Mišćenić, Emilia, Mortgage Credit Directive (MCD): Are Consumers Finally Getting the Protection...

____ -_gt~_ ~_ u _lt

0 -lt tTj ~ ~

N 0 j

lt r ~

~

~ Cl 0 ~ m Z n

~

Z r 0 Z 0 ~ tT1 $

r ~

co m ~

gt-shy~ n ~

e ~

0

doc dr $C Emilia Miscenic

lzvorni znanstveni rad

MORTGAGE CREDIT DIRECTIVE (MCD) ARE CONSUMERS FINALLY GETTING THE

PROTECTION THEY DESERVE

Summary

raquoPurchasing real estate is the most important act in the life of the average conshysumerlaquo according to the Commission Report COM(95) 117 final The mortgage credit market belongs to the most complex markets in which consumers engage and the mortshygage credit agreements make 70 ofconsumer credits in Europe The Directive 201417 EU on credit agreements for consumers relating to residential immovable property or so-called Mortgage Credit Directive which was adopted in February 2014 aims at the protection ofconsumers byfollowing the supreme goal of the establishment and functioshyning ofthe internal market At the same time it tries to fight against financial crisis and to promote financial stability by ensuring that the mortgage credit market and its partishycipants operate in a responsible manner The author examines the provisions ofthe new Mortgage Credit Directive in the light ofconsumerprotection and by its critical overview tries to answer the question from the title of this paper raquoAre consumers finally getting the protection they deservelaquo

Keywords Mortgage Credit Directive Directive 2014117EU Consumer Credit Directive

Directive 200848EC residential immovable property consumer protection

Sazetak

raquoKupnja nekretnine je najvazniji Cin u zivotu prosjecnog potrosacalaquo prema lzshyvjestaju Komisije COM(95) 117final Trziste hipotekarnih kredita spada u najsloienija triista na kojima potrosaCi sudjeluju dok hipotekarni krediti Cine 70 potrosackih kreshydita u Europi U veljaCi 2014 usvojena Direktiva 201417EU 0 ugovorima 0 potrosacshy

bull Pravni fakultet u Rijed

219

doc dT sc Emilia Mistenic

kim kreditima koji se odnose na stambene nekretnine iii tzv Direktiva 0 hipotekarnim kreditima ima za cilj zastitu potrosaca slijedeei nadredeni cilj uspostave i funkcioniranja unutamjeg triista Istovremeno pokusava suzbiti financijsku krizu i promovirati finanshycijsku stabilnost jamstvom da triiste hipotekarnih kredita i njegovi sudionici posluju na odgovoran naCin Autorica ispituje odredbe nove Direktive 0 hipotekarnim kreditima u svijetlu zaStite potrosaca i kritickim pregledom istih nastoji dati odgovor na pitanje postavljeno u naslovu ovoga rada raquoDa Ii ce potrosaCi napokon dobiti zaStitu koju zashysluiujulaquo

Kljucne rijeCi Direktiva 0 hipotekamim kreditima Direktiva 20141171EU Direktiva 0 potrosacshy

kom kreditu Direktiva 20081481EZ stambene nekretnine zastita potrosaca

1 Introduction

By signing the final act on 4 February 2014 ended the ordinary legislative proceshydure on adoption of the Directive 2014117EU on credit agreements for consumers relashyting to residential immovable property (hereinafter Directive 201417EU) also called the Mortgage Credit Directive (hereinafter MCD) In accordance with Art 294 of the Treaty on the Functioning of the European Union (hereinafter TFEU)2 the European Parliament and the Council adopted the MCD which was introduced for the first time on 31 March 201L On 5 April 2011 the Commission transmitted to the Council its Proposal for a Directive of the European Parliament and of the Council on credit agreeshyments relating to residential property3 From that moment on until the agreement of the so-called raquotrilogue partieslaquo namely the representatives of the Council the Commission and the European Parliament the MCD experienced major changes in form of amenshydments of its initial provisions particularly regarding provisions on creditworthiness assessment and suitability of the credit product for the consumer on early repayment on credit intermediaries on annual percentage rate of charge (hereinafter APRC) forshymula on financial literacy and education on product tying and bundling and on inforshymation requirements Even after the approval of the final compromise text there were still many doubts with which some of the Member States (hereinafter MS) coped with

I Directive 201417EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 200848EC and 201336EU and Regulation (EU) No 10932010 (Text with EEA relevance) OJ L 60134 of28 February 2014

2 Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union OJ C 326 of 26 October 2012

l Proposal for a Directive of the European Parliament and of the Council on credit agreements relating to residential property (Text with EEA relevance) COM (2011) 142 final Brussels 31 March 2011

MORTGAGE CREDIT DIRECTIVE (MCD) ARE CONSUMERS FINALLY GETTING THE PROTECTION THEY DESERVE

such as Austrias concerns about discrepancies with the Consumer Credit Directive4 (heshyreinafter CCD) regarding pre-contractual information requirements and provisions on creditworthiness assessment or critiques of the Czech Republic regarding cooperation of the supervisory bodies and provisions on financial education etc Moreover Latvia and Luxembourg qualified the MCD as being a highly complex text which is at odds with the principles of raquobetter regulation and which unlike the initial proposal offers no benefits in return for businesses or consumers5

The MCD was published in the Official Journal of the European Union (hereshyinafter OJ EU) on 28 February 2014 and entered into force on the twentieth day foshyllowing that of its publication (Art 49 ofthe Directive 201411 7EU) Now the MS have two years of transposition period at their disposal or more precisely until 21 March 2016 in order to adopt and publish the laws regulations and administrative provisions necessary to comply with the MCD (Art 42 of the Directive 20l4117EU) According to Art 1 of the Directive 20l4117EU concerning the subject matter the MCD raquolays down a common framework for certain aspects of the laws regulations and adminishystrative provisions of the MS concerning agreements covering credit for consumers secured by a mortgage or otherwise relating to residential immovable property inshycluding an obligation to carry out a creditworthiness assessment before granting a credit as a basis for the development of effective underwriting standards in relation to residential immovable property in the MS and for certain prudential and supershyvisory requirements including for the establishment and supervision of credit intershymediaries appOinted representatives and non-credit institutionslaquo From the MCDs preamble it follows that the main barriers to the internal market for credit agreements relating to residential immovable property include among other things substantial differences of the MS laws regarding the conduct of business in the granting of creshydit agreements and in the regulation and supervision of credit intermediaries and of non-credit institutions providing such credit agreements (recital 2 of the Directive 20l4117EU) As a solution to this problem the MCD offers provisions based on a certain mixed approach which combines the minimum harmonisation principle as a general rule with a few (targeted) maximum harmonisation provisions6 such as those on pre-contractual information contained in the European Standardised Information Sheet (hereinafter ESIS) format and those on APRC calculation (Art 2 ofthe Directive 2014117EU)7 This opens up a question whether such an approach

bullDirective 200848EC of the European Parliament and of the Council of 23 April 2008 on credit agreements fur consumers and repealing Council Directive 87102EEC 012008 L 13366 last amended by Commission Directive 2011190EU of 14 November 2011 OJ 2011 L 29635

5 See Council of the European Union Proposal for a Directive of the European Parliament and of the Council on credit agreements relating to residential property (Mortgage Credit Directive- MCD) Approval of the final compromise text Interinstitutional File 201110062 (COD) Brussels 6 May 2013

bull For definitions of minimum maximum and targeted full harmonization see entries of MiSteshynit Emilia in electronic database STRUNA at httpstrunaihjjhr

1 According to Art 2(1) of the Directive 201417EU on the level of harmonisation this Dishyrective shall not preclude MS from maintaining or introducing more stringent proviSions in order to protect consumers provided that such provisions are consistent with their obligations under Union lawbull Notwithstanding para 1 according to Art 2(2) of the Directive 20I417EU raquoMS shall not maintain or

220 221

___I __~__-I ____ __O=--___~_~W4_~iltW_middotI~~iiilyen~Ji)_~L~~~~iIwgttull$~ltdM~~~t(AJamp~~~vti4~middot~~oI~~4I_~iltlmiddoti~middotlt~i_-~~lmiddot~~(L~____~~Ilt1gt~_~~~~NiIt~l~~~q~~i-

doc dr sc Emilia Miscenic

which acknowledges differences in market developments and of relevant regulatishyon in MS can really establish an raquoappropriately harmonised Union legal frameworklaquo as proclaimed in recital 5 ofthe Directive 2014117EU and whether consequently the MCD can justify the aims followed by the Art 114 of the TFEU as a chosen legal ground for its adoption In this regard the title of the paper actually tries to challshyenge the statement given by the Commissioner Barriier on 22 April 2013 in which he concluded that the MCD will help to put an end to the consumers practice of taking excessive risks in crediting and foster responsible lending practicess According to the statement consumers should get the protection they deserve through better inforshyming on prices suitability and risks of mortgage products Moreover the mortgage credit providers should benefit from the MCD through competition enhanced by new professional standards prescribed by the MCD which should create the framework for a European-wide mortgage market and consequently boost the realization of a single market By analysing some of its provisions the author of this paper tries to examine whether the Directive 201417EU ie the MCD will be able to achieve all these goals

2 Scope of Application ofthe Mortgage Credit Directive

27 Personal Scope ofApplication

With regard to its personal scope of application the MCD applies to credit agreements relating to residential immovable property concluded between the consushymer and creditor or credit intermediary However the MS are allowed to extend the ratione personae also to persons not covered by the MCD or to introduce sub-defishynitions under national law for specific purposes such as sub-categories of credit intermediaries not identified by the MCD provided that these definitions are still compliant with those set out in the MCD (recital 14 of the Directive 2014117EU) In defining its key concepts such as consumer creditor or credit intermediary the MCD follows the provisions of the CCD whenever possible9 Pursuant to the recital 19 of the preamble of the Directive 201417EU irrespective of whether the credit is a consumer credit or a credit relating to residential immovable property MS should

introduce in their national law proviSions diverging from those laid down in Article 14(2) and Annex II Part A with regard to standard pre-contractual infonnation through a European Standardised Infonnashytion Sheet (ESIS) and Article 17(1) to (5) (7) and (8) and Annex I with regard to a common consistent Union standard for the calculation ofthe annual percentage rate of charge CAPRC)laquo On the other hand according to the recital 7 of the preamble MS should be allowed to maintain or introduce more stringent proviSions with regard to instructions for completing the ESIS For those areas not covered by the MCD MS are free to maintain or introduce national law provisions for instance relating to the Validity of credit agreements property law land registration contractual information and post-contractual issues (recital 9 of the preamble of the Directive 2014f17fEU)

bull See Statement by Commissioner Michel Bamier following the agreement in trilogue on the Mortgages Directive European Commission - MEMOfl3f365 of 22 April 2013

bullFor detailed analysis of these concepts see Cikara Emilia Gegenwart und Zukunft der Verbrashyucherkreditvertrage in der EU und in Kroatien Die Umsetzung der Richtlinie 87fl02fEWG und Richshytlinie 2oo848EG in lias deutsche Osterreichische und kroatische Verbraucherkreditrecht LIT Verlag Berlin et albull 2010 pp 263 et seq

222

MORTGAGE CREDIT DlRECTNE (MCD) ARE CONSUMERS FINALLY GETTING THE PROTECTION THEY DESERVE

ensure in the transposition of the MCD that there is consistency of application and interpretation in relation to the essential definitions and key concepts ariSing from the CCD Consequently the MCD refers to the definition of consumers from Art 3(a) of the CCD as to natural persons who are acting outside their trade business or profeSSion (Art 4(1) of the Directive 2014117EU) Since it is possible to widen the scope of the MCD provisions to areas not falling within their scope ie to legal persons or natural persons who are not consumers within the meaning of the MCD such as start-ups or small and medium-sized enterprises the recital 11 of the preamshyble emphasises the difference in the position of consumers and enterprises and their needed level of protection It accentuates that while it is important to guarantee the rights ofconsumers by means ofprovisions that cannot be derogated from by contract (ius cogens) it is reasonable to allow enterprises and organisations to enter into otshyher agreements (ius dispositivum) Moreover the recital 12 of the MCDs preamble contains the concept of dual purpose contracts corresponding to the one from the recital 17 of the preamble of the Directive 20U83EU on consumer rightsIO according to which where the contract is concluded for purposes partly within and partly outside the persons trade business or profession and the trade busishyness or professional purpose is so limited as not to be predominant in the overall context ofthe contract that person should also be considered as a consumer II On the other hand because of the differences in their ratione materiae the creditor is defined without referring to the CCD as a natural or legal person who grants or promises to grant credit falling within the scope ofArt 3 ofthe Directive 201417EU in the course of his trade business or profession12 Since the credit may be granted within any professional or business activity of the creditor which mayor may not be its main or primary activity the MCD particularly emphasises the varishyety of creditors on the market by differentiating between credit and non-credit institutions (Art 4(9) and (10) of the Directive 201417EU)Y However according to the recital 10 of the preamble the MCD should not affect the right of MS to limit in conformity with the EU law the role of creditor or credit intermediary to legal

10 Directive 201183EU of the European Parliament and ofthe Council of 25 October 2011 on conswner rights amending Directive 9313IEEC and Directive 199944EC and repealing Directive 85577EEC and Directive 97171EC OJ 2011 L304164 22 November 2011

II Such a definition corresponds with the prevailing opinion in the legal doctrine See Reich Norshybert in Reich Norbert Micklitz Hans-Wolfgang Europiiisches Verbraucherrecht 4th edition 2003 p 741

12 Differently than the CCD the MCD also defines a raquogrouplaquo of creditors which are to be consoshylidated for the purposes of drawing up consolidated accounts as defined in Directive 201334EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements consolidated financial statements and related reports of certain types of undertakings OJ L 18229 June 2013

While the raquonon-credit institutionlaquo means any creditor that is not a credit institution (Art 4(10) of the Directive 2014117EU) according to Art 4(9) of the Directive 2014117EU raquocredit institutionlaquo means credit institution as defined in point I of Article 4(1) ofReguation (EU) No 5752013 ofthe Eushyropean Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 6482012 OJ L 1761 27 June 2013 For the purposes of this Regulation raquocredit institutionlaquo means an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account

