on the pre-contractual responsibility to analyse the buyer’s creditworthiness when granting credit score – Official Weblog of UNIO – Cyber Tech

Mariana Marques (Grasp's pupil in European Union Legislation on the Faculty of Legislation of the College of Minho) 

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Introduction

In follow, monetary establishments typically grant credit score with out analysing the buyer’s creditworthiness. Normally, credit score is granted with out analysing any variant that would compromise the debtors’ monetary capability – and that is notably prevalent within the granting of bank cards. Thus, any particular person can get hold of a bank card from most organisations with out having to offer important knowledge, comparable to their wage slip, for instance. With out prejudice to the buyer’s accountability to take out credit score that’s acceptable to their earnings, would shopper credit score establishments not have any responsibility on this regard?

On 11 January 2024,[1] the Courtroom of Justice of the European Union (CJEU) handed down a ruling wherein it clarified the responsibility to analyse the buyer’s creditworthiness –imposed on monetary establishments earlier than granting shopper credit score. This pre-contractual responsibility, which is usually (and unduly) brushed apart by the entities answerable for it, has been the topic of necessary developments within the new regulation governing shopper credit score – Directive 2023/2225 of 18 October 2023.

This obligation imposed on monetary establishments goals to fulfil the target of elevated shopper safety, as they’re the weakest occasion within the contractual relationship.[2] The purpose is due to this fact to fight indebtedness and over-indebtedness, that are more and more widespread and really damaging to customers, credit score establishments and, in the end, the state. To this finish, the European Union (EU) has been legislating to guard customers on the pre-contractual stage, with the intention to forestall irresponsible lending.

Nonetheless, it’s not sufficient to stipulate the duties of economic organisations for them to really adjust to them, since sufficiently dissuasive, acceptable and proportionate sanctions should be outlined. To this finish, the purpose of this text is to analyse the principles relevant within the EU concerning shopper safety within the credit score market – and, specifically, the responsibility to analyse creditworthiness – in addition to to evaluate whether or not the actions of credit score establishments in Portugal can be appropriate with European requirements concerning the accountable granting of shopper credit score.

Particular laws on shopper credit score: course of evolution

Even earlier than the creation of the Financial and Financial Union (EMU), the challenge for which got here from the Delors Fee (1988-1989), Directive 87/102/EEC was launched on 22 December 1986,[3] the purpose of which was to harmonise the laws of the assorted Member States on shopper credit score guidelines. This was a daring goal, since with the intention to shield customers’ financial pursuits, it was essential to harmonise normal credit score circumstances and go on all data referring to credit score to the borrower.

Nonetheless, it turned out that variations continued on this space between the legal guidelines of the Member States.[4] This disparity might result in discrimination in opposition to sure residents to the detriment of others, because it posed obstacles to the inner market. Consequently, entry to cross-border credit score was very tough.

Moreover, because of the enhance within the quantity of credit score granted to customers, the issue of indebtedness turned alarming.[5] The European Fee due to this fact proposed an adaptation and, taking into consideration the place of the European Financial and Social Committee,[6] the European Parliament and the Council of the European Union authorized Directive 2008/48/EC on 23 April 2008.

The first goal of this directive was to harmonise the project of credit score within the varied Member States, permitting for an efficient inner credit score market. Thus, Member States had been tasked to adapt their inner laws with the purpose of attaining harmonisation and, however, had a (unfavorable) obligation to chorus from adopting new provisions past what was supplied for within the talked about directive.[7] This directive already foresaw the necessity to shield customers from abuses by credit score establishments.

Additionally it is necessary to stress that it was essential for credit score establishments to verify the creditworthiness of customers, with the intention to forestall irresponsible lending that may result in default. This directive was transposed into Portuguese regulation by Decree-Legislation no. 133/2009, of two June.[8]

Present state of affairs: (EU) Directive 2023/2225

The efforts made by the beforehand talked about laws, though legitimate and necessary, proved to be inadequate, given the chance they left to the Member States to undertake divergent provisions, thus failing to materialise the inner credit score market.

This legislative discrepancy jeopardised the inner market, for the reason that circumstances for entry to credit score weren’t the identical for all EU residents.[9] Consequently, there was a necessity to vary this example and Directive 2023/2225 of 18 October 2023 got here into being.[10]

The principle goal of the brand new Client Credit score Directive is to extend the transparency and safety of the EU credit score market, taking into consideration the present social panorama. This goal emphasises the related function of European citizenship within the present context of the Union, with the citizen as the principle protagonist.[11] To this finish, it prioritises right, clear and exact data for customers on behalf of credit score establishments in regard to the contractual circumstances established in credit score agreements.

On this method, customers will be capable to make knowledgeable selections about their finances administration, stopping unawareness which, consequently, often results in non-fulfilment of contractual obligations. With the introduction of the brand new Client Credit score Directive, the vary of its utility has been prolonged to cowl, for instance, smaller credit score agreements, the quantity of which is lower than 200 euros. Customers are additionally protected in relation to credit score contracts with none costs.

