This article was originally published in the March 2015 edition of Motor Finance.
The European Court of Justice (ECJ) has given a preliminary ruling on the interpretation of the Consumer Credit Directive (2008/48/EC) (the CCD), which harmonised the regulation of consumer credit across Europe, and in particular in relation to pre-contract information duties of lenders.
What was in issue?
Readers will be familiar with the CCD which imposed certain duties on lenders when dealing with consumers. These duties included the provision of certain pre-contractual information and assessing consumers' creditworthiness before credit agreements were concluded. In CA Consumer Finance v Ingrid Bakkaus & Ors, the ECJ was asked to interpret the scope of the following requirements (paraphrased from the CCD):
Article 5(1): Before agreements are concluded, lenders must provide consumers with the information needed to compare different offers in order to make an informed decision on whether to conclude a credit agreement. This should be done by means of the Standard European Consumer Credit Information (SECCI) form.
Article 5(6): Lenders must provide adequate explanations to consumers to enable them to assess whether the agreement is adapted to their needs and financial situation. This includes, where appropriate, explaining the information provided on the SECCI.
Article 8: Before credit agreements are completed, lenders must assess consumers' creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and where necessary on the basis of consulting relevant databases.
The ECJ was asked to clarify:
1. Who bears the burden of proving (non-) fulfilment of the lender's information duties in Article 5?
The ECJ confirmed that the lender bears this burden.
2. Whether a standard term within the contract stating that the consumer has "received and read the SECCI" would suffice without that term being supported by documents issued by the creditor?
The ECJ held such a term was not enough on its own as this would effectively reverse the burden of proof to the consumer.
3. Whether the creditworthiness checks required by Article 8 can be carried out solely on the basis of information supplied by the consumer, or is independent verification required?
The ECJ held independent verification was not required provided the lender thought the self-certified financial information (and supporting documentation) sufficient.
4. Whether lenders have to check the consumer's financial situation and needs before they can adequately explain the provisions of the agreement to the consumer in line with Article 5(6)?
The ECJ held it can be done in either order but that following the assessment of the consumer's creditworthiness the explanations provided may need to be adapted (either orally or in a document) prior to completion of the credit agreement.
Impact of ruling for lenders' standard procedures
Finance companies should continue to ensure that they retain documentation to evidence discharge of their pre-contractual obligations to inform and explain. This will also help support any standard contractual term stating that the consumer has received and read the required pre-contractual information, should the need arise.
Documentation to support statements of means such as wage slips, mortgage redemption statements, bank statements etc should be obtained from the consumer. If there are any concerns or suspicions over the adequacy or truthfulness of any such documentation then additional supporting documentation should be requested, independent checks made, or the application declined. Of course, lenders must now also comply with the provisions of CONC including the concept of affordability.