A recent judgement from the Court of Justice of the European Union (CJEU) has strengthened consumers’ rights in the case of a mortgage loan being cancelled on the grounds of unfair terms.
It has stated that EU law does not preclude consumers from claiming compensation from the bank beyond the reimbursement of the monthly instalments paid.
Background: a case in Poland
In 2008, a consumer and his wife entered into a mortgage loan agreement with Bank M. The loan was tied to the Swiss franc (CHF), and the monthly payments were supposed to be made in Polish zlotys (PLN) after converting them using Bank M.’s applied foreign currency rates on the date of each payment.
The consumer, considering the conversion clauses unfair and believing their presence rendered the agreement invalid, filed a lawsuit against Bank M. in the Warsaw-Sródmiescie District Court.
In the lawsuit, the consumer sought payment of a sum of money equal to half of the profit made by Bank M. during a specific period, using the monthly loan payments made according to the agreement. The consumer argued that Bank M. received these monthly payments without any legal basis to do so.
In order to decide the case, the Polish court asked the CJEU whether the directive on unfair terms, as well as the principles of effectiveness, legal certainty and proportionality, allow the parties to a mortgage loan agreement – annulled on the grounds that it cannot continue to exist after the removal of unfair terms – to seek compensation in excess of the repayment of the sums respectively paid on the basis of that agreement, as well as the payment of default interest at the statutory rate from the time when payment is required.
What does the CJEU judgement say?
In its judgment (C-520/21), the CJEU points out that the directive “does not expressly regulate” the consequences of the invalidity of a contract concluded between a trader and a consumer following the removal of unfair terms contained therein. Instead, Member States must determine the consequences of invalidity due to unfair terms – as long as they are compatible with EU law and, in particular, the objectives pursued by the directive.
The CJEU states that compatibility depends on whether the national rules, on the one hand, make it possible to re-establish, in law and in fact, the situation in which the consumer would have found themself had the contract not existed and, on the other hand, do not jeopardise the dissuasive effect pursued by the directive.
It thus concludes that claiming compensation against the bank in excess of the reimbursement of the monthly instalments paid “does not appear to jeopardise the abovementioned objectives”.
In fact, it considers that such a possibility “may help to dissuade professionals from including unfair terms” in consumer contracts as it could entail financial consequences going beyond the reimbursement of the sums paid by the consumer and, where appropriate, the payment of interest for late payment.
That said, it’s still down to the Polish court to decide whether the granting of the consumer’s claims complies with the principle of proportionality.
Can banks claim the same compensation?
In cases such as these, the directive directly prohibits the bank from seeking compensation from the consumer that goes beyond reimbursing the paid capital and the payment of statutory default interest.
The Court believes that granting such a right would undermine the deterrent effect on sellers or suppliers. It would also weaken the effectiveness of consumer protection provided by the directive if consumers, when exercising their rights under the directive, were at risk of having to pay such compensation. This interpretation would create situations where it would be more advantageous for the consumer to continue fulfilling a contract containing an unfair term rather than exercising their rights under the directive.
To this end, the Court emphasised that, in this case, the annulment of the mortgage loan agreement is a consequence of Bank M.’s use of unfair terms. Therefore, it would be unacceptable for the bank to benefit economically from its unlawful behaviour or to be compensated for the disadvantages caused by it.
Furthermore, the Court holds the view that arguments related to the stability of financial markets are irrelevant in the interpretation of the directive, as the directive’s purpose is to protect consumers. Sellers or suppliers cannot bypass the objectives of the directive by invoking the preservation of financial market stability. Banking institutions have a duty to organise their activities in compliance with the directive.
At CostaLuz, we fight against abusive mortgage clauses
At CostaLuz Lawyers, we are experts in claiming refunds for our clients from banks who have applied abusive clauses in mortgage contracts. We were pioneers in bringing the first case against Spanish banks and have helped dozens of clients get refunds and better mortgage terms with their banks.
If you would like us to look into abusive mortgage clauses in your mortgage, get in touch now.