223

~~~tl~~~~~~~~~7mmiddot~~~1lIflTIJWIF~~~~V~-prt~~-~~~~~middot~t~~~-~I_~f-_1_i~~~~~rop~~~i~li~~1W_~~~~Lrlt~~~~~--~

1 MORTGAGE CREDIT DIRECTIVE (MCD) ARE CONSUMERS

doc dr sc Emilia MiSceniC

persons only or to certain types oflegal persons Very similarly but again different than in Art 3(f) of the CCD the credit intermediary is in Art 4(5) ofthe Directive 201417EU defined in a manner which concerns both tied intermediaries and their appointed representatives (Art 4(7) and (8) of the Directive 201417EU) and non-tied intermediaries as raquonatural or legal person who is not acting as a creditor or notary and not merely introducing either directly or indirectly a consumer to a creditor or credit intermediary and who in the course ofhis trade business or proshyfession for remuneration which may take a pecuniary form or any other agreed form of financial consideration a) presents or offers credit agreements to consumers b) assists consumers by undertaking preparatory work or other pre-contractual admishynistration in respect of credit agreements other than as referred to in point (a) or c) concludes credit agreements with consumers on behalf of the creditorlaquo At this point one should notice the important discrepancy between the Croatian and other languashyge versions of the MCD text concerning the lit (b) While the English and all the otshyher language versions speak about other activities linked with the conclusion of credit agreements than those referred to in point (a) the Croatian version speaks about other credit agreements than those referred to in point (a) or more precisely raquoconcerning credit agreements which are not those from point (a)laquo This mistake in translation influences significantly the content of a mentioned provision which aims at encomshypassing of preparatory activities other than those mentioned in lit (a) that can occur in connection with the conclusion of the credit agreement Because of this reason the definition explicitly excludes notaries whose activities could otherwise fall under the lit (b) Besides notaries the definition would for instance also concern lawyers when offering their services linked with the contract conclusion to consumers That is why the recital 74 of the preamble of the Directive 201417 lEU explains that MS raquoshould be able to provide that persons carrying out credit intermediation activities only on an incidental basis in the course of professional activity such as lawyers or notaries are not subject to the admission procedurelaquo set out in the MCD raquoprovided that such professional activity is regulated and the relevantmiddot rules do not prohibit the carrying out on an incidental basis of credit intermediation activitieslaquo14 Although the definition of the credit intermediary was meant to be understood broadly already in the CCD the MCD explicitly encompasses both untied and tied credit intermediashyries and their appointed representatives Under Art 4(7) of the Directive 201417 lEU tied credit intermediary means raquoany credit intermediary who acts on behalf of and

14 The same reasoning is applicable to the CCD which Art 3(f) initiated the debate whether the lawyers and notaries activities oflegal counselling and other activities linked with the contract conclushysion fall under the lit (b) According to the Second report on the Proposal for a European Parliament and Council directive on the harmonisation of the laws regulations and administrative provisions of the Member States concerning credit for consumers - Committee on Legal Affairs and the Internal Market (20020222(COD)) of2 April 2004 raquoHoweverlawyers and notaries should not in principle be regarded as credit intermediaries where the consumer contacts them for advice on the scope of a credit agreement or if they help to draft or authenticate an agreement as long as their role is limited to providing legal or financial advice and they do not direct their clients towards specific creditorso See Cikara Emilia Zakon o potrosaCkom kreditiranju iz aspekta javnobiljemiCkih isprava Javni biljefnik Vol XIV No 32 2010 pp60-68

FINALLY GETTING THE PROTECTION THEY DESERVE

under the full and unconditional responsibility of (a) only one creditor (b) only one group or (c) a number of creditors or groups which does not represent the majority of the marketlaquo Appointed representative on the other hand means a natural or legal person who performs mentioned activities of credit intermediaries that is acting on behalf of and under the full and unconditional responsibility of only one credit intershymediary The MCD introduces also some new definitions relevant for the protection of consumers associated with mortgage credit agreements such as the one of the raquostafflaquo in Art 4(11) of the Directive 201417EU This definition concerns any natural pershyson working for the creditor credit intermediary or an appointed representative who is directly engaged in the activities covered by the MCD or has contacts with consumers regarding these activities or any natural person directly managing or supervising these natural persons According to the recital 32 of the preamble of the Directive 201417 lEU raquostaff includes outsourced personnel working for and within the creditor credit intermediary or appointed representatives as well as their employeeslaquo Staff directly engaged in activities under the MCD should include raquoboth front- and back-office staff including managementlaquo while raquopersons fulfilling support functions which are unrelated to the credit agreement process (for instance human resources and information and communications technology personnel)laquo should not be considered as staff under the MCD

22 Material Scope ofApplication

Like the CCD and the Directive 87102EEC before that the Directive 201417EU contains a very broad definition of the raquocredit agreementlaquo in Art 4(3)tS Thereby the widely set material scope of application is limited by the deshytermination of the type of the credit agreement and by the number of exclusions enumerated in Art 3 of the Directive 201417EU Similarly to Art 3(c) of the CCDl6 raquocredit agreementlaquo is defined as an agreement whereby a creditor grants or promises to grant to a consumer a credit falling within the scope of Art 3 of the Directive 201417EU in the form of a deferred payment loan or other similar finanshycial accommodation As in both consumer credit directives this broad definition of consumer raquocredit agreementlaquo intentionally doesnt correspond to the legal concept of credit agreement in MS contract laws17 Namely it combines elements of both credit

15 With regard to problems linked with the transposition of this notion into the Croatian law see Cikara Gegenwart bull opcitbull pp 367 and 404 and Petrie Silvija Ugovor 0 potrosackom kreditu in Slakoshyper Zvonirnir (ur) Bankovni i financijski ugovori Rijeka 2007 pp 55

16 According to the Art 3(c) of the CCD raquocredit agreement means an agreement whereby a creshyditor grants or promises to grant to a consumer credit in the form of a deferred payment loan or other similar financial accommodation except for agreements for the provision on a continuing basis of servishyces or for the supply of goods of the same kind where the consumer pays for such services or goods for the duration of their provision by means of instalmentslaquo

17 See 5arcevic Susan I Cikara Emilia European vs National Terminology in Croatian legislatishyon Transposing EU Directives in 5arcevic Susan (ed) Legal Language in Action Translation Terminoshylogy Drafting and Procedural Issues Zagreb Globus 2009 pp 203-204

224 225

middot _______A ______bull__loMi~iIOI(WfiII~~~MIW~llbullbull1Msectiampdl~J~~jtjo(~iiJ~r4yen~~~~~~~ww_~~-~al~flt~)W~~_--~~~~)(~ltjltH~hil~ikltlI~oIitr~jMlt~~~J0iim10(~


and loan agreementS and moreover opens up a possibility for inclusion of new credit products emerging on the credit market According to Art 3(1)(a) and (b) the Direcshytive 201417EU applies to raquocredit agreements which are secured either by a mortgage or by another comparable security commonly used in a MS on residential immovashyble property or secured by a right related to residential immovable propertylaquo and to raquocredit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected buildingllt The latter sentence deriving from Art 3(1) (b) of the Directive 20l417EU should according to the recital 15 of the preamble and leaning on the interpretation of the Art 2(2)(b) of the CCD9 be interpreted as encompassing also (secured) credits for the renovation of residential immovable property Linked to that Art 46 of the Directive 201417EU prescribes amendments of the CCD in order to encompass also unsecured credit agreements the purpose of which is the renovation of a residential immovable property involving a total amount of credit above EUR 7500020 Pursuant to the recital 18 of the preamble the ratio behind the amendment is to ensure an equivalent level of protection to those consushymers and to avoid any regulatory gap between the CCD and the MCD As known the mortgage credit agreements presented a stumbling stone in the legislative procedure of adoption of both the Directive 87102EEC and the Directive 200848EC where they ended up under the list of agreements excluded from their material scope of application21 Among many reasons for their exclusions the main ones concerned the significant diverSity of MS property laws and the lack of perception of mortgage creshydits as corresponding to consumer credits22 Nevertheless most of the MS transposed the provisions of both mentioned directives excessively and encompassed excluded mortgage credit agreements within their consumer credit legislation thus elevating the level of consumer protection23 This was enabled by the minimum harmonization

18 On loan and credit agreement in the Croatian law see Slakoper Zvonimir Ugovor 0 zajmu in Slakoper Zvonimir (ur) Bankovni opcit pp 441 et seq and Slakoper Zvonimir Ugovor 0 kreditu u Zakonu 0 obveznim odnosima in ibidbull pp 496 et seq

19 According to the recital 14 of the preamble of the CCD raquocredit agreements should not be excshyluded from the scope of this Directive only because their purpose is the renovation or increase of value of an existing buildinglaquo

However according to the review clause from Art 44 of the Directive 201417EU the Commishyssion shall by 21 March 2019 pursue an assessment of whether it continues to be appropriate to apply the CCD to unsecured credits the purpose of which is the renovation of a residential immovable property involving a total amount of credit above EUR 75000

21 See Cikara Gegenwart bull opcitbull pp 77 and 214 n See Communication from the Commission - Financial services enhancing consumer confishy

dence - Follow-up to the Green Paper on Financial services meeting consumers expectations Brussels 26 June 1997 COM(97) 309 final p 10 according to which raquo( ) the Single Market for mortgage credits is still at an embryoniC stage of development ( ) due to differences in the treatment of taxes differences in subSidy arrangements and in national laws on propertylaquo See also Steppeler Wolgang Vorvertragliche Information Vertragsabschluss und Widerrufsrecht im Entwurf einer EG-Verbraucherkreditrichlinie ~ und in nationalen Verbraucherkreditgesetzen in Hormann Giinter (ed) Verbraucherkredit und Vershybraucherinsolvenz Perspektiven fUr die Rechtspolitikaus Europa und USA 1986 p- 598 raquoDer Realkredit wird in Deutschland nicht als Konsumentenkredit angesehen auch aus Verbrauchersicht nichtlaquo

Z3 With regard to transposition of Art 2(1)(a) and Art 2(3) of the Directive 87l02EEC see Commission report of 11 May 1995 on the operation of Directive 87102EEC for the approximation of

226


clause of the Directive 87102EEC on the one hand and by the option in the recital 10 ofthe preamble of the CCD on the other24 According to the CJEU Case SC Volksbank Romania raquothe harmonisation for which Directive 200848 provides does not preclude a MS from including such agreements within the scope of a national measure designed to transpose that directive in order to apply all or certain of the directives provisishyons to those agreementslaquo25 It was precisely this fact that initiated a vivid and long debate in the Council concerning the material scope of application of the MCD Although there was an intention to allow those MS a longer period for transposition of the M CD the corresponding provision cannot be found in the Directive 201417 ED What can be found is the possibility for the MS to extend the material scope of application of the transposed provisions protecting consumers also to credit agreeshyments related to other forms of immovable property (recital 13 of the preamble of the Directive 201417EU) Furthermore since the aim of those measures is a high level of consumer protection they should apply to credits secured by immovable property regardless of the credit purpose26

Even without in depth analysis of excluded credit agreements in Art 3 of the Directive 201417EU one could roughly divide them in total and facultative exclusions whereby the latter ones concern total or partial exclusions from the application of the MCDs provisions Art 3(2) of the Directive 2014117EU regulates six total exclusions

the laws regulations and administrative provisions of the Member States concerning consumer credit COM(95) 117 final not published in the OJ and Report on the operation of Directive 87102 for the approximation oflaws regulations and administrative provisions of the Member States concerning conshysumer credit COM(95) 117 final of 110595 - Summary report of reactions amp comments COM(97) 465 final- not published in the OJ With regard to transposition of Art 2(2)(a) and (b) of the CCD see the Risk amp Policy Analysts List ofNational Measures transposing the Consumer Credit Directive (CCD)

U According to Art IS of the Directive 87102EEC this Directive did not preclude MS from retaining or adopting more stringent provisions to protect consumers consistent with their obligations under the Treaty According to the recital 10 of the preamble of the CCD which is based on maximum (targeted) harmonization principle (Art 22(1) of the Directive 20OS48EC) an MS could maintain or introduce national legislation corresponding to the provisions of this Directive or certain of its provisions on credit agreements outside the scope of this Directive Both possibilities were nsed by the Croatian leshygislator When transposing the Directive 87102EEC into the raquoChapter IX Consumer Loanlaquo of the Croshyatian Consumer Protection Act (OG Nos 7907 1250779098909 13309 78112 and 5613 recently replaced by the new Consumer Protection Act OG No 4l14) it encompassed the excluded mortgage credit agreements Provisions of this Chapter ceased to apply on I January 2011 namely one year after the entrance of the Consumer Credit Act (OG Nos 7509 11212 14313 and 14713-correction) (hereshyinafter CCA) in force which is again applicable to mortgage credit agreements excluded from the scope of the CCD by Art 2(1)(a) and (b)

l5 See the CJEU Case C-60210 SC Volksbank Romania of 12 July 2012 concerning consumer credit agreements secured by mortgages or by other rights in immovable property which contained unshyfair clauses relating to bank charges

Recital 15 of the Directive 201417EU continues by enumerating other credit agreements like the refinancing agreements credit agreements that would help an owner or part owner to continue to retain rights in immovable property or land credit agreements which are used to purchase an immoshyvable property in some MS credit agreements that do not require the reimbursement of the capital credit agreements whose purpose is to provide temporary financing between the sale of one immovable property and the purchase of another and secured credit agreements for the renovation of residential immovable property

227

doc dr $C Emilia MiScenic

that can again be encompassed by transposition provisions of the MS by applying the minimum harmonisation principle27 These concern equity release credits where the creditor is involved in repayment in return for sum deriving from the future sale of or a right linked to residential immovable property credits granted by an employer to his employees under especially beneficial conditions concerning interests credits granshyted free ofinterest and without any other charges credits in the form of an overdraft facility and to be repaid within one month credits as an outcome of a settIement reshyached in court or before another statutory authority and credits relating to deferred payment free of charge of an existing debt and which do not fall within the scope of Art 3(I)(a) It is considered that some of these credit agreements have specific characteshyristics which are beyond the scope of the MCD and require a special tailored approach since they are different in their nature and risks involved from the standard mortgage credits28 Facultative possibility for the MS to exclude application ofcertain provisions or of the Directive 2014117EU as a whole concerns follOwing agreements enumerated in Art 3(3) ofthe Directive 2014117EU mortgage credit agreements the purpose ofwhishych is not to acquire or retain the right to residential immovable property mortgage credit agreements where the immovable property cannot at any time be occupied as a house apartment or another place of residence by the consumer or its family member and is to be occupied on the basis of a rental agreement credits granted to a restricted public under a statutory provision with a general interest purpose free of inshyterest or at lower borrowing rates than those on the market or on other more favoushyrable terms for consumers bridging loans and credit agreements where the creditor is an organisation in the meaning of the Art 2(5) of the CCD IfMS choose to use the options offered under Art 3(3)(c) or (e) ofthe Directive 2014l17EU they must ensure that consumers receive timely information on the main features risks and costs ofsuch credits at the pre-contractual stage and that advertising ofthese credits is fair dear and not misleading It is again considered that these credit agreements have risks and features that are different from standard credit agreements and therefore may require a more adapted framework Because of this reason MS should therefore be able to exclude such credit agreements from the MCD where an appropriate national framework is in place for them29

23 Temporal and Territorial Scope ofApplication

The MCD entered into force on 20 March 2014 As mentioned above accorshyding to the Art 42 MS shall by 21 March 2016 adopt publish and apply the laws regulations and administrative provisions necessary to comply with the Directive 201417EU When officially publishing those measures MS must refer to the MCD

Pursuant to the recital 14 of the preamble of the Directive 201417EU raquothis Directive should be without prejudice to the application by MS in accordance with Union law of this Directive to areas not covered by its scopelaquo

2Il Recitals 16 and 17 of the preamble of the Directive 201417EU Recital 17 of the preamble of the Directive 201417EU


They also must communicate to the Commission the content of offiCially published measures meaning the text of the main provisions of national law adopted in the field covered by the MCD As a consequence of a determined transposition period the MCD is not applicable to credit agreements existing before 21 March 2016 (Art 43(1) of the Directive 2014117EU) Transitional provisions of the MCD foresee spedshyal conditions regarding credit intermediaries creditors and appointed representatives carrying out activities conforming or relating to those emerging from the MCD even before the mentioned date If those credit intermediaries have not yet been admitted in accordance with the conditions set out in the national law of the home MS transhysposing the MCD they may continue to carry out the activities in compliance with national law until 21 March 2017 However when relying on this derogation credit intermediaries may perform the activities only within their home MS unless they also satisfy the necessary legal requirements of the host MS (Art 43(2) of the Directive 201417EU) Similarly creditors credit intermediaries or appointed representatives performing activities regulated by the MCD before 20 March 2014 shall comply with the national law transposing Art 9 on knowledge and competence requirements for staffby 21 March 2017 (Art 43(3) of the Directive 2014117EU) With regard to the ratione teritorii one should have in mind that the Directive 201417EU is the text with EEA relevance meaning applicable to both EU MS and the three EEA EFTA States Iceland Liechtenstein and Norway Consequently in the sense ofthe MCD the MS is also a state which is party to the Agreement on the European Economic Area3O

3 Key Provisions of the Mortgage Credit Directive

31 The Link between Provisions on Financial Education Conduct of Business Obligations Advisory Services and on Creditworthiness Assessment

