Malta: AG Hogan Sheds Light On Costs Associated With Early Repayments Under The Consumer Credit Directive

This case, which followed a request for a preliminary ruling from the Lublin-Wschód District Court in Lublin, Poland, concerned Article 16(1) of Directive 2008/48/EC (the "Consumer Credit Directive" or "CCD") which is the legal provision relating to the entitlement of a consumer to a reduction in the cost of credit where such a consumer makes an early repayment under a credit agreement.

The request for a preliminary ruling related to three similar cases which involved, credit institutions as defendants, entering into credit agreements with consumers, and charging commission on such credit. These consumers all managed to repay the credit earlier than the dates stipulated in the agreement. It is key to note that the percentage commission payable under these credit agreements did not depend on the duration stipulated in these agreements. In parallel, the same consumers entered into other agreements with the applicant, assigning to the same applicant their claims associated with the early repayment of their credit (including the reimbursement of the previously paid commission). Following numerous futile notifications by the applicant to the defendants requesting them to voluntarily pay the claimed amounts, the applicant filed an action before the referring court, seeking an order requiring the defendants to pay the disputed amounts together with statutory interest for late payment.

By way of background, Article 16(1) specifically states that

'a consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he shall 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 contract'.

In brief, the Lublin court's dilemma related to the question as to whether the consumers who make an early repayment of their credit are entitled, or otherwise, to the reimbursement of the commission paid, in proportion to the repayment period. The main quandary revolved around the issue as to whether the commission (as a cost that does not depend on the term of the credit agreement), falls outside the scope of credit costs that should be reduced in such cases. The referring court alluded to the lack of consensus in Polish jurisprudence on this particular matter while AG Hogan described Polish case law as rife with conflicting judgements on this matter. He outlined that Polish case law has propounded four different interpretations on the phrase "remaining duration of the contract", namely:

1. One interpretation stipulates that Article 16(1) confines the reduction to the expenses related to the period of the agreement. Hence, pursuant to this interpretation, consumers would be exempt from paying the expenses related to the remaining term of the credit. The rationale behind this interpretation is that since the credit institution will not incur these costs, the consumer should be entitled to have them deducted from the total cost of the credit;
2. Another interpretation advocates that the total credit cost must be reduced in proportion to the remaining period of the agreement;
3. The third perspective adopted by Polish courts states that only the costs depending on the duration of the agreement stipulated in the agreement, can be deducted from the total cost of the credit are only those formally presented in the credit agreement. By contrast, since the service provided, which is to grant the credit, is carried out in full as soon as the money is made available to the consumer, the credit institution's profit margin should remain intact;
4. The last interpretation stipulates that the reduction in credit should correspond to the one-off or recurring payments not yet fallen due when the early repayment was made.

Referring to Recital 39 CDD, which is the one which sets out the objectives of Article 16(1), AG Hogan notes that this does not make any reference to that reduction but provides only that 'the consumer should have the right to discharge his obligations before the date agreed in the credit agreement'. AG Hogan notes that this recital suggests that the CDD considered that this reduction is conceived as a mere consequence of an early repayment and, therefore, should be something which is easy to calculate. AG proposed that the CJEU answers the Lublin court's referring question by interpreting Article 16(1), read in conjunction with Article 3(g) CDD, as to be interpreted that, where a consumer has made an early repayment, the reduction to which that consumer is entitled may include costs for which the amount does not depend on the duration of the credit agreement. However, a Member State cannot limit — and a national court cannot interpret its national legislation — this reduction to the amount of costs saved by the credit institution as a result of the early repayment. Hogan further outlines that the term "costs" under Article 16(1) refers to payments claimed from consumers under the credit agreement in addition to interest; and that the phrase, "due for the remaining duration of the contract" means that the reduction under Article 16(1) depends on the date on which the payment of costs is requested from consumers. On that basis, his view was that Member States could interpret Article 16(1) in line with any of the following interpretations, namely that

1. The reduction to which the consumer would be entitled to, must be reduced in proportion to the remaining contract period; or
2. The reduction should correspond to the one-off or recurring payments not yet fallen due when the early repayment was made.

We will be monitoring closely this case and post updates as soon as there are any further developments.

This article was first published in The Malta Indepenedent, 3 July 2019.

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