A creditor’s obligation to assess the creditworthiness of a consumer

In examining the case of Nárokuj s.r.o. v EC Financial Services, a.s (C-755/22), the Court of Justice of the European Union (the “CJEU”) considered the obligation which banks are subject to prior to the granting of credit to consumers. The CJEU’s judgment delivered on 11 January 2024 sheds light on the applicability of penalties set out in Directive 2008/48/EC on credit agreements for consumers (the “Consumer Credit Directive”) vis-à-vis creditors that fail to appropriately assess a consumer’s creditworthiness, which, as concluded by the CJEU, would also be applicable if the relevant credit agreement is fully repaid by the consumer.

Facts and Question Referred

A consumer had entered into a consumer credit agreement with a creditor named JET Money s.r.o., which creditor was in fact succeeded in title by the defendant in this case, EC Financial Services. Prior to the entry into this loan agreement, the consumer provided the creditor with certain information relating to his personal and financial position at the time. The consumer paid off the loan, including all ancillary costs thereof, and never raised any concerns throughout the lifetime of such loan.Following repayment of the loan, the above-mentioned consumer eventually assigned the claims he could have asserted against the creditor to the applicant in this case, a corporate entity named Nárokuj s.r.o.. Such assignment resulted in the institution of a court case by Nárokuj s.r.o. before the competent court in the Czech Republic (the “Referring Court”), challenging the loan agreement by arguing that such agreement was null and void since the creditor did not fulfil its legal obligation to assess the consumer’s creditworthiness. This argument was based on the applicable law in Czech Republic which provides that where a creditor fails to fulfil its obligation to assess the creditworthiness of a consumer, the ensuing credit agreement would be considered null and void.On this basis, and in claiming unjust enrichment by the creditor, Nárokuj s.r.o. sought the repayment by the creditor of the interest and ancillary payments made by the consumer in repaying the loan.The Referring Court was therefore faced with a decision as to whether a creditor in the context of a consumer credit agreement is to be penalised for its failure to examine, prior to the conclusion of the credit agreement, the consumer’s creditworthiness, even where this failure did not result in any negative repercussions for the consumer.In analysing the claims of the applicant, the Referring Court noted that the Consumer Credit Directive is aimed at ensuring that the consumer will be able to repay loans, and that therefore, the creditor’s obligation to examine the consumer’s creditworthiness is not the primary purpose of the Directive. The Referring Court also noted that the consumer discharged the contractual debt ensuing from the credit agreement and it could be argued that a penalty applied against the creditor for the sole purpose of prevention might be unnecessary in light of the consumer’s eventual ability to repay the debt.Having regard to the uncertainties faced by it, the Referring Court referred the question as to whether Articles 8 and 23 of the Consumer Credit Directive, as further examined below, are aimed at penalising credit providers for a failure to fully examine a consumer’s creditworthiness, even if the consumer actually repaid the credit and raised no issues against the agreement while repaying.

CJEU’s Considerations

Primarily, the CJEU noted that the fact that the parties to the dispute are sellers or suppliers does not preclude the application of the Consumer Credit Directive, as this is essentially dependent on the capacity of the parties to the credit agreement.Moving onto the substance of the claim at hand, the CJEU referred to Article 8(1) of the Consumer Credit Directive, which sets out the obligation of the creditor subject to a consumer credit agreement to assess the consumer’s creditworthiness prior to the conclusion of the credit agreement, on the basis of sufficient information provided by the consumer and, where necessary, on the basis of a consultation of the relevant database. In respect of this requirement, the CJEU emphasised the pre-contractual nature of the obligation, in that the creditor is obliged to conclude the creditworthiness assessment before the credit agreement is signed by the parties.The CJEU referred to the dual purpose of the obligation set out in the Consumer Credit Directive for creditors to assess a consumer’s creditworthiness:

1. Ensuring that the interests of all European Union consumers are adequately and equivalently protected and that the risk of over-indebtedness and insolvency of such consumers resulting from the insufficient verification by the creditor of the consumer’s propensity to repay the credit is prevented; and
2. Holding creditors accountable and preventing the irresponsible provision of loans to consumers who are not creditworthy.

As a result of the above, the CJEU noted that an analysis of Article 8 of the Consumer Credit Directive leads to the conclusion that the full repayment of a credit agreement by a consumer does not necessarily mean that the objectives of the Consumer Credit Directive are met. The CJEU remarked that the fact that following the full performance of the credit agreement, the parties thereto are no longer in a position to rely on the mutual obligations arising from that agreement does not impact the existence of a claim which is based on an obligation to repay a loan unduly paid.Moreover, the CJEU considered the penalties applicable to such a breach of obligations by the creditor. Article 23 of the Consumer Credit Directive leaves it up to national law to determine the penalties applicable to such a breach, nevertheless, it requires that the penalties must be effective, proportionate and dissuasive. As already set out above, Czech law considers that the failure of a creditor to assess the creditworthiness of a consumer results in the credit agreement being considered as null and void.The CJEU highlighted the deterrent nature of any penalty imposed in this context and noted the interconnectedness of the seriousness of the infringements to the severity of the penalty. Whilst noting that an examination of the adequacy of the penalty is a matter that is left to the Referring Court by way of application of the relevant national law, the CJEU clarified that this examination must consider the extent of the harm caused to the consumer by the creditor’s conduct.By referring to previous case-law on this matter, the CJEU noted that the importance of the obligation of the creditor to assess the consumer’s creditworthiness merits the forfeiture of the creditor’s entitlement to the agreed amount of interest. The CJEU concluded that such forfeiture appears commensurate with the seriousness of the infringements for which it is imposed. Any interpretation to the contrary may lead to creditors being encouraged to avoid a systemic and exhaustive assessments of creditworthiness of consumers to whom they grant credit, in breach of Article 8 of the Consumer Credit Directive.

Conclusion reached by the CJEU

The CJEU ruled that Articles 8 and 23 of the Consumer Credit Directive must be interpreted as not precluding a creditor, which did not fulfil its obligation to assess the creditworthiness of a consumer, from being penalised as national law may determine, including by the consideration of the relevant credit agreement as null and void. The CJEU further determined that in such scenarios, the creditor forfeits its entitlement to the payment of the agreed amount of interest, even where the consumer repaid the full amount of the principal and interest and where the consumer did not suffer any repercussions as a result of the creditor’s failure to assess the consumer’s creditworthiness.Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.This article was first published in The Malta Independent on 13/03/2024.Author: Roberta Carabott (Advocate, Ganado Advocates)