By means of numerous provisions the MCD tries to highlight the importance of adequate and comprehensive informing of consumers regarding the conclusions of mortgage credit agreements However when reading the MCD one is confronted with a quite complex text in which these important provisions seem to be scattered all over the Directive in a quite inconsistent manner To begin with there is a provision of Art 6 of the Directive 201417EU on financial education of consumers regarding responsible borrowing and debt management According to this provision the MS shall promote measures that support the education of consumers in this regard in particular in relation to mortgage credit agreements Like the CCD the MCD deshyparts from the in European private law established concept of the raquoresponsible and

1O See Arts 102(1) and 103 of the Agreement on the European Economic Area (hereinafter EEA) 01 No L I 311994 p 3 and EFTA States Official Gazettes See 06 Adopted Acquis marked EEA-reshylevant in the 01 or considered EEA-relevant by EFTA experts No 589 available at httpwwweftaint mediadocumentslegal-textsleealother-Iegal-documentsllist-eu-acquis-marked-or-considered-eea-reshylevantweekly_listpdf

228 229


informedlaquo consumer and prescribes that clear and general information on the credit granting process is necessary in order to guide consumers especially those who take out a mortgage credit for the first time31 This provision which is by some authors considered to be a leftover from the principle of raquoresponsible lending and borrowinglaquo that was promoted already by the CCD seems to partially shift this important and primarily creditors obligation from creditors to consumers32 Such an approach conshytinues in the following provision of Art 7 of the Directive 2014117EU concerning conduct ojbusiness obligations when providing credit to consumers According to this article with regard to activities linked to mortgage credit agreements (manufacturing credit products granting intermediating or providing advisory services or ancillary services executing a credit agreement) creditor credit intermediary or appointed representative do not always have to act in the best interest ojconsumer as formulated by the initial Commissions Proposal but have to take account ojrights and interests oj the consumers33 In doing so they have to act honestly fairly transparently and proshyfessionally whereby the transparency requirement was inserted later at the proposal of the Council and the European Parliament The concretization of the conduct of business obligations or so-called conduct ojbusiness rules follows in para 2 ofthe same article demanding from the MS to ensure that creditors policies of remuneration of their staff and credit intermediaries and the manner in which credit intermediaries remunerate their staff and appointed representatives do not impede compliance with this obligation34 Another concretization of the same obligation can be found in Art 9 of the Directive 201417EU requiring from the MS to ensure that the staff of credishytors credit intermediaries and appointed representatives possess and keep up-toshy

31 According to Art 6(2) of the Directive 201417EU the Commission shall publlSh an assesshysment of the financial education available to consumers in the MS and identify examples of best practices which could be further developed in order to increase the financial awareness of consumers See also recital 29 of the preamble of the Directive 201417EU

32 More on this principle in Cikara Gegenwart opcit pp 233 et seq See also Commission Working Paper on Responsible Mortgage Lending and Borrowing of 22 July 2010 available at http wwwfininceugallerydocumentsefin-newswork-paper-resp-lending-2010-07-22pdf

According to KOnig the previous stipulation was the reflection of requirements typical for three-parties-relationships as in the Directive 200439EC of the European Parliament and of the Coshyuncil of 21 April 2004 on markets in financial instruments OJ L 1451 3042004 (MiFiD) that are too burdening on the two-parties-relationships such as those in the MCD See Konig Christian Mogliche Anderungen durch die Richtlinie iiber Wohnirnmobilienkreditvertriige im deutschen Recht - Ergebnisse der politischen Einigung der Trilog-Parteien WM 2013 Heft 36 p 1690

34The MCD acknowledges the existence of this particular problem in practice when approvine credit agreements raquowith the aim of limiting misselling practices and of ensuring that the way staffs are remunerated does not impede compliance with the obligation to take account of the interests of the consumerlaquo (recital 35 of the preamble of the Directive 201417EU) It is emphasised that raquoin particular creditors credit intermediaries and appointed representatives should not design their remushyneration policies in a way that would incentivise their staff to conclude a given number or type of credit agreements or to offer particular ancillary services to consumers with no explicit consideration of their interests and needslaquo However it is left up to the MS to decide raquothat a particular practice for example tied intermediaries collecting fees is against the interests of a consumerlaquo or ~that the remuneration received by staff is not dependent on the rate or the type of credit agreement concluded with the consumerlaquo


date the appropriate level of knowledge and competence regarding the performance of the above mentioned activities3s

Returning back to Art 7 of the Directive 2014117EU its para 1 requires for enumerated activities to be based on information about the consumers circumshystances and any specific consumers requirement and on reasonable assumptions about risks to the consumers situation Moreover provision of advisory services must in addition be based on the information required under Art 22(3)(a) of the Directive 2014117EU namely the article regulating standards for advisory sershyvices Advisory services are in the Art 4(21) of the Directive 2014117EU defined as provision ofpersonal recommendations to a consumer in respect ofone or more transhysactions relating to credit agreements that constitute a separate activity from the credit granting or intermediation The particular standard under Art 22(3)a) ofthe Direcshytive 2014117EU concerns necessary information regarding the consumers personal and financial situation and his preferences and objectives which enable creditors credit intermediaries or appointed representatives to recommend suitable credit agreements36 It is again emphasised that such an assessment shall be based on inforshymation that is up to date at that moment in time and shall take into account reasonashyble assumptions as to risks to the consumers situation over the term of the proposed credit agreement 37 Besides this one there is a list of other standards regulated in Art 22 of the Directive 201417E U which the MS have to ensure with regard to provision of advisory services For instance MS have to ensure that the creditor credit intershymediary or appointed representative explicitly inform the consumer on availability of advisory services and that they provide the consumer on paper or another dushyrable medium with information about the basis on which the recommendation is made (whether by conSidering only their own product range or a product range from across the market) (where applicable) with information about the price of the advisory service or method of its calculation and give the consumer a record of the provided recommendation Moreover in one of its standards prescribed in Art 22(3)(d) of the Directive 201417EU it is required from creditors credit intermediaries or appointed representatives to act in the best interests oj the consumer by informing themselves about the consumers needs and circumstances and by recoshy

gtS In this regard the provision refers to principles set out in Annex III regulating minimum knowledge and competence requirements According to the recital 32 of the preamble of the Directive 2014117EU MS should be free to introduce or maintain such requirements applicable to individual nashytural persons and should be able to allow creditors credit intermediaries and appointed representatives to differentiate between the levels of minimum knowledge requirements according to the involvement in carrying out particular services or processes

Pursuant to the recital 65 raquoMS should be able to clarify how the suitability of a given product is to be assessed in the context of the provision of advisory serviceslaquo See recitals 63-65 of the preamble of the Directive 2014117EU

According to the recital 31 of the preamble of the Directive 201417lEU this raquocould imply amongst other things that creditors should not market the credit so that the marketing significantly imshypairs or is likely to impair the consumers ability to carefully consider the taking of the credit or that the creditor should not use the granting of the credit as a main method of marketing when marketing goods services or immovable property to consumerslaquo

230 231

doc dr sc Emilia MiSeenic

mmending suitable credit agreements in accordance with standards contained in the previous points (a) (b) and (c) This could under certain circumstances actually lead to the recommendation of credit products of the other competitors on the market38

However though of the repeated standard of the raquobest interests of the consumerlaquo it seems that a MCDs warning about serious risks that a mortgage credit may bring upon the consumer is actually not completely in the consumers interest Namely purshysuant to Art 22(5) of the Directive 2014117EU it is up to the MS to decide whether they will provide for an obligation for creditors credit intermediaries and appOinted representatives to warn a consumer when considering the consumers financial situshyation a credit agreement may induce a specific risk for the consumer Para 4 of the same article makes a distinction and sets standards for the use ofthe terms advice and advisor and of independent advice or independent advisor by creditors credit intermediaries or appointed representatives prOviding advisory services by making them conditional upon the source of remuneration and the manner of product range consideration39 Although these advisory services are in principle reshyserved for creditors credit intermediaries or appointed representatives the MCD acknowledges the possibility of other persons being involved in similar activities on the basis of different grounds such as insolvency practitioners and consequshyently leaves to the MS the possibility of waiver in such cases (Art 22(6) of the Dishyrective 201417EU)40 Again as a more general prOvision on conduct of business obligation Art 7(4) of the Directive 201417EU imposes duty on MS to ensure that where creditors credit intermediaries or appointed representatives provide advisory services the remuneration structure ofthe staff involved does not prejushydice their ability to act in the consumers best interest and in particular is not conshytingent on sales targets MS may even ban commissions to be paid by the creditor to the credit intermediary in order to achieve that goal what will certainly affect policy of some MS on credit intermediation

Obligation of good business conduct is according to Art 7(3) of the Directive 2014117EU also required with regardto remuneration policies for staff responsible for the creditworthiness assessment MS have to ensure that in a way and to the extent that is appropriate to creditors size internal organisation and the nature scope and complexity of their activities they pursue a remuneration policy consistent with soshyund and effective risk management and in line with their business strategy objectives values and long-term interests avoiding conflicts of interest and providing that reshymuneration is not contingent on the number or proportion ofapplications accepted

According to An 22(3)(c) of the Directive 201417EU MS have to ensure that non-tied credit intermediaries or appointed representatives of non-tied credit intermediaries consider a sufficiently large number of credit agreements available on the market and recommend a suitable credit agreement or several suitable credit agreements available on the market for the consumers needs financial situation and personal circumstances

3 Detailed on the division between tied and independent advice and on positive and negative effects of provision of advisory services f0rgensen Tanja Credit Advice European Review ofPrivate Law 42012 pp 961 et seq

However persons benefiting from such a waiver shall not benefit from the right referred to in Art 32(1) of the Directive 20141l7EU to provide services for the entire territory of the Union


raquoCreditworthiness assessmentlaquo that is in Art 4(17) defined as evaluation ofthe prospect for the debt obligation resulting from the credit agreement to be met is regulated by seshyparate Arts 18-21 of the Directive 201417EU Art 18(1) of the Directive 2014117EU foresees a duty for creditors to thoroughly assess creditworthiness before the conclusion of a credit agreement by taking raquoappropriate account of factors relevant to verifying the prospect of the consumer to meet his obligations under the credit agreementlaquo The preamble enumerates by means of example some of these factors in the recital 55 such as consideration of future payments or payment increases needed due to neshygative amortisation or deferred payments of principal or interest consideration of other regular expenditure debts and other financial commitments consideration of income savings and assets consideration of future events such as a reduction in income due to retirement or an increase in the borrowing rate or negative change in the exchange rate etC41 Differently than the CCD the Directive 201417EU contains detailed provision on disclosure and verification of consumer information in Art 20 according to which the assessment can be carried out on the basis of information obtained from releshyvant internal or external sources including the consumer and credit intermediary or appOinted representative42 The creditor can also complete obtained information by consulting the database (Art 18(5)(b) of the Directive 2014117EU)43 As a consequshyence the creditor cannot terminate the contract on the ground of incomplete inforshymation provided by the consumer before its conclusion (Art 20(3) of the Directive 2014117EU) or subsequently cancel or alter the credit agreement to the detriment of the consumer on the ground that the creditworthiness assessment was conducted incorrectly (Art 18(4) of the Directive 201417EU) However this should be witshyhout prejudice to the possibility for MS to allow creditors termination of the credit agreement when the consumer knowingly withheld or falsified the information (Art 20(3) of the Directive 2014117lEU) that would have led to a negative creditworthiness

41 According to the recital 58 of the preamble of the Directive 201417EU in line with the reshycommendations of the Financial Stability Board the assessment of creditworthiness should be based on information on the financial and economic situation including income and expenses of the consumerlaquo

ltl Art 20(3) of the Directive 201417EU requires from MS to ensure that creditors specify in a dear and straightforward way at the pre-contractual phase the necessary information and independently verifiable evidence that the consumer needs to provide and the timeframe within which the consumer needs to provide the information Such request for information shall be proportionate and limited to what is necessary to conduct a proper creditworthiness assessment MS shall allow creditors to seek clarishyfication of the information received in response to that request where necessary to enable the assessment of creditworthinesslaquo

According to Art 21 of the Directive 201417EU access to both private and public databases shall be granted to all creditors from all MS under non-discriminatory conditions for assessing consushymers creditworthiness and for the sole purpose of monitoring consumers compliance with the credit obligations This condition concerns for instance different languages in which the data used in databases of different MS is written Furthermore according to the recital 59 of the preamble raquopursuant to Direcshytive 9546EC of the European Parl1ament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data consushymers should be informed by creditors of the consultation of the credit database prior to its consultation and should have the right to access the information held on them in such a credit database in order to where necessary rectify erase or block the personal data concerning them processed therein where it is insccurate or has been unlawfully processedlaquo

232 233

gt~ ~-----~-~----_r ~_~~_~m4~~G~~tA~~~IIIpoundq~~J-lti~lt1uw1tii~S~ltlIoii)lrgtLlL~~~~tIl~~1f~J$U1lto$oJY~~Y4hv14~$~vilt~~iIl~oyenvt1ltjl_fc~~~t~l_~gtjt1- rgt


assessment or where there are other valid reasons compatible with Union law and can even provide for sanctions in such cases (recital 58 and Art 20(4) of the Directive 201417EU) Although the creditworthiness assessment may not rely predominantly on the value increase ofthe residential immovable property except in cases of conshystruction or renovation (Art 18(3) of the Directive 20l4117EU property valuatishyon must be done in accordance with the reliable standards developed within the territory of certain MS by professionally competent and sufficiently independent internal or external appraisers in an objective and impartial manner (Art 19 of the Directive 201417EU)44The initial Commissions Proposal on duty to deny credit in case ofnegative creditworthiness result was abandoned45 and according to Art 18(5) of the Directive 201417EU the MS must ensure that the creditor grants the credit to the consumer whose result indicates that the credit agreement obligations are likely to be met in the required manner

Common to all these provisions is the fact that they all reflect the principle of responsible lending and borrowing to a certain extent This is in a way admitted by the MCD itself which in Art 45 on raquofurther initiatives on responSible lending and borrowinglaquo foresees a deadline for the Commission to submit a raquocomprehensive reshyport assessing the wider challenges of private over-indebtedness directly linked to creshydit activity((46 Furthermore it seems that the legislator tried to formulate Art 7 of the Directive 201417EU on conduct of business obligation as a provision giving general framework and setting the main standards for conduct of all activities ie services enumerated in its para 1 while leaving their concretization to the more specific MCD provisions regulating each and every single one of them However this attempt resulshyted with a complex text which is quite difficult to follow mainly because of the lack of references to these more specific provisions Moreover provisions that should reflect

Konig opcit p 1695 rightly emphasizes that the provision concerning property valuation shouldnt be regulated within provisions on consumers prospect for the fulfilment of debt obligation Fur~ ther on he points out that the Commission intentionally omitted to regulate this matter more in detail since the immense differences between the MS are preventing the development of common standards However recitals 26 and 55 of the preamble of the Directive 201417EU refer to internationally recognishysed valuation standards such as those developed by the International Valuation Standards Committee the European Group of Valuers Associations the Royal Institution of Chartered Surveyors and to the Financial Stability Boards Principles for Sound Residential Mortgage Underwriting Practices The recital 26 also invokes provisions of the Directive 201336EU of the European Parliament and the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutishyons and investment firms OJ L 1762762013 p 338 relating to property valuation standards

According to the Art 14(2)(a) and (b) of the Proposal in 2011 COM(2011) 142 final the Creshyditor should have to refuse credit where raquothe assessment of the consumers creditworthiness results in a negative prospect for his ability to repay the credit over the lifetime of the credit agreementlaquo Provisions on unsuitability test (Art 14(4) and (5) of the Proposal in 2011) according to which the creditors have to consider a sufficiently large number of credit agreements from their product range in order to identify products that are not unsuitable for the consumer given his needs financial situation and personal cirshycumstanceslaquo were also removed

Within this report that must be submitted by 21 March 2019 the Commission should also examine raquothe need for the supervision of credit registers and the possibility for the development of more flexible and reliable marketslaquo

234


