from the buyer and then subsequently from the lender. In this system it is key to note that the borrower-buyer does not pay any money over to the seller it is the lender who pays. This is why each credit agreement concluded by a lender who is not also a seller must note which good or service the agreement is intended to fund. The transposition maintained the previous regime of the interdependence of linked credit agreements. 65 The main amendment was to reinvigorate the definition of linked credit by stating that the sale or service contract and the credit agreement constitute a single commercial unit (opération commerciale unique). 66 In the event of non-performance or defective performance of the sale or service contract, a court can suspend the obligation of the consumer to make interest repayments on condition that the lender is on notice. 67 If the sale or service contract is avoided then the credit contract is also void Article 11(2), Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit  OJ L42 63 Discussion paper for the amendment of Directive 87/102/EEC concerning consumer credit (2001), p Discussion paper for the amendment of Directive 87/102/EEC concerning consumer credit (2001), p.28, note 37(1) 65 Dominati, Report 447 (2009), p.220; Dominati, Report 538 (2010), p.49; articles L to L311-41, Code de la consommation 66 In line with the case law of the ECJ : Rampion v Franfinance  C-429/05 (ECJ); article 3(n)(ii) of the Directive; L311-1, 9 Code de la consommation 67 L311-32, Code de la consommation 68 idem.
17 3.3. Penalties 69 Article 23 of the Directive lays down that infringements of the Directive, as transposed, give rise to penalties. The Member States are free to determine the contours of such penalties on condition that they are effective, proportionate and dissuasive. The French transposition maintains its former system of penalties and extends them to infringements of the Directive s regime for consumer credit. 70 The French system of sanctions combines those of a criminal and those of a private law nature. Article L provides for a fine of 1,500 for infringements of the consumer credit regime. These include, for example, situations in which the lender does not provide the consumer with pre-contractual information or does not conform to the formalities of the agreement. Where the lender makes funds available before 7 days after the consumer accepts the agreement contrary to L311-14, then the lender is subject to a fine of 30, Formerly, French case law had held that an irregularly concluded consumer credit contract was void. 72 The private law sanction for infringements of the Directive provisions as transposed, again such as providing insufficient pre-contractual information etc., is under L foregoing any interest on the amount transferred to the consumer. This effectively results in a free loan for the consumer Provision of the pre-contractual information in good time before the conclusion of the credit agreement 73 Article 5(1) of the Directive provides that in good time before the consumer is bound by any credit agreement or offer, the creditor... provide[s] the consumer with the information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. The expression in good time (en temps utile) was transposed directly into article L Discussion on whether further precision should be given to the expression, such as a particular number of days or without unreasonable delay, does not figure in the travaux préparatoires Adequate explanations 74 The Directive provides that the Member States shall ensure that adequate explanations are given so that the debtor can assess whether the proposed credit agreement is adapted to his or her particular needs and financial situation. Certain elements to which the explanation relates are then listed, such as the characteristics of the credit agreement and the consequences of default. The Directive expressly provided the Member States with a wide margin of appreciation in determining the manner by which and the extent to which the adequate explanations as regards the persons giving and receiving the assistance and the type of credit agreement involved. Along with the duty to check consumers 69 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.2.B.]; Raymond, Droit de la consommation (2011), pp Dominati, Report 447 (2009), pp L311-50, Code de la consommation 72 Cass. 1 re civ., 27 nov. 2008; Contrats, conc. consom. 2009, comm Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.5.A.] 74 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.2.A.] and [2.1.5.B.] 17
18 creditworthiness, adequate explanations can be seen as part of a strategy of responsible lending. In France, the Directive term of adequate explanations (explications adéquates) was replaced by a linguistically equivalent re-wording. 75 Thus, the lender must provide explanations which allow the borrower to decide whether the proposed agreement is adapted to his needs and his financial situation. In the text first proposed by the French government the provision read adapted to [the borrower s] choices. However, the word choices was replaced with needs so that there could be no question of incompatibility with the Directive. Clearly, an appreciation of the adequacy of an explication will depend upon the particularities of the situation at hand. Nor is explicit reference made to what constitutes an adequate explanation in the Code de la consommation. However, France has put in place a system of compulsory training for those under the duty to give explanations to ensure that the duty is effectively implemented. 