Consumer credit agreements and right of withdrawal: new judgment from the European Court of Justice

Written on 28 May 2020

The Court of Justice of the European Union has ruled that credit agreements for consumers should specify in a “clear and concise manner” how the withdrawal period is calculated as well as the conditions to exercise it; not being sufficient to refer to a national provision which itself refers to other legislative provisions.

The dispute started when a consumer concluded, in 2012, a credit agreement secured by a mortgage with a German credit institution (Kreissparkasse Saarlouis). One of its clauses specified that the consumer had a period of 14 days to exercise its right of withdrawal, starting from the day of conclusion of the credit agreement. This clause also sets out that the agreement was considered concluded once the client had received all the mandatory information, which was contained in various provisions of the German civil code. In particular, the agreement did not clearly establish what such mandatory information was, from which the contract would be considered concluded and, therefore when the calculation of the withdrawal period would begin. Instead, as indicated, the agreement referred to different provisions of the German civil code which, in turn, alluded to other legislative provisions of that same regulation.

In 2016, the client notified the German credit institution of its decision to withdraw from the agreement. The credit entity refused to accept the withdrawal, claiming that the 14 days had elapsed and that it had duly informed the consumer about that right.

The Langdericht Saarbrücken (Regional Court, Saarbrücken, Germany), in charge of the resolution of the main proceeding, decided to stay the proceeding and refer some questions to the Court of Justice of the European Union (“CJEU”), including if Article 10(2)(p) of the Directive 2008/48/EC (the “Directive”) must be interpreted as meaning that the mandatory information in relation to the period and other conditions to exercise the right of withdrawal, also includes requirements governing the start of the withdrawal period and if there are any concerns regarding the inclusion of references to provisions of national laws to inform about the commencement of the withdrawal period.

Although the Directive did not apply to credit agreements secured by mortgages, as was the case, the CJEU ruled the request for a preliminary decision admissible. The CJEU held that the German legislature had decided that the rules of the Directive should apply to this type of contracts, taking up the option provided in recital 10 of the Directive. This section specifies that the Directive does not object to a Member State, under European Union law, applying the provisions of the Directive to aspects not within its scope.

Consequently, in its ruling of 26 March 2020 (C-66/19), the Luxembourg Court, bearing in mind the importance of the right of withdrawal for consumer protection and the need for the consumer to know in advance the conditions, time limit and procedures for exercising the right of withdrawal, ruled that the calculation of the period of withdrawal should be specified in a “clear and concise manner”. Otherwise, the ruling continues, the effectiveness of the right of withdrawal “would be seriously diminished”.

When answering the second question about the preliminary rulings, the CJEU added that the reference to provisions of national law, which also refer to other statutory provisions of the Member State, is not considered as a valid option to inform the consumer about the starting point of the withdrawal period and other conditions governing the exercise thereof. The Court understands that the consumer does not have to study numerous national provisions contained in various legislative acts as the consumer cannot, by doing so, determine the extent of their contractual documents, or know if their contract includes all the information required by law.

Once again, this ruling by the CJEU highlights the importance of consumer protection and consumer rights in European Union law. This is also covered in the Spanish legislation, which classifies as a serious infringement, penalized with fines of up to 15,000€, the non-compliance with any provisions related to the information required before consuming services or products.

It is also worth mentioning that if the conflict would have taken place in Spain, during the current context of the Covid-19 pandemic, the period of 14 days to exercise the right of withdrawal would not have been applied as, in accordance with article 21 of the Royal Decree-Law 8/2020, of March 17, on urgent and extraordinary measures to manage the economic and social impact of Covid-19, said period has been suspended during the state of alarm.