responsible borrowing and lending are often exhausted with the unnecessary repeashyting of creditors obligations the provision of which is also not adequately guaranteed For instance with regard to the creditworthiness assessment there are no strict and unified criteria established Instead this is left up to the MS although the MCD tries to give certain guidelines in the preamble itself (see recitals 55 and 56 of the Directive 201417EU) As in the case of the CCD there is only the regulation of obligation to pursue the creditworthiness assessment47 while it is up to the MS and the creditors to decide upon the result and whether they will follow the preambles guidelines Of course there is a suggestion on not to approve high risk credits However there is no obligation to refrain from providing a credit in case of a negative creditworthiness assessment According to the recital 57 of the preamble of the Directive 2014117EU raquothe creditors decision as to whether to grant the credit should be consistent with the outcome of the assessment of creditworthiness( and raquoa positive creditworthineshyss assessment should not constitute an obligation for the creditor to provide creditlaquo However it is left to the MS raquoto transpose this principle by requiring competent autshyhorities to take relevant actions as part of the supervisory activities and to monitor the compliance of creditors creditworthiness assessment procedureslaquo

32 Provisions on Information Duties and Adequate Explanations

With regard to information duties towards consumers the MCD does not structurally follow the CCD Namely both Directives distinguish between informashytion to be provided to consumers prior to the credit contract conclusion and those to be provided at and after the moment of contract conclusion However instead of advertising - pre-contractual contractual information order the MCD introduces advertising -general - pre-contractual information structural order All this informashytion which must be provided free of charge (Art 8 of the Directive 201417EU) is unified under the common tide raquoInformation and practices preliminary to the conshyclusion of the credit agreement(( This core area of the MCD starts with provisions on advertising and marketing divided in general provisions applicable to advertising and marketing (Art 10 of the Directive 2014117EU) and standard information to be included in advertising (Art 11 of the Directive 2014117EU) According to general

t7 See the Case C-56512 LCL Le Credit Lyonnais of27 March 2014 where the CjEU established that the Art 23 of the CCD must be interpreted as precluding the application of a national system of penalties under which in the event of failure on the part of the creditor to comply with its obligation prior to conclusion of an agreement to assess the borrowers creditworthiness by consulting the relevant database that creditor forfeits its entitlement to contractual interest but is automatically entitled to inteshyrest at the statutory rate payable from the date of delivery of a court decision ordering that borrower to pay the outstanding sums which is further increased by five percentage points if on expiry of a period of two months following that decision the borrower has not repaid his debt in full where the referring court finds that in a case such as that in the main proceedings in which the outstanding amount of the principal of the loan is immediately payable as a result of the borrowers default - the amounts which the creditor is in fact likely to receive following the application of the penalty of forfeiture of entitlement to contractual interest are not significantly lower than those which it could have received had it complied with its obligation to assess the borrowers creditworthinesslaquo

235

~~I~i(fVJmiddotl24lt0J ~nY0~I(~v~JJ~_iolJIimiddot)Ij-t$JiIi~~~~~~~~~I~~h~~-~-~-~-1~W~~~i~rt_~rt~~_-a~_~~~l~~~~~~~~~~~~--ri---~


requirements besides being fair clear and not misleading advertising and marketing communication concerning credit agreements may not create false expectations for a consumer regarding the aVailability or the cost of a credit48 However the following provision on standard information to be included in advertising might just enable such a result Like Art 4( 1) of the CCD Art 11 (1) of the Directive 2014117EU diffeshyrentiates between advertising raquowithlaquo and )without nuinberslaquo meaning with or withoshyut indication of an interest rate or any figures relating to the cost of the credit So there is no obligation of indicating standard information raquowhere national law requires the indication of the APRC in advertising concerning credit agreements which does not indicate an interest rate or any figures relating to any cost of credit to the consumerlaquo (so-called )advertising without numberslaquo) On the other hand advertiSing gtwith numberslaquo requires indication of the following standard information in a clear concise and prominent way )(a) the identity of the creditor or where applicable the credit intermediary or appointed representative (b) where applicable that the credit agreeshyment will be secured by a mortgage or another comparable security commonly used in a MS on residential immovable property or by a right related to residential immovable property (c) the borrowing rate indicating whether this is fixed or variable or a comshybination of both together with particulars of any charges included in the total cost of the credit to the consumer (d) the total amount of credit (e) the APRC which shall be included in the advertisement at least as prominently as any interest rate (f) where applicable the duration of the credit agreement (g) where applicable the amount of the instalments (h) where applicable the total amount payable by the consumer (i) where applicable the number of instalments (j) where applicable a warning regarshyding the fact that possible fluctuations of the exchange rate could affect the amount payable by the consumerlaquo The application of this provision in practice will most likely be problematic as it is the application of the corresponding CCD provisishyon49 It is quite unimaginable how all this information can be presented in a clear concise and prominent way to consumers in a few seconds of television or radio

48 This should inter alia be ensured in accordance with the Directive 2005129EC of the Europeshyan Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market OJ L 149 11 June 2005 p 22

When transposing Art 4 of the CCD the Croatian legislator has not differentiated between so called advertising raquowith numbers and advertising raquowithout numberslaquo Art 4 of the Croatian CCA requires for all advertising to include standard information transposed from Art 4(2) of the CCD into the Art 4(2) of the CCA It must be specified in a clear concise and visual manner by means of a representashytive example The representative example is in Art 4(4) of the CCA defined as the example according to which conditions or even better ones at least two thirds of consumers can conclude a credit agreement However even before the adoption of the CCA relevant provisions on advertising requiring indication of the APR were in force They were contained in the Credit Institutions Act OG Nos 117120087409 15309 108112 and 5413 (hereinafter CIA) recently replaced by the new CIA OG No 15913 and in its subordinate legal act namely in the Decision of the Croatian National Bank on APR of credit institutions and unions and on agreeing on services with consumers (OG Nos 10941109 and 5413) Nevertheless advertiSing on the market usually does not follow the above mentioned provisions For instance in one recent Croatian commercial that lasts 43 seconds a young actress presents a credit product by demanding a credit in the amount of 10 000 Euros without security and to be paid off in five years at a fixed interest rate This is all the information one can get from this television commercial For more on transposition of these provisions into the Croatian consumer credit law see Cikara Emilia Otvorena pitanja potroSaCkog


commercials Moreover just like in the CCD some of this information (other than the one listed under points (a) (b) or 0raquo should be presented by the means of a reshypresentative example50 The MCD also repeats the prOvision of the CCO concerning required ancillary service in particular insurance when it is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed If the service itself and the cost of that service cannot be determined in advance the obligation to enter into that contract shall be stated in a clear concise and prominent way together with the APRC (Art 1l(4) of the Directive 20 14117EU) For all this information it is required for it to be )easily legible or clearly audible as appropriate depending on the medium used for advertisinglaquo (Art 5 of the Directive 2014117EU) MS may even require the inclusion of a concise and proportionate warning concerning specific risks associated with credit agreements (Art 6 ofthe Directive 20 1417EU)

The MCD introduces a differentiation between general and personal pre-conshytractual information whereby the general information should be made available to consumers at all times in addition to the personalised pre-contractual information (recitals 22 and 38 of the preamble of the Directive 201417EU) Moreover the MCO also distinguishes channels through which information is offered to the consumer namely through the creditor directly or a credit intermediary indirectly When it coshymes to the latter it also distinguishes whether they are tied or non-tied and tailors its provisions accordingly Consequently the MS raquoshall ensure that clear and compreshyhensible general information about credit agreements is made available by creditors or where applicable by tied credit intermediaries or their appointed representatives at all times on paper or on another durable medium or in electronic formlaquo and in addition the MS raquomay provide that general information is made available by non-tied credit intermediarieslaquo (Art 13 of the Directive 2014117EU) This comprehensive and open list of general information which will at this point not be analysed in detail is more specific and problem-oriented than the list of information to be included in creshydit agreements in Art 10 of the CCO51 Although they both match in certain points

kreditiranja u hrvatskome pravu Zbornik 48 Susreta pravnika - Opatija 10 Hrvatskog saveza udruga pravnika u gospodarstvu 2010 p 316

so Recital 53 of the preamble of the Directive 2014117EU contains detailed explanation on how the representative example should be composed For example it is explained that it should correspond to the average duration and total amount of credit granted for the type of credit agreement under consideshyrationlaquo and that the prevalence of certain types of credit agreements in a specific market should be taken into account etc Since directives have no horizontal direct effect it would be very beneficial to transpose some of these useful recitals into explanations of legislative proposals when transposing the MCD More on representative examples in the Commission Staff Working Document Guidelines on the application ofDirective 200848EC (Consumer Credit Directive) in relation to costs and the Annual Percentage Rate of charge SWD(2012) 128 final Brussels 8 May 2012 pp 8 et seq

51Such general information shall include at least the follOwing (a) the identity and the geograpshyhical address of the issuer of the information (b) the purposes for which the credit may be used ec) the forms of security including where applicable the possibility for it to be located in a different MS (d) the possible duration of the credit agreements (e) types ofavailable borrowing rate indicating whetherfixed or variable or both with a short description ofthe characteristics ofafixed and variable rate including related implications for the consumer (I) where foreign currency loans are available an indication of the foreign currency or currencies including an explanation of the implications for the consumer where the credit is denominated in a foreign currency (g) a representative example of the total amount of credit the total

236 237

______~__~~_dOl~f_tfgtI~lt~~ol~i~middot~J~Ayen~~~~~~M_K~~~+~tgtyenltJltjkv_~ltK ~_(~~ci1I40gtWii_gt4~I~1Xrmiddotw0Vl__~___Agt_~_-_~_____C_~____ ____


the list ofgeneral information from Art 13(1) of the Directive 2014117EU takes into consideration many of the serious risks occurring on the mortgage credit market and beyond Namely it particularly emphasises the problem of unfair contract clauses in credit agreements concerning the exchange risk and variable interests (see points (e) and (fraquo It also intends to stop the practice of creditors regarding the general standard contract terms which usually include a statement that a consumer is familiar with and agrees with all the contract conditions (see point 0raquo52 Although the Directive 9313 EEe on unfair terms in consumer contraets53 deals adequately with the mentioned problems such a regulation was necessary because its application in the practice of the courts and other bodies solving disputes with consumers was not a complete sushyccess in these matters54 According to Art 13(2) of the Directive 201417EU an MS may oblige the creditors to include also other types of warnings which are relevant in an MS and should notify the Commission about it

The provision is followed by a large Art 14 On pre-contractual information that speaks about personalised information needed for the consumer to compare raquothe creshydits available on the market assess their implications and make an informed decision on whether to conclude a credit agreementlaquo This information should be given to the consumer by the creditor or credit intermediary or appointed representative raquowithout

cost of the credit to the consumer the total amount payable by the consumer and the APRC (h) an indishycation of possible further costs not included in the total cost of the credit to the consumer to be paid in connection with a credit agreement (i) the range of different options available for reimburSing the credit to the creditor including the number frequency and amount of the regular repayment instalments (j) where applicable a clear and concise statement that compliance with the terms and conditions ofthe credit agreement does not guarantee repayment of the total amount of credit under the credit agreement (k) a deSCription of the conditions directly relating to early repayment (I) whether a valuation of the property is necessary and where applicable who is responsible for ensuring that the valuation is carried out and whether any related costs arise for the consumer (m) indication of ancillary services the consumer is obliged to acquire in order to obtain the credit or to obtain it on the terms and conditions marketed and where applicable a clarification that the ancillary services may be purchased from a provider that is not the creditor and (n) a general warning concerning possible consequences of non-compliance with the commitments linked to the credit agreementlaquo

S2 As confirmed in Request for a preliminary ruling from the Tribunal dinstance dOrieans (Franshyce) lodged on 6 December 2012 - BNP Paribas Personal Finance SA and Facet SA v Guillaume Delmashytti in the qEU Case C-S6412 whereby the referring court questions whether the Art 22 of Directive 20OS48EC interpreted in the light of Council Directive 9313EEC prohibit the existence and applishycation of standard terms in credit agreements whereby the consumer acknowledges that the creditors obligations have been fulfilledlaquo

53 Council Directive 9313IEEC of 5 April 1993 on unfair terms in consumer contracts OJ L095 21 April 1993 p 29 34 See Miscenic Emilia Unfair Contract Terms in the Contract Law Country reshyport for Croatia in Jessel-Holst Christa 1Josipovic Tatjana I Dollani Nada (ed) Unfair Contract Terms in General Contract Law South East European Law School Network Civil Law Forum for South East Europe - Collection for Studies and Analyses Skopje 2012 pp 195-212

54 Detailed analysis of these problems in the Croatian law Mi~eenic Emilia Nepoisecttene odredbe u ugovorima 0 kreditu in Tomljenovie Vesna 1Petrie Silvija 1Mi5tenic Emilia (ed) Nepoisecttene ugoshyvorne odredbe europski standardi i hrvatska provedba Pravni fakultet Sveucilista u Rijeci Rijeka 2013 pp 113 et seq Petrie Silvija ZaStita potroSaCa u bankarskim kreditnim poslovima u hrvatskom pravu u odnosu na pravo Europske unije ZPFS VoL 39 No1-I 2002 p 123 Siakoper Zvonimir Nevaljanost pojedinih odredaba optih uvjeta ugovora s posehnim osvrtom na potroSacke ugovore ZPFR Vol I 2001 p 182

238


undue delay after the consumer has given the necessary information on his needs financial situation and preferences in accordance with Art 20 and raquoin good timelaquo before the consumer is bound by any credit agreement or offer (Art 14(1)(a) and (b) of the Directive 20 14117EU)55 Though of the references the accentuated general clauses will need to be interpreted correspondingly to the ones from the CCD56 The personalised information will be given to the consumer by means of the ESIS (Annex II of the Directive 201417EU)S7 on paper or on another durable medium (Art 14(2) and (3) of the Directive 2014117EU) and if the MS already applies an information sheet that meets equivalent information requirements to those set out in Annex II they may continue to use it until 21 March 2019 (Art 14(5) of the Directive 2014171 EU) Probably having in mind the complexity of the financial terms used the MCDs preamble accentuates the necessity for the ESIS to be articulated in a language which is simple and more easily understandable for consumers (recitals 41 and 42) In adshydition to information contained in ESIS the MS may enable the provision of other important information in a separate document which may be annexed to the ESIS (Art 14(8) of the Directive 201417EU) However it is emphasised that personalised information contained in ESIS should not imply an obligation to prOvide advice and that an informed choice is up to the consumer to be made after he has had sufficient time to compare offers assess their implications obtain third party advice ifnecessary (recital 44 of the preamble of the Directive 201417EU) Namely the MS must presshycribe the so-called reflection period for the consumer of at least seven days either before the conclusion of the credit agreement or a period for exercising a right of withdrawal after the conclusion of the credit agreement or a combination of the two (Art 14(6) of the Directive 201417EU)58 If an MS chooses to specify a reflection period before

SS According to the Art 14(3) and (4) of the Directive 2014I7EU when a binding offeris made to the consumer it should be accompanied by the ESIS unless the ESIS has already been delivered to the consumer and the characteristics of the offer are consistent with the information previously prOvided MS may provide fur the obligatory provision of the ESIS both before the provision of any binding offer and together with the binding offer where an ESIS containing the same information has not previously been given

56 See recital 19 of the preamble of the Directive 20I4II7EU For example the term raquoin good timelaquo was transposed literally from the CCD into Art 5( I) and Art 6(1) of the Croatian CCA regarding pre-contractual information and in some other relevant provisions The term as such was not interpreted by country authorities However the notion should be interpreted by using the recital 19 of the CCD according to which the consumer raquoshould receive adequate information which the consumer may take away and consider prior to the conclusion of the credit agreementlaquo

7 Annex II is divided in Part A containing five pages of ESIS and Part B containing six pages of instructions how to complete the ESIS See recital 40 of the preamble of the Directive 20141I7EU according to which raquopursuant to Commission Recommendation 200lI93EC of I March 2001 on preshycontractual information to be given to consumers by lenders offering home loans (OJ L 69 1032001 p 25) the Commission committed itself to monitoring compliance with the Voluntary Code of Conduct on pre-contractual information for home loans which contains the ESIS which provides information personalised for the consumer on the credit agreement being providedlaquo

SDetailed on problems linked with the transposition of the concept of a raquoright of withdrawallaquo into the Croatian consumer protection law Baretic Marko ZaStita potro~ca u Republici Hrvatskoj nashykon ulaska u Europsku uniju jesmo Ii implementacijom europskog prava izgradili sustav za~tite potro~ashyca in Bourgoignie Thierry Jovanic Thtjana (eds) Jaeanje zaStite potro~aCa u Srbiji tiber Amicorum Svetislav TaboroSi Pravni fakultet Univerziteta u Beogradu Beograd 2013 pp 104 et seq

239

ryen_1tt~~~)PtlUlItr5$j~~~4~~~~~~~yen~~f~l~I~_I~~~ltr~~~~9gt~~~h~rJlfJ9~~~~~~~~$I~~~fR~l~-~~

httpM_K~~~+~tgtltJltjkv_~ltK

doc dr sc Emilia MiIcenic

the conclusion of a credit agreement the offer shall be binding on the creditor for the duration of the reflection period and the consumer may accept the offer at any time during this period The MS may provide that consumers cannot accept the offer for a period not exceeding the first ten days of the reflection period It is interesting how Art 14 of the Directive 20141 17EU actually does not enumerate the pre-contractual information leaving this to the ESIS but instead regulates an important institute such as the right of withdrawal together with paragraphs dealing with the relationship to the Directive 200265EC concerning the distance marketing of consumer finanshycial services59 together with the paragraph on the provision of the copy of the draft credit agreement to the consumer etc (Art 14(7)-(11) of the Directive 201417EU) Even the preamble of the MCD does not follow such an order After detailed recitals on the ESIS (recitals 40 et seq of the preamble of the Directive 2014117EU) there is no elaboration of the reflection period or the right of withdrawal which are analysed previously in the recital 23 of the preamble60