76 Under D of the Code de la consommation, the training must provide the trainee with the ability to ensure that the consumer is wellinformed, in particular: explanations so that the consumer understands the pre-contractual and contractual information explain and execute the fiche de dialogue, the amount of credit to be provided and the associated cost and risk to the borrower; explanation so that the consumer understands the essential characteristics of the proposed credit agreement, as well as the consequences with such an agreement could have for the borrower, including in the event of default; explanation or words of warning to enable consumers to find a loan adapted to their needs, preferences and financial situation; explanation so that the consumer understands the contractual information explanation and words of warning which would be expected to be given to a consumer in risk of defaulting etc. Previously, in France the Code de la consommation did not impose a duty to give adequate explanations to the consumer, however, two praetorian duties, that is to say developed through case law (jurisprudentiel), were imposed upon the lender before the conclusion of the contract. This included a duty to warn (devoir de mise en garde) and a prohibition on excessive loans (interdiction d octroi de prêts excessifs). These duties extended to situations, for example, in which a bank did not investigate the financial means of borrowers and subsequently gave a loan which was excessive in relation the borrower s capacity to honour his obligations. 77 As the source of these duties is jurisprudentiel, it is not fully clear how they will interact with Article L providing for a duty of explanation. Arguably, the duties developed through case law go slightly further than the duty of explanation; not only must the lender adequately explain the implications of the credit 75 L311-8, Code de la consommation 76 Décret n du 13 décembre 2011 relatif aux exigences minimales auxquelles doit répondre la formation mentionnée au troisième alinéa de l'article L du code de la consommation 77 Cour de cassation, Ch. mixte, 12 juillet 2005, Bull. n 327. This was confirmed by another decision (Cour de cassation, Ch. mixte, 29 juin 2007, Bull. n 7. in which a lender had not informed a borrower ignorant of the risks of bankruptcy when borrowing credit having taken into account his financial means).
19 objectively, but also warn the consumer. The prohibition of excessive lending may act contrary to the spirit of Article 5 (6), given that the Directive seems to imply that is for the consumer to evaluate whether the loan is excessive or not. 19
20 4. OPTIONAL FULLY HARMONISED ASPECTS A less stringent regime for certain in-scope agreements Articles 2(5) and (6) must be read respectively in conjunction with, on the one hand, article 2(2)(l) and, on the other hand, articles 2(2)(i) and (j). The latter group of articles are exceptions to the scope of application of the Directive. Thus, Member States were a priori free to regulate excluded credit agreements as they saw fit. However, the former group of articles provided that should a Member State wish to apply the Directive regime to the excluded credit agreements of the former group, then it could only apply certain Directive provisions and not others. The effect of this was that within the substantive scope of the Directive (i.e. database access, or pre-contractual information duties), there was an optional all-or-nothing light-touch regime for these specific credit agreements. The specific credit agreements of articles 2(5) and (6) are respectively those concluded by non-profit organisations which give loans at rates lower than the market to its restricted membership in order to fulfil a social purpose as well as the renegotiation of pre-existing credit agreements in favour of a consumer who is in default with the purpose of avoiding legal proceedings. France did not take either option, keeping both agreements outside of the scope of consumer credit. The first agreement is excluded under L311-3, 5 by referring to L511-6 of the Monetary and Financial Code (Code monétaire et financier). Thus, where an employer makes an advance on an employee s salary, or an exceptional loan to employees in hardship neither constitutes a consumer loan. Nor is social aid distributed by the French social security organisation CAF (Caisse d allocations familiales) consumer credit in conformity with the previous French case law. 79 The second type is excluded under L311-3, Exclusion of the APR in the advertising and pre-contractual and contractual information of overdrafts 80 The Directive provided a less stringent regime for consumer credit taking the form of an overdraft. In the lighter touch approach, Member States were free to exclude an indication of the APR in advertising, pre-contractual information and the credit agreement itself. These options are provided for in articles 4(2)(c), 6(2) and 10(5)(f) respectively. France decided not to take these options and made indication of the APR mandatory for overdraft credit agreements The notary exception and funds in linked credit agreements only available after lapse of the withdrawal period The Member States were free under article 14(2) to decide that the right of withdrawal does not apply to consumer credit products where legislation provides that these contracts must be concluded in the presence of a notary as long as the notary confirms that the precontractual and contractual duties have been fulfilled. France had previously excluded agreements concluded in the presence of a notary from the scope of consumer credit 78 Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.4.] 79 Cass. 1 re civ., 10 juill. 2001: Bull civ. 2001, I, n Lawrynowicz et al., Implementation of the Consumer Credit Directive (2012), [2.1.4.A.] 81 Advertising: L311-42; pre-contractual information: R311-11; contractual information: R311-12