Out-Law Analysis | 02 Jul 2021 | 1:00 pm | 3 min. read
Consumers’ claims for recovery resulting from such unfair terms can also only be time-barred to a very limited extent.
The cases which formed the basis of the ruling of the Court of Justice of the European Union (CJEU) concerned mortgage loans that consumers had taken out in 2008 and 2009. The loans were denominated in Swiss francs and had to be repaid in euro. Possible currency fluctuations lead to a foreign exchange risk fully borne by the borrowing consumers.
From 2011 onwards, the financial burden significantly increased as the euro lost value compared to the Swiss franc. After the borrowers got into financial difficulties with their monthly instalments, proceedings were initiated before French courts. These courts had to examine whether the clauses of the loan agreements, which exposed consumers to an unlimited exchange rate risk, could be considered unfair under the European Directive on unfair terms in consumer contracts and therefore not binding on consumers. If this were the case, consumers could be entitled to reclaim payments. The French courts referred a number of questions to the CJEU on the interpretation of the Directive. Among other things, the courts wanted to know whether the statute of limitations could be invoked against consumers' claims for a declaration of unfairness as well as against recovery claims.
The statute of limitations is designed to ensure legal certainty and predictability. However, the effective enforcement of consumer protection does not know time limits. European law provides that unfair contractual terms are non-binding, without limitation. This contradiction between consumer protection on the one hand and legal certainty through limitation periods on the other hand has now been resolved by the CJEU - predominantly in favour of consumer protection.
The CJEU said "that unfair terms in a consumer contract are not binding on the consumer and must be regarded as never having existed, so as not to have any effects on the consumer’s legal and factual situation. Consequently, the Court takes the view that a claim brought by a consumer in order to obtain a declaration that a term in such a contract is unfair cannot be subject to any limitation period." Therefore, when it comes to establishing the unfairness of a contractual term, the lender cannot defend itself with a limitation period.
In the case of an unfair term, affected consumers may be entitled to claim back parts of their payments. The legal systems of the member states provide for limitation periods for such claims. In principle, this is fine, said the CJEU: national laws may subject recovery claims to limitation periods. However, it must be ensured that a customer was sufficiently aware of all claims before the statute of limitations came into effect.
The relevant French law provided otherwise. Under French law, claims become time-barred within five years from the date when the consumer knew or could have known about the claim. According to French case law, the consumers already knew about the claims when accepting the loan offers in question back in 2008 or 2009, because at that time the relevant clauses were on the table. The CJEU held that in this case limitation could apply without the consumer even being aware of the specific claims, for example, because the foreign exchange risks that give rise to the unfairness of the term only materialise after the limitation period has expired. However, such a situation is contrary to the principle of effectiveness of EU law and makes it unduly difficult to enforce consumer protection under the Directive.
The CJEU's ruling once again proves that consumer protection is held high in Luxembourg. The final assessment of the underlying cases, which differ in facts, is left to the national courts, especially with regard to the unfairness of the respective clauses and whether the consumers were provided with sufficient information on foreign exchange risks when the contracts were concluded. Nevertheless, it is very clear from the ruling that there are considerable hurdles for banks to meet the requirements of consumer protection law and that claims can still be expected many years after the conclusion of the loan agreements. In the event of a dispute, burden of proof also lies with the banks.
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