It is stated in the preamble of the MCD that a consumer may still need additishyonal assistance in order to decide which credit agreement is the most appropriate for his needs and financial situation (recital 48 of the preamble of the Directive 2014171 EU) Adequate explanations should be offered by creditors or credit intermediaries or appOinted representatives in particular with regard to pre-contractual information essential characteristics and specific effects of the proposed credit agreements and any ancillary services (Art 16(1) of the Directive 201417EU) Although these explanashytions should not constitute a personal recommendation they should be given in a personalised manner taking into account the circumstances in which the credit is ofshyfered the consumers need for assistance and his knowledge and experience of credit and the nature of individual credit products (recital 48 and Art 16(2) of the Directive 201417EU) The latter provision could actually be understood as an interpretation of the term raquoadequate explanationslaquo which have been omitted in the relevant provishysion of the CCD61 Since this provision prescribes that the MS shall ensure that credishy

59 Directive 2oo26SEC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90619EEC and DirectiveS 9717EC and 9827EC OJ 2002 L 27116

The recital explains the effect of the withdrawal period corresponding to the one deriving from the German Biirgerliches Gesetzbuch on raquoschwebende Wirksamkeitlaquo (ger) raquoIt is appropriate that MS shoshyuld have the flexibility to make the reflection period binding on the consumer for a period not exceeding 10 days but that in other cases consumers who wish to proceed during the reflection period are able to do so and that in the interests of legal certainty in the context of property transactions MS should be able to provide that the reflection period or right of withdrawal should cease where the consumer undertakes any action which under national law results in the creation or transfer of a property right connected to or using funds obtained through the credit agreement or where applicable transfers the funds to a third partylaquo See also Rott Peter Harmonising Different Rights of Withdrawal Can German Law Serve as an Example for EC Consumer Law GLJ 2006 pp 1109 et seq

61 The lack of the interpretation of the term raquoadequate explanationslaquo in the CCD raised certain questions such as what is meant by adequatelaquo or how will this obligation affect foreign consumers not speaking the MS language With regard to the manner in which adequate explanations must be given to the consumer see the Request for a preliminary ruling from the Tribunal dinstance dOrieans (France) lodged on 12 August 2013 CA Consumer Finance v Ingrid Bakkaus and Others in the CJEU Case Cmiddot44913 where the referring court questions inter alia if Art 5(6) of the CCD must be interpreted raquoas


tors and where applicable credit intermediaries or appointed representatives provide adequate explanations to the consumer it is consequently to be understood as having the same meaning as the corresponding provision of the Art 5(6) of the CCD i e as an raquoobligationlaquo to prOvide adequate explanations

33 Tying and Bundling Practices

On the mortgage credit market and credit market in general there are often difshyferent appealing financial products offered to consumers which at the first sight seem to be very beneficial but are usually quite complex and very risky These products combine credit agreements with other products or services that can be purchased together but also separately from the credit The MCD tries to put these products when they are linked with mortgage credits under a certain degree of controL In Art 12(1) of the Directive 201417EU it allows the MS bundling practices but prohibits tying practices While the prohibited )tyingpracticelaquo is defined as the offering or selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is not made available to the consumer separately the MCDs definition of the raquobundling practicelaquo is the same except for the credit agreement also being made available to the consumer separately but not necessarily on the same terms or conditions as when offeshyred bundled with the ancillary services (Art 4(26) (27) of the Directive 201417EU) Thereby raquoancillary servicelaquo means a service offered to the consumer in conjunction with the credit agreement (Art 4(4) ofthe Directive 201417EU) However notwithstanding the mentioned para 1 the MS may provide that creditors can request the consumer or a family member or close relation of the consumer to )(a) open or maintain a payment or a savings account where the only purpose of such an account is to accumulate capital to repay the credit to service the credit to pool resources to obtain the credit or to proshyvide additional security for the creditor in the event of default (b) purchase or keep an investment product or a private pension product where such product which primarily offers the investor an income in retirement serves also to provide additional security for the creditor in the event of default or to accumulate capital to repay the credit to service the credit or to pool resources to obtain the credit (c) conclude a separate credit agreeshyment in conjunction with a shared-equity credit agreement to obtain the creditlaquo (Art 12(2) of the Directive 201417EU) Furthermore according to Art 12(3) of the Direcshytive 201417EU notwithstanding para I the MS may allow tying practices raquowhen the creditor can demonstrate to its competent authority that the tied products or categories of product offered on terms and conditions similar to each other which are not made available separately result in a clear benefit to the consumers taking due account of the availability and the prices of the relevant products offered on the marketlaquo The provision of this paragraph shall only apply to products which are marketed after 20 March 2014

meaning that it is not possible for a creditor to provide adequate explanations to the consumer ifit has not checked the consumers financial situation and needs beforehandlaquo and if it must be interpreted raquoas precshyluding the adequate explanations to be supplied to the consumer being prOvided only in the contractual information mentioned in the credit agreement without a specific document being drawn uplaquo

240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----

doc dr sc Emilia MiScenic

The MS may allow creditors to require the consumer to hold a relevant insurance policy related to the credit agreement and shall ensure that in such cases the creditor accepts the insurance policy from a supplier different to his preferred supplier where such a poshylicy has a level of guarantee equivalent to the one the creditor has proposed (Art 12(4) of the Directive 2014117EU) Described practices are also taken into account in many other Directives provisions such as in Art 11(4) on advertising Art 13(1) (m) on geshyneral information etc For instance pursuant to Art 16(l)(d) of the Directive 2014171 EU on adequate advice where ancillary services are bundled with a credit agreement it should be explained to the consumer whether each component of the bundle can be terminated separately and what are the implications for the consumer of doing so The preamble accentuates that raquoit is important to prevent practices such as tying of certain products which may induce consumers to enter into credit agreements which are not in their best interest without however restricting product bundling which can be beneficial to consumerslaquo whereby the MS should raquocontinue monitoring retail financial services markets closely to ensure that bundling practices do not distort consumer choice and competition in the marlretlaquo (recital 24 ofthe preamble of the Directive

Consequently the MCD acknowledges the existence and growth of such finanshycial products and their different variations on the credit market However it is this authors opinion that it doesnt determine criteria strictly enough to enable qualitative control of their use in packages with mortgage credits Namely the enumerated bunshydling and allowed tying practices under the condition of raquoclear benefit to the conshysumers taking due account of the availability and the prices of the relevant products offered on the marketlaquo are not satisfactory The multiple problems with similar finanshycial models occurred on numerous occasions in particular in cases of linked credit agreements and so-called raquo5chrottimmobilienlaquo62 In these cases where different finanshycial products such as certain types of savings investments or insurances were linked with credit agreements intended for financing the purchase of residential immovable properties at the end of the day the immovable became raquoSchrottlaquo meaning raquowastelaquo in the German language Within such financial models the credit institutions usually offered to consumers without their own property to buy an immovable or shares in funds that invest into an immovable under beneficial conditions of credit financing and by using tax relieves As in Art 12 of the Directive 201417EU on tying and bunshydling practices all combined products served to ensure the repayment of the credit However risks lied in many other factors some of which are not sufficiently recognishyzed even by the MCD63 In the above mentioned cases of raquoSchrottimmobilienlaquo the

bull 2 According to Art 3(n) of the CCD ~linked credit agreement means a credit agreement where (i) the credit in question serves exclusively to finance an agreement for the supply of specific goods or the provision of a specific service and (ii) those two agreements form from an objective point of view a commercial unit a commercial unit shall be deemed to exist where the supplier or service provider himself finances the credit for the consumer or if it is financed by a third party where the creditor uses the services of the supplier or service provider in connection with the conclusion or preparation of the credit agreement or where the specific goods or the provision of a specific service are explicitly specified in the credit agreementlaquo See also the prOvision ofArt 15 of the CCD regulating linked credit agreements

To these problems belong inter alia the facts that the consumers as buyers were uninformed of their right of withdrawal on procedure and duration of financing and on the expected financial burden the value of the residential immovable properties was at the time of the sale intentionally overestimated

242

-----~-~---~--~---------------~~~~-~amp~


German courts referred numerous questions for preliminary ruling to the European Court of Justice (ECJ) 1 now Court of Justice of the European Union (CJEU)64 Alshythough the ECJ tried to affect the German court practice by demanding protection of consumers from unexpected risks ariSing from the described models of financing and moreover questioned the observance of the information duties and of the right of wishythdrawal concerning off-premises contracts (the way in which most of these contracts were concluded) the consumers never got adequate protection through the institute of linked credit agreements and consumer credit legislation itselpound65

34 Provisions on the APCR Foreign Currency Loans and Variable Rate Loans

Although regulated separately one from another in the MCD provisions on the APCR foreign currency loans and variable rate loans are inevitably bound to each other Especially in the time of financial crises besides the interest risks currency and exchange rate risks playa key role in determining the price of credits on the market In practice the creditors successfully transfer the burden of those risks onto consushymers which usually are not informed enough to understand them properly Though of quite developed legal framework both on European and the level of MS regarding the unfair contract clauses and unfair commercial practices or regarding the supervishysion of creditors activities66 such an unlawful behaviour towards consumers occurs regularly on the credit market Just like both credit consumer directives before her the MCD tries to act upon the restraining of the mentioned risks that can be fatal to consumers when entering mortgage credit agreements The APRC as key information concerning the price of credit is in Art 4( 15) of the Directive 20 1417EU defined as

and this made their renting more difficult sellers promising funds from the apartments rental became iusolvent buyers were regularly consumers without major property or with low income and thus not cashypable of repaying the credit credit institutions used credit intermediaries in order to avoid direct contact with the buyers and all relevant contract documentation was handed over to intermediaries etc

64 For instance Case C-41206 Hamilton v Volksbank Fider eG of 10 April 2008 [2008] ECR f02383 Case C-21508 E Frix GmbH v Carsten von der Heyden of 15 April 2010 [2010] ECR 1-02947 Case C-4596 Bayerische Hypotheken- and WechselbankAG vEdgard Dietzingerof 17 Marchl998 [1998] ECR 1middot01199 Case C-48199 Georg Heininger and Helga Heininger v Bayerische Hypo- und Vereinsbank AG of 13 December 2001 [2oo1J ECR 1-09945 Case C-35003 Schulte v Deutsche Bausporkasse Bildenia AG of25 October 2005 [2005] ECR 1middot09215 Case C-22904 Crailsheimer Voksbank eG v Klaus Conrads Frank Schulzke and PetTa SchulzkemiddotLosche Joachim Nitschke of25 October 2005 [2005] ECR 1-09273 etc

65 More in detail MiAcenic Emilia Povezani ugovori 0 kreditu ZPFS Vol 32 No1 2011 pp 155 etseq

For example relevant EU legal framework concerns the Council Directive 9313EEC of 5 April 1993 on unfair terms in consumer contracts OJ L095 21 April 1993 p 29 the Directive 2005291 EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumiddot mer commercial practices in the internal market and amending Council Directive 84450EEC Directimiddot ves 9717EC 9827EC and 2oo265EC of the European Parliament and of the Council and Regulation (EC) No 20062004 of the European Parliament and of the Council OJ 2005 L 14922 and Regulation (EU) No 5752013 of the European Parliament and of the Council of 26 June 2013 on prudential requishyrements for credit institutions and investment firms and amending Regulation (EU) No 6482012 OJ L 1761127 June 2013 etc

243


the total cost of the credit to the consumer expressed as an annual percentage of the total amount of credit67 and where applicable including the costs referred to in Art 17(2) that equates on an annual basis to the present value of all future or existing commitments (drawdowns repayments and charges) agreed by the creditor and the consumer68 Analogue to the definition from the CCD the main goal of the MCDs definition of the APCR is the introduction of an unified definition and formula for its calculation in all the MS that would encompass most of the costs linked with the conshyclusion and execution of the credit agreement69 Having this goal in mind the MCD bases the provisions on the APCR and its calculation on the maximum harmonization principle by prescribing that MS shall not maintain or introduce in their national law provisions diverging from those laid down in Art 17(1) to (5) (7) and (8) and Annex I with regard to a common consistent Union standard for the calculation of APRC The APRC is to be calculated in accordance with the mathematical formula set out in Annex I and raquothe calculation shall be based on the assumption that the credit agreeshyment is to remain valid for the period agreed and that the creditor and the consumer will fulfil their obligations under the terms and by the dates specified in the credit agreementlaquo (Art 17(l) and (3) of the Directive 2014117EU)70

67 Art 4(12) of the Directive 201417EU refers to the notion of raquototal amount of creditlaquo from Art 3(1) of the CCD which means the ceiling or the total sums made available under a credit agreement bull

68 Art 4(13) of the Directive 2014117fEU refers to the notion ohtotal cost of the credit to the conshysumerlaquo from Art 3(g) of the CCD which means raquoall the costs including interest commissionsgt taxes and any other kind offees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor except for notarial costs costs in respect of ancillary services relating to the credit agreement in particular insurance premiums are also included if in addition the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed Under Art 4( 13) of the Directive 20 1417EU the total costs also include the cost of valuation of property where such valuation is necessary to obtain the credit but exclude registration fees for the transfer of ownership of the immovable property It excludes any charges payable by the consumer for non-compliance with the commitments laid down in the credit agreement The disputable condition of the creditors knowledge of the costs should according to the recital 50 of the preamble of the Directive 2014117EU be assessed objectivelygt taking into account the requirements of professional diligence The costs from Art 17(2) of the Directive 201417EU are the costs of opening and maintaining a specific account of using a means ofpayment for both transactions and drawdowns on that account and of other costs relating to payment transactionslaquo that shall be included in the total cost of credit to the consumer raquowhenever the opening or maintaining of an account is obligatory in order to obtain the credit or to obtain it on the terms and conditions marketedbull

Pursuant to the recital 49 of the preamble ofthe Directive 2014117EU in order to promote the establishment and functioning of the internal market and to ensure a high degree of protection for consushymers throughout the Union it is necessary to uniformly ensure the comparability of information relating to the APRC throughout the Unionlaquo It should be reminded that the unique mathematical formula for the calculation of the APCR was introduced by the first amendment of the Directive 87102EEC namely by the Directive 9088EEe The latter enabled the MS to use their old calculation methods in a transitional period of three years starting with 1 January 1993 Since the expected result did not occur following amendments in the Directive 98171EC repeated the unique and for all the MS obligatory method of calshyculation of the APCR However despite the uniform mathematical formula prOvided for in Directive 87l02fEEC the APCR was not fully comparable throughout the Community since in individual MS different cost factors were taken into account in the calculation thereof That is why the new CCD introshyduced a new and more detailed calculation method which clearly and comprehensively defines the total cost of a credit to the consumer See Cikara Gegenwart opcit pp 243 et seq

According to Art 17(7) and (8) of the Directive 201417EU raquowhere applicable the additional assumptions set out in Annex I shall be used in calculating the APRC and raquothe Commission shall be em-


The following provisions concern credit agreements containing clauses allowing variations in the borrowing rate If these and other charges contained in the APRC are unquantifiable at the time ofcalculation the APCR shall be calculated on the assumpshytion that they will remain fixed in relation to the level set at the conclusion of the conshytract (Art 17(4) of the Directive 20 1417EU) It is prescribed that in these cases the MS must ensure that the consumer is informed of the possible impacts of variations on the amounts payable and on the APRC at least by means of the ESIS and that this shall be done by raquoproviding the consumer with an additional APRC which illustrates the possible risks linked to a significant increase in the borrowing ratelaquo (Art 17(6) of the Directive 201417EU)71 Moreover according to the same provision raquowhere the borrowing rate is not capped this information shall be accompanied by a warning highlighting that the total cost ofthe credit to the consumer shown by the APRC may changelaquo However this provision is not applicable to credits with a fixed borrowing rate for an initial period of at least five years at the end of which a negotiation on a possible further period with a fixed borrowing rate follows for which an additional illustrative APRC is provided for in the ESIS For such credit agreements the calcushylation ofthe additional illustrative APRC shall cover only the initial fixed rate period and shall be based on the assumption that at the end of the fixed borrowing rate period the capital outstanding is repaid (Art 17(5) of the Directive 2014117EU) At this point one should skip to the Chapter 9 ofthe MCD dealing with foreign currency loans and variable rate loans but also to Chapter 10 on the sound execution of credit agreements and related rights since the provisions on the variations of the borrowing rate are scattered all over the MCD Pursuant to Art 24 of the Directive 2014117EU in case ofvariable rate credits the MS shall ensure that any indexes or reference rates used to calculate the borrowing rate are dear accessible objective and verifiable by the contractual parties and the competent authorities and that the historical records of indexes for calculating the borrowing rates are maintained either by the prOviders of these indexes or the creditors The aspects of this provision are most certainly very bright since this is obviously one of the biggest problems when entering any kind of credit agreement Namely the credit agreements are in practice usually agreed by using the standard contract terms the content of which is again raquousuallylaquo not clarishyfied to consumers Although the consumers are acquainted with the fact of variable borrowing rate they are not acqUainted with the factors influencing these variations which are variations affecting the price of credit as essentialia negotii of their agree-

