Creditors must be able to prove that they have fulfilled their legal obligations to provide pre-contractual information to potential borrowers and to check such borrowers’ creditworthiness before entering into a loan agreement, the Court of Justice of the Europ-ean Union recently affirmed.
The EU directive on credit agreements imposes an obligation on all creditors such as banks to provide information and explan-ations so that the borrower can make an informed choice when taking out a loan.
This same directive also obliges the creditor to provide consumers with a Standard European Consumer Credit Information form containing relevant information relating to the loan agreement, as well as to check the consumer’s creditworthiness before concluding a loan agreement.
In France, two individuals were unable to repay the monthly instalments under their respective loan agreements. The bank handing out the loan sought immediate repayment of the sums borrowed, together with interest. When the two separate cases came before the French courts, the bank was unable to produce as evidence either the Standard European Consumer Credit Information form or any other document proving that it had fulfilled its duty to provide the necessary explanation in terms of the EU directive on credit agreements.
Insofar as one of the clients was concerned, the credit agreement contained a standard term whereby the borrower acknowledged having received and taken note of the form. The French court opined that such a term was problematic because it could have the effect of reversing the burden of proof to the detriment of the consumer and of making it impossible for the consumer to challenge whether the creditor had performed its obligations in terms of law.
In the case of the other client, the borrower had not provided the bank with supporting evidence of its financial situation. The French court queried whether the creditor’s oblig-ation to check a consumer’s creditworthiness before concluding a loan agreement could be fulfilled by relying solely on the inform-ation supplied by the consumer.
The French court seized of these two cases filed a preliminary reference with the Court of Justice of the European Union requesting guidance on the issues involved in order to ascertain legality in terms of EU law.
The Court of Justice observed that the EU directive on credit agreements does not state who is to bear the burden of proving that the creditor has fulfilled its obligations to provide information and to check creditworthiness. This issue is a matter for the domestic legal system of each member state.
However, the national rules transposing such obligations must ensure that it is not practically impossible or excessively difficult for the consumer to exercise the rights conferred by the directive. The CJEU noted that this implies that the burden of proving that the creditor did not fulfil its legal obligations cannot rest on the consumer. The consumer does not have the means at his disposal to prove that the creditor did not provide him with the required information and that it did not check his creditworthiness.
It is up to the creditor to prove to the court that such pre-contractual obligations have been fulfilled, since a diligent creditor must be aware of the need to gather and retain evidence that it has fulfilled its legal obligations to provide information and explanations to the consumer, the court concluded.
The court continued to explain that a standard term to the effect that the borrower acknowledges having received and taken note of the Standard European Consumer Credit Information form does not exonerate the creditor from its obligations.
The inclusion of such a term in the credit agreement must be substantiated by the creditor with one or more relevant items of evidence. The consumer must always be in a position to claim that he did not receive the form alluded to and the burden of proving that the creditor did not comply with its legal obligations cannot fall onto the consumer.
The CJEU then focused on the issue as to whether the assessment of the consumer’s creditworthiness may be carried out solely on the basis of information supplied by the consumer, without such information being effectively scrutinised against other evidence.
It noted that the directive affords the creditor a margin of discretion for the purposes of determining whether or not the information at its disposal is sufficient to demonstrate the consumer’s creditworthiness and whether it is necessary to check that information against other evidence. Thus, the creditor may, depending on the circumstances of the case, either be satisfied with the information supplied by the consumer or decide that it is necessary to obtain confirmation of that inform-ation. Mere unsupported declarations made by the consumer may not, in themselves, be sufficient if they are not accompanied by supporting evidence.
Though both the EU directive and the national regulations transposing the said directive clearly delineate the creditor’s obligations in relation to a potential borrower, the question as to on whose shoulders the burden of proving compliance with such obligations falls is left somewhat unanswered. This judgment sheds some much-needed light on the interplay of the rights and obligations of creditors and their clients when entering into a credit agreement, particularly insofar as proving compliance with the law is concerned.
mariosa@vellacardona.com
Wishing all readers a blessed Christmas and a prosperous New Year 2015.
Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.