A decision regarding the interest clause in credit contracts

Published 16 September 2020 by Hammond-Partnership

On 19th December 2019, the European Court of Justice gave a judgement for consumer protection concerning the interpretation of Directive 2008/48/EC of the European Parliament and of the Council of 23rd April 2008 on credit agreements for consumers in the case C‑290/19 (RN vs. Home Credit Slovakia a.s.)

The main issue was whether Article 10(2)(g) of Directive 2008/48 must be interpreted as precluding, in a consumer credit agreement, the annual percentage of the total amount of credit from being expressed not as a single rate but as a range referring to a minimum and a maximum rate.
It should be noted that the indication of the annual percentage of the total amount of credit in the form of a range of two figures is not consistent with the wording of several provisions of Directive 2008/48, in particular Articles 3 and 19, nor with the general scheme of that directive. It follows from those provisions that the annual percentage of the total amount of credit must be expressed as a percentage, by reference to a precise figure.

Moreover, according to the Article 3(i) of Directive 2008/48, which defines the annual percentage of the total amount of credit as ‘the total cost of credit to the consumer, expressed as an annual percentage of the total amount of credit’, requires a precise percentage to be fixed.
It is apparent from Article 19(1) of Directive 2008/48, read in conjunction with Part I of Annex I to that directive, that the annual percentage of the total amount of credit is calculated in accordance with the mathematical formula set out in that annex and should reflect, to one decimal place, all existing or future commitments agreed by the creditor and the consumer. In addition, the second subparagraph of Article 19(5) states that the annual percentage of the total amount of credit must be calculated in a uniform manner.

In its judgment the European Court has considered that in case of annual percentage of the total amount of credit does not have a precise percentage the consumers’ right to information is broken. Considered from that perspective, the obligation to provide information set out in Article 10(2) of Directive 2008/48, under which the credit agreement is to specify in a clear and concise manner, the annual percentage of the total amount of credit, contributes to the attainment of the objective pursued by that directive.

The Court has pointed out that, for a consumer, the total cost of credit, presented in the form of an annual percentage of the total amount of credit calculated according to a single mathematical formula, is of critical importance. That rate enables the consumer to assess, from a financial point of view, the extent of the commitment associated with the conclusion of the credit agreement. It should be noted that, if it were permissible to provide in a credit agreement that the attainment can be expressed by reference not to a single rate but to a range referring to a minimum and a maximum rate, the criterion of clarity and conciseness laid down in Article 10(2) of Directive 2008/48 would not be met. That criterion is essential for the consumer to be able, as stated in recital 31 of that directive, to know his rights and obligations under the credit agreement. The use of such a range may not only make it more difficult to assess the total cost of credit but may also mislead the consumer as to the actual extent of his commitment.

Therefore, the conclusion of the court was that Article 10(2)(g) of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC, as amended by Commission Directive 2011/90/EU of 14 November 2011, must be interpreted as precluding, in a consumer credit agreement, the annual percentage rate of charge from being expressed not as a single rate but as a range referring to a minimum and a maximum rate.