powered to adopt delegated acts in accordance with Art 40 in order to amend the remarks or update the assumptions used to calculate the APRC as set out in Annex I in particular if the remarks or assumptions set out in this Article and in Annex I do not suffice to calculate the APRC in a uniform manner or are no longer adapted to the commercial situation on the marketlaquo See also recitals 51 and 54 of the preamble of the Directive 201417EU

71 One should notice that there is again a translation issue with the Croatian version of the MCD which speaks about providing the consumer with a raquonew APCR instead of the raquoadditional APCR For more on translation difficulties in the process of alignment of the Croatian law to the European acquis see Sareevic Susan I MiStenic Emilia Uporaba europskoga iii nacionalnoga nazivlja pri preuzimanju direktiva EU-a u hrvatsko zakonodavstvo in Bratanic Maja (ed) Hrvatski jezik na putu u EU Hrvatska sveucilisna naklada Zagreb 2011 pp 113 et seq

244 245

yen__ _______ ~___ _~-__~~_______ltgt__ _ __t~_~_~~_~~7o=_~_JWtI4I0)j~~HltI~~~~~~~middotlIi~middot

doc dr sc Emilia MisceniC

mentn Related to this problem Art 27 of the Directive 2014117EU that corresponds to Art 11 of the CCD obligates MS in its para 1 to ensure that the creditor informs the consumer of any change in the borrowing rate on paper or another durable medishyum before the change takes effect The content of this information must at least state the amount of the payments left and information on the number or frequency of the payment changes ifaffected by the change However by respecting the common pracshytice para 2 allows agreements on periodical information where the change is correlashyted with a change in a reference rate which is publicly available by appropriate means and also in the creditors premises and communicated personally to the consumer together with the amount of new periodic instalments73 Thereby it is important to notice that the MCD insists on sufficient transparency regarding the information on the borrowing rate both during pre- contractual and contractual stage However it leaves to the MS to decide whether they will maintain or introduce restrictions or proshyhibitions on unilateral changes to the borrowing rate by the creditor (recital 67 of the preamble of the Directive 2014117EU) Having in mind that those changes affect the price of the credit as the essential element of the agreement74 such a decision should not be left to unilateral disposition of credit institutions75

12 For instance the main question in the Case C-48408 of3 June 2010 Caja de Ahorros y Monte de Piedad de Madrid v Asociacion de Usuarios de Servicios Bancarios (Ausbanc) [2010] ECR 1-04785 concerned the legality of a contractual term of the Caja de Madrid in variable - rate loan agreements conshycluded with its clients for the purchase of residential immovable property In its judgment the Eq estashyblished that raquoArt 4(2) and 8 ofDirective 93113EEC ( ) must be interpreted as not precluding national legislation ( ) which authorises a judicial review as to the unfairness of contractual terms which relate to the definition ofthe main subject-matter of the contract or to the adequacy of the price and remunerashytion on the one hand as against the services or goods to be supplied in exchange on the other hand even in the case where those terms are drafted in plain intelligible language~ Very detailed on unfair contract terms in credit agreements MiScenic Nepostene opcit pp 113 et seq

7 According to Art 27(3) of the Directive 201417EU raquocreditors may continue to inform conshysumers periodically where the change in the borrowing rate is not correlated with a change in a reference rate where this was allowed under national law before 20 March 2014laquo According to Art 27(4) of the Directive 201417EU raquowhere changes in the borrowing rate are determined by way of auction on the capital markets and it is therefore impOSSible for the creditor to inform the consumer of any change beshyfore the change takes effect the creditor shall in good time before the auction inform the consumer on paper or on another durable medium of the upcoming procedure and provide an indication of how the borrowing rate could be atfected~

7See the request for a preliminary ruling from the TribunaIul Specializat Cluj (Romania) lodged on 20 March 2013 - Bogdan Matei Ioana Ofelia Matei v SC Volksbank Romania SA in the CJEU Case C-14313 where having regard to the provisions of the Directive 9313EEC and of the Directive 2008148 EC the court questions whether raquothe concepts of subject-matter andor of price referred to in Article 4(2) of Directive 9313EEC (can) be interpreted as meaning that such terms - namely the subject-mashytter andor the price of a credit agreement secured by a mortgage also cover among the elements whimiddot ch make up the consideration owed to the credit institution the annual percentage rate of such a credit agreement secured by a mortgage which is in particular made up of the interest rate whether fixed or variable bank charges and other costs included and defined in the credit agreementlaquo

75 In practice variable rate loan agreements often contain provisions according to which the regushylar interest rate will vary according to market fluctuations and on the ground of the Decision on interest rates of the bank whereby such a clause is unrelated to any index or reference rate Such clauses belong to the so-called raquogrey list~ of unfair contract terms regulated in Annex No1 of the Directive 9313 which encompasses inter alia terms which have the object or effect of raquo(j) enabling the seller or supplier to alter

246

_ltY14-~~_~_~_~~~___~~JIlto(oiIiI~~~middot~_~


Another key factor affecting the price of the credit as its essential element is its denomination in a foreign currency Although allowed as such the variations of cushyrrency rate carry an exchange rate risk that is particularly high in the time of financial crises However consumers are usually unaware ofsuch risks ifnot properly informed by the creditor or credit intermediary That is why the Art 23 of the Directive 20141171 EU requires from the MS that in case of credits denominated in foreign currency they ensure the existence of an appropriate regulatory framework at the time of the credit agreement conclusion or at least that the consumer has a right to convert the foreign into an alternative currency under specified conditions76 or that there are other arranshygements in place to limit the exchange rate risk to which the consumer is exposed unshyder the credit agreement (para 1) While there is further elaboration of the alternative currency in the following paragraph there is no explanation or suggestion ofpossible other arrangements for limiting the exchange rate risk The critique also concerns alshyternative regulation of these two quite vague solutions of such an important problem in credit agreements denominated in foreign currency It is stated in para 2 that the alternative currency shall be either raquo(a) the currency in which the consumer primashyrily receives income or holds assets from which the credit is to be repaid as indicated at the time the most recent creditworthiness assessment in relation to the credit agreeshyment was made or (b) the currency of the MS in which the consumer either was resishydent at the time the credit agreement was concluded or is currently residentlaquo77 Howeshyver the MS may specify whether both of these choices are available to the consumer or only one of them or may allow creditors to specify whether both of the choices are available to the consumer or only one of them The author of this paper holds the view that such an important decision is not to be left to creditors who will naturally choose the solution which suits them better As described though of rather developed legal framework on information duties towards consumers credit institutions and other creditors often neglect these duties in practice by using the standard contract terms as a mean of contract conclusion Consequently the uninformed consumers take over mentioned risks by consenting to agreements the content of which they are not aware of or at least do not understand it This is also the reason why besides detailed proshyvisions on informing in every step of the contract conclusion the MCD additionally

the terms of the contract unilaterally without a valid reason which is specified in the contract (k) enashybling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be providedlaquo

76 According to the Art 23(3) of the Directive 201417EU raquowhere a consumer has a right to convert the credit agreement into an alternative currency in accordance with point (a) of paragraph 1 the MS shall ensure that the exchange rate at which the conversion is carried out is the market exchange rate applicable on the day of application for conversion unless otherwise specified in the credit agreementlaquo

71 According to Ye~in Pmar Foreign Currency Loans and Systemic Risk in Europe Federal Reshyserve Bank ofSt Louis Review MayJune 2013 95(3) pp 219-235 such a solution corresponds to suggeshystions of the European Bank for Restructuring and Development (EBRD) which acknowledges foreign currency loans in the transition countries in Eastern Europe and the CIS countries (the former USSR) as a key vulnerabilitylaquo and therefore encourages local currency borrowing and capital markets to help reduce unhedged foreign currency borrOwing

247


requires from the MS to ensure that in such cases raquothe creditor warns the consumer on a regular basis on paper or on another durable medium at least where the value of the total amount payable by the consumer which remains outstanding or of the regushylar instalments varies by more than 20 from what it would be if the exchange rate between the currency of the credit agreement and ~e currency ofthe MS applicable at the time ofthe conclusion ofthe credit agreement were appliedlaquo (Art 23(4) ofthe Dishyrective 2014117EU) It is prescribed that raquothe warning shall inform the consumer of a rise in the total amount payable by the consumer set out where applicable the right to convert to an alternative currency and the conditions for doing so and explain any other applicable mechanism for limiting the exchange rate risk to which the consumer is exposedlaquo Moreover according to the Art 23(5) of the Directive 2014117EU the MS may further regulate foreign currency loans provided that such regulation is not applied with retrospective effect78The MCD insists on multiple informing of consushymers through different means and in different stages ofcontract conclusion The queshystion is whether this will be enough to raquoreallylaquo protect consumers According to Art 23(6) ofthe Directive 20141I7EU described arrangements are to be disclosed to the consumer both in the ESIS and in the credit agreement Further on raquowhere there is no provision in the credit agreement to limit the exchange rate risk to which the consushymer is exposed to a fluctuation in the exchange rate ofless than 20 the ESIS shall inshyclude an illustrative example ofthe impact ofa 20 fluctuation in the exchange ratelaquo However it is this authors opinion that such repeated informing can affect a decision of the consumer only to a limited extent because of the following reasons On the one hand we have consumers in the need for credit that in the time offinancial crises conshycerns money amounts necessary for fulfilling regularly daily needs Also their level of knowledge regarding special financial terms mathematical formulas for calculating the APCR etc is extremely low Finally the way in which credit agreements are conshycluded by means of standard general contract terms containjng most ofthe important information printed in small letters on the back of the contract or just by referring to them isnt improving consumers understanding of obligations they are about to enshyter either Although the MCD tries to impact the last of the enumerated problems to the most there are many doubts as to whether it can succeed Most of the important information will besides the general standard contract terms again be repeated in the ESIS However without detailed and adequate explanation the practice of credit conshytract conclusion will remain the same or even more difficult The consumers may only get confused by the bunch ofpapers handed over to them for which they have at least a week to analyse them The effect of the so-called raquoinformation overloadlaquo will work in favour ofthe creditors It will all depend upon the application and understanding of Art 16 of the Directive 2014117EU on adequate explanations in practice

711 A similar question can be raised with regard to the Art 11a(S) of the Croatian CCD which parshytially corresponds to the Art 23(4) of the Directive 2014117 lEU See MiScenic Emilia I Srdoe Ena Stumiddot dentski krediti kao sredstvo financiranja visokog obrazovanja in Mihelcic Gabrijela I Micenic Emilia I HadZimanoviC Natasecta I Bodul Dejan (eds) Proces preobrazbe hrvatskog visokoobrazovnog sustava Pravni fakultet SveuciliSta u Rijeci Rijeka 2014 (in publication procedure)


35 Provision on Early Repayment

One of the most important but also most disputable institutes of consumer protection in consumer credit law namely the early repayment is regulated in the Chapter 10 on sound execution of credit agreements and related rights According to Art 25(1) of the Directive 2014117EU the MS shall ensure that the consumer has a right to discharge fully or partially his obligations under a credit agreement prior to the expiry of the mortgage credit agreement Then the consumer shall be entitled to a reduction in the total cost of the credit consisting of the interest and the costs for the remaining duration of the contract The provision which mostly corresponds to the Art 16( 1) of the CCD takes into account that interests by their legal nature represent the price which the consumer has to pay to the creditor for using the capital of the credit and that in case of early repayment both the legal and economical purpose of the interests are falling off for the part of the debt repaid before its due date However it doesnt correspond to the Art 16(1) of the CCD with regard to one very important matter namely the timing of the early repayment According to the latter article the early repayment can be done raquoat any timelaquo while according to the Art 25(2) of the Directive 201417EU the MS may provide that the exercise of this right is subject to certain conditions such as time limitations a different treatment depending on the borrowing rate type or on the moment the consumer exercises the right or restrictishyons regarding the circumstances under which the right may be exercised It is obvious that the provision leaves a lot of space with regard to the regulation of this important institute to the MS albeit the criticism in the recital 63 of the preamble regarding raquosubstantial differences (exist) between the national principles and conditions under which consumers have the ability to repay their credit and the conditions under which such early repayment can take placelaquo Although the preamble speaks about the neshycessity for ensuring raquocertain standards with regard to early repayment of creditlaquo that raquoare essential at Union level in order to ensure that consumers have the possibility to discharge their obligations before the date agreed in the credit agreement and the confidence to compare offers in order to find the best products to meet their needslaquo it seems that the only harmonized standard offered by the MCD is actually an insushyrance that consumers have a right to early repayment The regulation of all the other conditions is left to the MS Consequently the provisions of the MCD speak against themselves since it is obvious from its wording that the MS raquoregulatelaquo the right to early repayment however under very different conditions Pursuant to the current wording of the MCD provision on early repayment it is unlikely that this problem is going to change in the near future Even a more vague provision follows in Art 25(3) of the Directive 201417EU pursuant to which the MS may provide that the creditor is entitled to raquofair and objective compensation where justified for possible costs directly linked to the early repayment but shall not impose a sanction on the consumerlaquo Such compensation shall not exceed the financial loss of the creditor and the MS may provide that it does not exceed a certain leveF9 or may be allowed only for a certain period oftime It is clear that the creditors have a right to raquofair and objective

See Art 16(2) of the CCD according to which such compensation may not exceed 1 of the amount of credit repaid early if the period of time between the early repayment and the agreed terminatishy

248 249

_____~_01ogt~~iiwbullbull)o5~~~~ihi~f( yenJiiIo bullbull~~h~~~~1iltIiI P 1IIoJO~~fllliIti1l1iii~lilil~middotrlfIltBmiddotmiddotd ImMIlil ~m~middot~wM ~aill1l~~middot~u1middot~iiIM___

doc dr s Emilia Miscenic

compensationlaquo independently of the condition of whether the borrowing rate was variable or fixed as in the Art 16(2) of the CCo According to the Art 25(5 of the Directive 2014117EU where the early repayment falls within a period for which the borrowing rate is fixed the MS may provide that the exercise of this right is subject to the existence of a legitimate interest on the part of the consumer To such legitimate interest the preamble includes for example events of divorce or unemployment Furshyther on similar to the CCD the MCD uses the terms and notions which need further clarification and interpretation in order to be properly used in practice This concerns phrases such as raquopossible costs directly linked to the early repaymentlaquo80 raquofair and objective compensationlaquo raquowhere justifiedlaquo etc Although it is required for creditors compensation not to impose a sanction on the consumer the author considers that there are still many unsolved issues which make the early repayment unattractive to consumers For instance the creditors use high compensation amounts in order to compensate lost interest which they treat as loss of profit i e damage (lat lucrum cessans) although there is no element of the wrongfulness and there is a consumers raquoright to early repaymentlaquo81 Furthermore amortisation tables are compiled in a way that a consumer repays primarily interests and only afterwards the capital of the creshydit In doing so the creditors collect most of the profit already at the beginning of the credit repayment and make the later early repayment financially useless to consumers Finally to one of the most important questions belongs the one concerning the metshyhod of calculation of creditors compensation and related to that the way of its explashynation to consumers in a clear and comprehensible manner in sense of Art 13 of the Directive 2014117EU According to Art 25(4) of the Directive 201417EU raquowhere a consumer seeks to discharge his obligations under a credit agreement prior to the expiry of the agreement the creditor shall provide the consumer without delay after receipt of the request on paper or on another durable medium with the information necessary to consider that optionlaquo raquoThat information shall at least quantify the implishycations for the consumer of discharging his obligations prior to the expiry ofthe credit

on of the credit agreement exceeds one year If the period doesnt exceed one year the compensation may not exceed 05 of the amount of credit repaid early See also Art 16(4) of the CCD

BOThe phrase indicates that the creditors right to compensation is not limited only to really occushyrred costs that are a direct consequence of early repayment but also encompasses raquopossible costslaquo These are costs of hypothetical nature which can be calculated by a financial-mathematical formula Consequshyently the provision favours the practice of creditors by giving up concrete evidence and by relying on statistical values when calculating a compensation of costs

81 See Miscenie Emilia Prijevremena otplata kredita prema novom Zakonu 0 potrosackom kreshyditiranju ZPFR Vol 31 No I Supplement 2010 p 159 et seq and Petrie Silvija ZaStita potroSaCa u bankarskim kreditnim poslovima u hrvatskom pravu u odnosu na pravo Europske unije ZPFS No 1-112002 p 135 et seq There are different opinions on this matter both in practice and theory For instanshyce Wendehorst considers that the compensation encompasses also the compensation of unrealised intereshysts See Wendehorst Christiane Die neue Verbraucherkreditrichtlinie Riicktritt Kiindigung vorzeitige Riickzahlungen CBA 2009 p 39 On the extent of the damage compensation see Slakoper Zvonimir I Gorenc Vl1im Obvezno pravo Zagreb Informator 2009 p 391 et seq According to the recital 66 of the preamble of the Directive 201417EU raquoIn the event where Member States provide that the creditor is entitled to compensation such compensation should be a fair and objectively justified compensation for potential costs directly linked to early repayment of the credit in accordance with the national rules on compensation The compensation should not exceed the financial loss of the creditorlaquo

250


agreement and clearly set out any assumptions usedlaquo which raquoshall be reasonable and justifiablelaquo Since there is no further elaboration of this provision this important task will as until now be left to the creditors

4 Review of Other Relevant Provisions of the Mortgage Credit Directive

Before engaging into the review of the other provisions of the MCD that are worth mentioning but cannot be analysed within the limits of this paper one should emphasise a few more key provisions of the MCD such as those on credit intermediashyries Besides the presented definitions of the credit intermediary and the newly insershyted differentiation between untied and tied credit intermediaries and their appointed representatives82 the MCD acknowledges their significant role on the mortgage credit market by introducing many new provisions concerning their activitiess3 According to the preamble of the MCD the introduction of these novelties was necessary beshycause numerous problems in the mortgage credit market include also ineffective inshyconsistent or non-existent regimes for credit intermediaries (recital 4 of the preamble of the Directive 2014117EU) Although these MCD provisions certainly deserve a special and in-depth analysis within lt separate paper one should at least enumerate some of the important novelties in this regard In a way one could divide them into general and special ones whereby the general ones are integrated into already elaboshyrated provisions concerning creditors too (for example Arts 7911 1314162022 etc of the Directive 2014117EU) However there are special provisions dedicated to credit intermediaries only such as Art 15 on information requirements concerning credit intermediaries and appointed representatives and provisions of the Chapter 11 on requirements for establishment and supervision of credit intermediaries and appointed representatives (Art 29 on admission of credit intermediaries Art 30 on credit intermediaries tied to only one creditor Art 31 on the appointed representashytives Art 32 on freedom of establishment and freedom to provide services by credit intermediaries Art 33 on withdrawal of admission of credit intermediaries Art 34 on supervision of credit intermediaries and appOinted representatives) So in order to prevent abuses arising from possible conflicts of interest when consumers use the services of credit intermediaries the MCD requires the fullest possible transparency and disclosure ofinformation by credit intermediaries on their status and relationship

87 See supra p 4 et seq 83 Pursuant to the recital 14 of the preamble of the Directive 201417EU the MS raquoare obliged

to transpose provisions of this Directive regulating the activity of persons acting as credit intermediary as defined in the Directive bull See the recital 68 of the preamble of the Directive 201417EU raquoAlthough credit intermediaries playa central role in the distribution of credit agreements relating to residential immovable property in the Union substantial differences remain between national provisions on the conduct of business and supervision of credit intermediaries whih create barriers to the taking-up and pursuit of the activities of credit intermediaries in the internal marketbull See also recitals 69-74 and 79 of the preamble of the Directive 2014l17EU and Konig Christian Neue Regeln fUr Kreditvermittler im deutschen Recht - Anderungen durch die Richtlinie iiber Wohnimmobilienkreditvertrage VersR 2013 pp 1238 et seq

251

~---(( ~1i1iyenFlW$4FiiyeniiI(Ii~~~~~~~~~~~~Il~Ikt~l~ l~tt1tQ~~~~~~yt~~h~~~~~~III~f~~rgt~fi)~Y1ti~~mf~yen~1M~iJ~~~yen~~~1~~__~-a~ _~$I~(I~~V1N~FmiddotO-~~$J~~


with the creditors prior to the performance of their services (Art 15 and recitals 22 and 47 of the preamble of the Directive 201417EU) These concerns information on their identity and links with creditors (tied or untied) on the existence and the amoshyunt of any commission or other inducement payable to the credit intermediary by the creditor or by third parties ofany fees payable by the consumers etc However the MS should be free to introduce or maintain provisions prohibiting the payment of fees by consumers to some or all categories of credit intermediaries (recital 4 7 of the preamble of the Directive 201417lEU) These are of special importance because these costs enshyter into the calculation of the APCR With regard to the provisions of the Chapter 11 there is a special emphasis on problems linked to the lack ofsupervision ofactivities of credit intermediaries on the residential immovable property market Through introshyduction of provisions regarding admission supervision and prudential requirements the MCD tries to improve the establishment of quality standards for services of credit intermediaries (recital 8 of the preamble of the Directive 201417 lEU)

There are some other provisions in the MCD which touch important issues however without regulating them more in detail since these are not harmonized at the Union level This concerns for instance the provision on the flexible and reliashyble markets where Art 26(1) of the Directive 201417EU requires from the MS raquoto have appropriate mechanisms in place to ensure that the claim against the security is enforceable by or on behalf of creditorslaquo (e g clausula exequendi in mortgage credit agreements) and to raquoensure that creditors keep appropriate records concerning the types of immovable property accepted as a security as well as the related mortgage underwriting policies usedlaquo The MS also need to take raquothe necessary measures to ensure an appropriate statistical monitoring of the residential property market inshycluding for market surveillance purposeslaquo and can encourage the development and use of specific price indexes (public or private or both) (Art 26(2) of the Directive 2014117EU) Furthermore the MCD touches the question of outmost importance to consumers namely the one of arrears and foreclosure in the Art 28 of the Directive 201417EU Pursuant to this article the MS need to adopt measures to encourage creditors to exercise reasonable forbearance before initiation offoreclosure proceedinshygs (para 1) The provision also regulates the matter of charges in case of consumers default (paras 2 and 3)amp4 requires from the MS to enable the contract parties express agreements on the repayment ofthe credit by returning or transferring the security to the creditor (para 4) and demands from the MS procedures or measures to enable the best efforts price for the foreclosed immovable property to be obtained (para 5) In case ofoutstanding debt even after the foreclosure the MS must ensure that measures to facilitate repayment in order to protect consumers are put in place (para 5) This very important article concerns so many different areas oflaw such as execution law

Pursuant to Art 28(2) of the Directive 2014117EU the MS raquomay require that where the credishytor is permitted to define and impose charges on the consumer arising from the default those charges are no greater than is necessary to compensate the creditor for costs it has incurred as a result of the defaultlaquo According to Art 28(3) of the Directive 201417EU the MS raquomay allow creditors to impose additional charges on the consumer in the event of default In that case Member States shall place a cap on those chargeslaquo See also the redtal27 of the preamble of the Directive 2014 17EU


insolvency law consumer credit law and consumer protection law in general property law contract law etc that it could as such be developed and elaborated into another special directive Not to mention the fact that it overlaps with many different EU dishyrectives dealing with some of the mentioned protection measures and instruments It is the opinion of the author that such an enumeration of different measures of protecshytion most of which the MS actually do have in place under different conditions does not actually represent a means of harmonization and therefore cannot really help to protect consumers

As all EU consumer protection directives the Directive 201417EU contains both provisions of private and public law nature85 and regulates matters such as comshypetent authorities in Art 5 obligation of competent authorities of different MS to coshyoperate in Art 36 and settlement of their disagreements in Art 3786 admission and supervision procedures of credit intermediaries (Chapter 11) and of non-credit instishytutions (Art 35 in the Chapter 12) etc Here it is interesting to notice that although the preamble emphasises the activities of non-credit institutions as belonging to the main problems at the mortgage credit market87 the MCD contains only one article dedicated especially to them while all the other provisions concern them in the same way as other creditors In the preamble of the MCD this is reasoned with the fact that the principle of proportionality prevents the regulation of detailed conditions for the admission or supervision of non-credit institutions or the introduction of a raquopassportlaquo for such inshystitutions since raquothe number of such institutions operating in the Union at present is limited as is their market share and the number ofMS in which they are active particushylarly since the financial crisislaquo (the recital 75 of the preamble of the Directive 2014171 EU) The final provisions of the Chapter 14 deal first with sanctions and in accordance with the established practice of the ECJC]EU demand from the MS for sanctions to

85 This is explicitly acknowledged by the Directive 20 141 17EU itself which in the recital 83 of the preamble allows the MS the transposition of certain aspects into the national law by both private and public law provisions namely by prudential law (e g provision on the creditworthiness assessment) by civil or criminal law (e g provisions on obligations relating to responsible borrowers)

According to the recital 80 of the preamble of the Directive 201417EU it is up to the MS to designate different competent authorities in order to enforce the wide ranging obligations laid down in the MeD For certain aspects of the MCD this could be courts for some prOvisions this could be authoshyrities responsible for the enforcement of consumer protection while for others this could be prudential supervisors etc

87 For instance the recital 2 of the preamble of the Directive 201417EU accentuates raquosubstantial differences in the laws of the various MS with regard to the conduct of business in the granting of credit agreements relating to residential immovable property and in the regulation and supervision of credit intermediaries and non-credit institutions providing credit agreements relating to residential immovable propertylaquo The redtal 4 of the preamble of the Directive 201417EU emphasises a series of problems which have been identified in mortgage markets within the Union relating to irresponsible lending and borrowing and the potential scope for irresponsible behaviour by market participants including credit intermediaries and non-credit institutions Problems in the mortgage market include also ineffective inconsistent or non-existent regimes for credit intermediaries and non- credit institutions providing credit for residential immovable property According to the recital 75 raquoin order to ensure a level playing field between creditors and promote financial stability and pending further harmonisation MS should ensure that appropriate measures are in place for the admission and supervision of nonmiddotcredit institutions providing credit agreements relating to residential immovable propertybull

252 253

------------- ~ ~Oi_iii nil rruM~ i tl(lli~O~laquo~~~~IgtAltlli~~~~aJlIIil(~IiM~~NMi~~~1~boOijllliloiiiUiI~hM~~~~~Jorii~~~bI11bullbullIitWlI1kfu~~fiIWwtIf~~~J ~i__~Ngt~~

dec dr sc Emilia Miscenic

be raquoeffective proportionate and dissuasivelaquo Moreover in order to publicly judge and sanction unlawful behaviour competent authority shall be able raquoto disclose to the pushyblic any administrative sanction that will be imposed for infringement of the measures adopted in the transpositionlaquo of the MCD unless this would seriously jeopardise the fishynancial markets or cause disproportionate damage to the parties involved (Art 38 of the Directive 201417EU) Afterwards it follows the usUal provision on dispute resolution mechanisms in Art 39 of the Directive 201417EU according to which the MS raquoshall ensure that appropriate and effective complaints and redress procedures are established for the out- of-court settlement of conswner disputes with creditors credit intermediashyries and appointed representativeslaquo by using existing bodies where appropriate both for solving domestic and cross-border disputes1IS

Among other provisions one should point out the typical conswner protectishyon clause on imperative nature of the directive contained in Art 41 of the Directive 201417EU Pursuant to this article the MS must ensure that conswners may not waive the rights conferred on them by national law transposing the MCD and that the measures adopted in its transposition cannot be circwnvented in a way which could lead to conswners losing the granted protection as a result of the way in which agreements are formulated in particular by integrating credit agreements falling wishythin the scope of the MCD into credit agreements the character or purpose of which would make it possible to avoid the application of those measures Though common for the EUconsumer protection directives provision is formulated in a way which acknowledges an important problem in the practice of consumer crediting Another provision deserving more attention is the review clause enclosed in Art 44 of the Directive 201417EU According to this clause the Commission shall undertake a review of the MCD by 21 March 2019 and therein it will consider the effectiveness and appropriateness of its provisions on consumers and the internal market with regard to enlisted chosen matters89 Until the same date the Commission shall also submit

Pursuant to the recital 77 of the preamble of the Directive 201417EU raquo( ) Member States out-of-court complaint and redress bodies should be encouraged to participate in FIN-NET a financial dispute resolution network of national out-of-court schemes that are responsible for handling disputes between consumers and financial services providerslaquo See also Culinovic Here Edita I Zunic Kovacevic NataSa Extrajudicial Settlement of Consumers Disputes in Domain of Financial Services EU and Croshyatia 2013 available at SSRN httpssmcomlabstract=2237873

There is a list ofchosen matters that shall be object of the review raquo(a) an assessment of the use and consumer understanding of and satisfaction with the ESIS (b) an analysis of other pre-contractual disclosures (c) an analysis of cross-border business by credit intermediaries and creditors (d) an analysis of the evolution of the market for non -credit institutions providing credit agreements relating to resishydential immovable property (e) an assessment on the need for further measures including a passport for non-credit institutions prOviding credit agreements relating to residential immovable property (f) an examination of the need to introduce additional rights and obligations with regard to the post-conshytractual stage of credit agreements (g) an assessment of whether the scope of this Directive remains appropriate taking account of its impact on other substitutable forms of credit (h) an assessment of whether additional measures are necessary to ensure the traceability of credit agreements secured agashyinst residential immovable property (i) an assessment of the availability of data on trends in prices of residential immovable property and on the extent to which data are comparable () an assessment of whether it continues to be appropriate to apply Directive 200848EC to unsecured credits the purpose of which is the renovation of a residential immovable property involving a total amount ofcredit above the


raquoa comprehensive report assessing the wider challenges of private over- indebtedness directly linked to credit activitylaquo where raquoit will also examine the need for the supervishysion of credit registers and the possibility for the development of more flexible and reshyliable marketslaquo That report which belongs to further initiatives on responsible lending and borrowing shall be accompanied where appropriate by legislative proposals (Art 45 of the Directive 201417EU)

5 Conclusion

Over the years the EU legislator has long hesitated to engage itself in the proceshyss of harmonising the conswner protection legislation in mortgage lending Namely it all began long before the in the preamble of the MCD mentioned raquoprocess of identishyfying and assessing the impact of barriers to the internal market for credit agreements relating to residential immovable propertylaquo that was launched in March 2003 (recital 1 of the preamble of the Directive 201417EU) First steps can already be noticed in the early 80s when the Commission released the first Proposal on a Directive in the area of mortgage credits90 and even before that within the legislative adoption proshycedure of the Directive 87102EEC91 However a key trigger to a process of harmoshynising the consumer protection in this field was the financial crisis which started in 2008 as a subprime crisis in the United States and reflected itself in the EU mortgage credit market with serious consequences The preamble of the MCD emphasises that raquosome of the greatest problems in the financial crisis occurred outside the Unionlaquo and that raquothe financial crisis has shown that irresponsible behaviour by market parshyticipants can undermine the foundations of the financial system leading to a lack of confidence among all parties in particular conswners and potentially severe social and economic consequenceslaquo (recital 3 of the preamble of the Directive 201417lEU) Besides the lost confidence in the financial sector of both conswners and borrowers

maximum amount specified in point (c) of Article 2(2) of that Directive (k) an assessment of whether the arrangements for the publication of sanctions under Article 38(2) provide sufficient transparency (1) an assessment of the proportionality of warnings referred to in Articles 11 (6) and 13(2) and the potential for further harmonisation of risk warningslaquo

lO See the first Commission Proposal COM(I984)730 final and C 42 of 14021985 and then amended Proposal OJ EC No 161 of 1941987 Commission Recommendation 20011193EC of 1 March 2001 on pre-contractual information to be given to consumers by lenders offering home loans OJ L 69 1032001 p 2 Commissions Green Paper on Mortgage Credit in the EU 1962005 COM (2005) 327 final Commissions White Paper on the Integration of EU Mortgage Credit Markets 18122007 COM (2007) 807 final Commission Communication raquoDriving European recoverylaquo 04032009 COM(2009) 114 Commission Commwlication raquoSingle Market Act Twelve levers to boost growth and strengthen confidencelaquo 13042011 COM(2011) 2064 Commission Staff Working Paper on National Measures and Practices to avoid Foreclosure Procedures for Residential Mortgage Loans SEC(2011) 357 final See also results of following scientific and working groups such as the Expert Group on Credit Histories the Commission des Affaires de la Communaute Europeenne (CACEUINL) Research GroupraquoThe Eurohyshypothec A Common Mortgage for Europelaquo EC Commission raquoForwn Group on Mortgage Creditlaquo Trento Group Project ~European Land Information Service (EULIS) Comparative Study of the European Unishyversity Institute (EUl) See recitals 1 and 3 of the preamble of the Directive 2014117EU

1 More in detail Cikara Gegenwart opcit pp 77 et seq

255

limiddot0fr~1(Iiimiddot~~~~~~~1~CtIHlM~II~~~~~Ct~~~~~~)I~~~~lt~4if(if~laquo~_)~~~I~~~7I41+~

254


the MCD preamble mentions the rising of increasingly unaffordable loans ofdefaults in payments of forced sales and of household over-indebtedness That is why it is important to create a robust Unions regulatory framework that will be consistent with international principles and include raquominimum levels below which no credit would be deemed acceptablelaquo (recital 3 of the preamble of the Directive 2014117EU) To the further reasons why the regulation of mortgage credit agreements is necessary belong the fact that less than 1 of all EU consumers ever concluded a mortgage credit agreement crossborder increase in foreign currency loans lending by non-creshydit institutions increased risk due to securitisation practices necessity of responSible lending and borrOwing necessity of creation of EUwide standards etc However after having analysed most of the MCD provision it can be concluded that the MCD will most likely not be able to concord those challenges

To use more metaphoric words the MCD acknowledges which potatoes are hot however it hesitates to stab them with the fork Some of the main issues are conshysidered to a certain extent but not properly regulated For example the MCD puts a strong emphasis on the principle of responSible lending and borrowing but regulates its main instrument namely the creditworthiness assessment quite ineffectively The regulation of this institute is certainly more detailed than in the CCD but again it doesnt prevent the conclusion of high risk mortgage credit agreements and leaves the final decision up to the MS and creditors policy92 Furthermore the MCD mentions some important problems such as property valuation but sustains from dealing with them at least to the extent which affects the consumers when concluding mortgage credit agreements As seen in the paper this question was vital for consumers when concluding the so-called linked mortgage credit agreements93 Similarly within the frame of one article it gives guidelines to the MS regarding the measures and instrushyments on arrears and foreclosure which most of the MS have in force anyway Since this Art 28 of the Directive 201417EU consequently does not raquoactuallylaquo regulate the question of arrears and foreclosure it is disputable why such a provision has entered the text aiming at achievement of minimum levels ofraquoregulationlaquo On the other hand the MCD exceedingly accentuates some of the problems on mortgage credit markets such as the role and activities of credit intermediaries and of non-credit institutions These are undoubtedly very important and need to be regulated however are not primarily responSible for problems which occurred on the credit markets across the Ell For example according to the preamble of the MCD a series of problems in the Unions mortgage markets concern irresponsible lending and borrowing and irresshyponsible behaviour by market participants raquoincludinglaquo those of credit intermediaries and non-credit institutions94 The preamble further continues with raquoproblems concershyned credits denominated in a foreign currency which consumers had taken out in that currency in order to take advantage of the borrowing rate offered but without having

92 The recital 22 of the preamble of the Directive 2014J17JEU speaks about the strengthening of provisions on the creditworthiness assessment in comparison to consumer credit

See supra p 19

The recital 4 of the preamble of the Directive 2014J17EU


adequate information about or understanding of the exchange rate risk involvedlaquo Those together with problems of raquoineffective inconsistent or non-existent regimes for credit intermediaries and non-credit instituticms providing credit for residential immovable propertylaquo have according to the MCD preamble raquopotentially significant macroeconomic spill-over effects (that) can lead to consumer detriment act as ecoshynomic or legal barriers to cross-border activity and create an unlevel playing field between actorslaquo For all of these problems the preamble of the MCD blames raquomarket and regulatory failures as well as other factors such as the general economic climate and low levels of financialliteracylaquo Although there is more than one citation here that can seriously be questioned one should have in mind that the source of most of the described problems lies primarily in the policy and behaviour of credit institutions rather than the rest of the creditors or financially illiterate consumers The offering of foreign currency loans came and still does come from credit institutions which do not bother to respect existing consumer protection rules spread all over different MS legal acts ofboth public and private law nature regulating credit institutions activities and supervision and consumer protection These various regulations usually require them to inform consumers in an adequate and understandable way on the contracts content and possible consequences of their conclusions However it is the common practishyce of credit institutions to conclude credit agreements by means of general standard contract terms thereby avoiding those explanations and introducing a clause that a consumer understands and accepts all the contract conditions95 Moreover there is no adequate supervision and sanctioning ofa similar behaviour on the market despite the existing regulatory framework Therefore it is inadequate to transfer described risks to consumers which will have to improve their financial knowledge and literacy As required by the MCD raquoin order to increase the ability of consumers to make informed decisions for themselves about borrowing and managing debt responSibly MS should promote measures to support the education of consumers in relation to responsible borrowing and debt managementlaquo that is particularly important for consumers tashyking out a mortgage credit for the first time96 Although the financial education ofconshysumers is important it should only playa subordinate role meaning it should be at a satisfying level in order for consumers to understand the explanations of those playing a leading role namely of creditors Also it should be independent upon the number of credit contracts concluded by conllumers Related to that one should also mention the MCD provision on borrowing in a foreign currency which besides the necessity for consumers awareness of the risks involved speaks about necessary MS arrangements that should be sufficient to limit the exchange rate risk however without elaborating the matter any further Furthermore the MCD suffers from structural and nomo-teshychnical problems It often mixes the institutes it regulates whereby some of the linked provisions can be found scattered all over the directive (e g provisions on interests rates or on credit intermediaries) while other institutes are simply regulated at wrong

95 For examples of the ECJCJEU practice see MHcenic Nepo~tene opcit p 152 et seq

Moreover pursuant to the recital 29 of the preamble of the Directive 201417EU raquothe Comshymission should identify examples of best practices to facilitate the further development of measures to enhance consumers financial awareness~

256 257


places (e g provisions on property valuation or on the right of withdrawal) Even explanations contained in the exceedingly long preamble do not follow the Directives articles in their order (e g on representative example) and it all makes the M CD very difficult to follow Consequently the MCD does not represent a user-friendly instrushyment though it should due to its complexity

To the very important matters belongs also the question of legal ground used as a basis for harmonisation of consumer protection in the area of mortgage credit agreements As most of the EU consumer protection directives the MCD is adopshyted on the basis of Art 114 of the TFEU (ex Art 95 of the TEC) which follows the supreme goal of the establishment and functioning of the internal market Although the MCD undoubtedly focuses on consumer protection in the area of mortgage credit agreements Art 169 of the TFEU was not introduced as a parallel legal ground97

Namely Art 169(2)(b) of the TFEU (ex Article 153(3)(b) of the TEC) refers to harmoshynization measures in the area of consumer protection that are to be adopted pursuant to Art 114 of the TFEU in the context of the completion of the internal market When approximating the MS laws with the purpose of the realization of an internal market as being the area of shared competence between the Union and the MS (Art 4(2)(a) of the TFEU) besides respecting the principles of subsidiarity (Art 5(1) TEU I ex Art 5(1) TEC) and of proportionality (Art 5(4) TEU I ex Art 5(3) TEC)98 the MCD must fulfil requirements of the established ECJCJEU practice and raquoactuallylaquo contrishybute to the improvement of the internal market while the distortion of competition must be considerable99 However there are many doubts as to whether the MCD can actually contribute to the realization of the internal market The preamble certainly insists upon it by accentuating that the MCD should develop raquoa more transparent efficient and competitive internal market through consistent flexible and fair creshydit agreements relating to immovable property while promoting sustainable lending and borrowing and financial inclusion and hence providing a high level of consumer protectionlaquo (recital 6 of the preamble of the Directive 20141l7EU) Although there is no doubt that raquothe development of a more transparent and efficient credit market (within that area) is vital in promoting the development of cross-border activity and creating an internal market for credit agreements relating to residential immovable

97 Art 114(3) of the TFEU prescribes that the Commission raquoin its proposals envisaged in pashyragraph 1 concerning health safety environmental protection and consumer protection will take as a base a high level of protection taking account in particular of any new development based on scientific facts Within their respective powers the European Parliament and the Council will also seek to achieve this objectivelaquo For more on consumer protection in the field of mortgage credit see Omole Adetunji A Single European Union Mortgage Credit Market Manifestly an lllusion or a Reality Just Around the Corner 18 Eur Bus L Rev 2007 p1l67

l3 Pursuant to the principle of subsidiarity raquoin areas which do not fall within its exclusive compeshytence the Union shall act only ifand in so far as the objectives of the proposed action cannot be sufficishyently achieved by the MS either at central level or at regional and local level but can rather by reason of the scale or effects of the proposed action be better achieved at Union levelbull Pursuant to the principle of proportionality raquothe content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treatiesbull

See Case C-37698 2000 1-8419 (Germany v European Parliament and Council) Case C-49l01 2002 1-11453 (Imperial Tobacco and others)

258


propertylaquo all the above said raises serious doubts as to whether the MCD can remove raquosubstantial differences in the laws of the various MS with regard to the conduct of business in the granting of credit agreements relating to residential immovable proshyperty and in the regulation and supervision of credit intermediaries and non-credit institutions prOviding credit agreements relating to residential immovable propertylaquo (recital 2 of the preamble of the Directive 201417EU) According to the words of the MCD preamble exactly raquosuch differences create obstacles that restrict the level of cross-border activity on the supply and demand sides thus reducing competition and choice in the market raising the cost of lending for prOviders and even preventing them from doing businesslaquo (recital 2 of the preamble of the Directive 20141l7EU) The same argument is used in order to justify the fulfilment of conditions required by the principles of subsidiarity and of proportionality by emphasising that the raquoaction by MS alone is likely to result in different sets ofrules which may undermine or create new obstacles to the functioning of the internal marketlaquo (recital 82 of the preamble of the Directive 20l417EU) The same recital states that the MS are unable to suffishyciently achieve the MCD objective raquonamely the creation of an efficient and competishytive internal market in credit agreements relating to residential immovable property whilst ensuring a high level of consumer protectionlaquo Therefore it is considered that raquoby reason of the effectiveness of the actionlaquo it can be better achieved at the Union level According to the authors opinion such explicit and enhanced reasoning of the fulfilment of conditions of principles of subsidiarity and of proportionality that can be seen in some other recent EU consumer protection directivesl00 is a consequence based on two main reasons On the one hand it is necessary due to potential blockage of the adoption of the legal act by the MS national parliaments by means of orange or yellow card procedures introduced with the Lisbon Treatylol On the other hand the MCD and the other EU consumer protection directives suffer from many disadvanshytages that distance them from the realization of the main goal of the establishment and functioning of the internal market To this belongs among other things the level of harmonisation which changed a lot over the years from the minimum harmonishyzation over the maximum and full (targeted) harmonization back to the minimum harmonisation mixed with few (targeted) maximum harmonisation provisions as in the MCDI02 The Commission and other EU institutions admitted more than once that the minimum harmonisation principle resulted in unaccomplished goalSI03 From

100 See the recita165 of the Directive 201183EU of the European Parliament and of the Council of25 October 2011 on consumer rights amending Council Directive 9313EEC and Directive 19991441 EC of the European Parliament and of the Council and repealing Council Directive 85577EEC and Directive 97171EC of the European Parliament and of the Council Text with EEA relevance OJ L304164 22112011

101 By the Lisbon Treaty (OJ C 306 of 17122007) in Art 12 UEU introduced mechanism conshycretises the Protocol No2 on the application of the principles of subsidiarity and proportionality OJ C 831206 30032010 by enabling national parliaments to submit within eight weeks a reasoned opinion on whether a draft legislative act complies with the principle of subsidiarity

0 On different models of harmonization see Josipovic Tatjana ChaJIenges to Civil Law Harmoshynization by Way of Directives in Civil Law Forum for South East Europe Volume II Beograd 2010 p 205 et seq

One of the most important conclusions of the Commission report of 11 May 1995 on the operation of Directive 87102EEC for the approximation of the laws regulations and administrative

259

middot~~~l~$1J7~~~~~~-i~~$~~W~lfiIt1lffl~~~~~gt_~Ai ~itllt~ c~~~I1lt~Yt~_~_~_____ _~_____~_____


the perspective of the principles of subsidiarity and of proportionality this brings the competence of the Union to regulate in this area and to use the Art 114 of the TFEU as a legal ground for the adoption of the MCD seriously in question I04 Can the Union really be more effective than the MS in the achievement of the goals of an internal market and of consumer protection by using the MCD as a means of harmonisation in the area of residential immovable property Beside the described regulatory deficienshycies one should also have in mind the MCDs level of harmonization when answering that question Its provisions allow further differences between the MS provisions on residential immovable properties Many of them dont even set the minimum stanshydard but require the existence of a certain regulatory framework instead which the MS usually already have in place although under different conditions Does the M CD indeed establish raquoan appropriately harmonised Union legal frameworklaquo that can raquofashycilitate the emergence of a smoothly functioning internal market with a high level of consumer protection in the area of credit agreements relating to immovable property and (in order to) ensure that consumers looking for such agreements are able to do so confident in the knowledge that the institutions they interact with act in a professional and responSible mannerlaquo105 After having compared the main benefits and deficits of the MCD the author concludes that the consumers will not get the protection they deserve in the end

provisions ofthe Member States concerning consumer credit COM(95) 117 final is that most of the MS in their implementation of the Directive have used the minimum harmonisation clause from its Art 15 According to the Explanatory Memorandum of the Proposal for a Directive of the European Parliament and of the Council on consumer rights COM(2008 614 final the outcome of the use of minimum harshymonisation clauses is a fragmented regulatory framework across the Community which causes Significant compliance costs for businesses wishing to trade cross-border

10lt Same concerns bother Skovslund Jensen Christina EU Integration of the Diversified Morshytgage Credit Markets An analysis of the Justification of the Directive Proposal on Credit Agreements Master Thesis 2012 pp 21 et seq

lOS See the recital 5 of the preamble of the Directive 2014117EU

260

doc dr $C Emilia Miscenic

lzvorni znanstveni rad

MORTGAGE CREDIT DIRECTIVE (MCD) ARE CONSUMERS FINALLY GETTING THE

PROTECTION THEY DESERVE

Summary

raquoPurchasing real estate is the most important act in the life of the average conshysumerlaquo according to the Commission Report COM(95) 117 final The mortgage credit market belongs to the most complex markets in which consumers engage and the mortshygage credit agreements make 70 ofconsumer credits in Europe The Directive 201417 EU on credit agreements for consumers relating to residential immovable property or so-called Mortgage Credit Directive which was adopted in February 2014 aims at the protection ofconsumers byfollowing the supreme goal of the establishment and functioshyning ofthe internal market At the same time it tries to fight against financial crisis and to promote financial stability by ensuring that the mortgage credit market and its partishycipants operate in a responsible manner The author examines the provisions ofthe new Mortgage Credit Directive in the light ofconsumerprotection and by its critical overview tries to answer the question from the title of this paper raquoAre consumers finally getting the protection they deservelaquo

Keywords Mortgage Credit Directive Directive 2014117EU Consumer Credit Directive

Directive 200848EC residential immovable property consumer protection

Sazetak

raquoKupnja nekretnine je najvazniji Cin u zivotu prosjecnog potrosacalaquo prema lzshyvjestaju Komisije COM(95) 117final Trziste hipotekarnih kredita spada u najsloienija triista na kojima potrosaCi sudjeluju dok hipotekarni krediti Cine 70 potrosackih kreshydita u Europi U veljaCi 2014 usvojena Direktiva 201417EU 0 ugovorima 0 potrosacshy

bull Pravni fakultet u Rijed

219





1 Introduction












220 221










222







223













224 225










226








227













228 229













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260





1 Introduction












220 221










222







223













224 225










226








227













228 229













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260










222







223













224 225










226








227













228 229













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260












224 225










226








227













228 229













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260










226








227













228 229













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260













228 229













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260













230 231













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260













232 233








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260








234






235












236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260











236 237









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260









238







239














240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260












240 241

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260

- ~ -- ---------~ ----~--~~-~~~-~-~~~~~~~~-~~~lt----~~~------~---- ~--------~---~gt----






242

-----~-~---~--~---------------~~~~-~amp~









243











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260











244 245








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260








246







247








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260








248 249







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260







250







251












252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260











252 253









5 Conclusion





255


254





See supra p 19






256 257








258







259







260









5 Conclusion





255


254





See supra p 19






256 257








258







259







260





See supra p 19






256 257








258







259







260








258







259







260






260

Mišćenić, Emilia, Mortgage Credit Directive (MCD): Are Consumers Finally Getting the Protection...

Documents

Transcript of Mišćenić, Emilia, Mortgage Credit Directive (MCD): Are Consumers Finally Getting the Protection...