It must be famous, nevertheless, that the principles contained on this directive should be correctly transposed into the nationwide laws of the Member States by 25 November 2025, thereby permitting them loads of time to adapt. Nonetheless, till that date, the directive it’s supposed to interchange – Directive 2008/48/EC –, will proceed to use as the premise for shopper credit score contracts.

The purpose of the brand new directive, as set out in Article 1, is to harmonise the legal guidelines of the Member States in relation to credit score agreements. This directive improves the responsibility to offer data to the buyer, in addition to implementing a ban on promoting that’s supposed to lure customers into taking out a mortgage by interesting to them to enhance their monetary state of affairs.

This prohibition is designed to forestall customers from taking out credit score with out there being an actual want to take action, thus defending the weakest occasion on this contractual relationship.[12] As well as, all promoting for credit score merchandise should not be deceptive and should embody a warning of the dangers and prices concerned in concluding a credit score settlement.[13]

In conclusion, the necessary data that should be publicised represents, so far as attainable, all of the traits of the credit score settlement which may be granted by the creditor.[14]

Solvency evaluation

Analysing the creditworthiness of customers is essential with the intention to adjust to the precept of accountable credit score[15] and that is the accountability of credit score suppliers, as a rule.[16]

This precept implies that credit score establishments analyse the capability of customers and emphasises the transmission of truthful and clear data between the events, defending the weaker occasion on this contractual relationship.[17]

It’s important that credit score establishments don’t signal credit score agreements with out assessing whether or not the credit score is protected, accountable and reasonably priced for the buyer. Then again, it’s the accountability of the Member States to oversee credit score suppliers with the intention to forestall such irresponsible lending from happening.

This responsibility has two ranges of safety, that’s, the person stage, to the extent that it goals to guard the buyer by stopping irresponsible lending, which can result in non-compliance with contractual duties and, however, the overall stage, to the extent that it prevents critical injury to monetary organisations.[18] If credit score establishments fail to successfully analyse the solvency of every shopper, individually and on a case-by-case foundation, Member States are obliged to undertake the sanctions they deem essential to punish such inactivity.[19]

This want, which is key for shopper safety, is additional emphasised within the new directive. Thus, it’s famous that the solvency evaluation is carried out within the pursuits of the buyer, with the intention to keep away from conditions of over-indebtedness, which have turn into more and more frequent.[20] With a view to examine the buyer’s creditworthiness, private financial and monetary components should be taken under consideration, [21] with the intention to analyse whether or not the buyer is predicted to achieve success in fulfilling the credit score settlement in query.[22]

As soon as this has been carried out, credit score ought to solely be granted to customers who even have the monetary capability to fulfil the contract. To ensure that the evaluation of the buyer’s creditworthiness to cowl all of the related components, the creditor must also verify credit score databases to search out out whether or not the buyer has taken out credit score with different organisations, below what phrases and whether or not there have been any defaults. Based mostly on widespread sense, it will not be useful to enter into a brand new credit score settlement with a shopper who already has a big a part of their month-to-month finances allotted to paying off related obligations. Nonetheless, the evaluation of creditworthiness can’t be primarily based solely on the buyer’s credit score “file”.[23]

It must be famous that customers are usually not freed from duties, since they’ve the duty to make diligent and well-founded selections. As well as, they’re dedicated to at all times offering truthful data, particularly when it doesn’t exist in databases which are appropriate for this goal.

In abstract, the brand new directive reinforces the necessity to inform customers accurately, in addition to to analyse their creditworthiness, in order that loans are taken out rationally and responsibly, with the purpose of avoiding non-compliance.

Non-compliance by credit score establishments

It quantities to credit score establishments[24] finishing up analyses of customers’ creditworthiness with the intention to shield them from the dangers of over-indebtedness and insolvency. In line with the CJEU, this obligation helps to make sure that all customers within the Union are on the identical stage in the case of defending their rights, in addition to enabling the inner shopper credit score market to be efficient.[25]

If credit score establishments fail to analyse the buyer’s creditworthiness, it’s as much as the Member States to confirm this non-compliance and penalise it appropriately with the intention to safeguard the buyer, with out prejudice to the buyer’s responsibility to make rational and well-founded selections.[26]

The sanctions utilized by the Member States should be dissuasive, to the extent that monetary establishments really feel compelled to fulfil their responsibility. If, in follow, the sanction established at nationwide stage will not be utilized or its utility has irrelevant results, then it is not going to have a preventive character.[27]

The CJEU just lately emphasised[28] that if the monetary establishment has not fulfilled its responsibility to analyse the buyer’s creditworthiness, and even when the contract has been fulfilled in full and with none prejudice to the borrower, the penalty nonetheless deserves to be utilized.

It must be famous that within the Portuguese authorized system, the sanction for non-compliance of this kind may be present in Article 30 of Decree-Legislation no. 133/2009, which solely signifies an administrative penalty. Now, for the reason that CJEU has thought-about[29] that the sanction of nullity of the credit score settlement, accompanied by the buyer’s obligation solely to return the principal to the creditor, is ample and dissuasive, it appears to us, by a comparative evaluation, that the sanction supplied for in our authorized system will not be.

Conclusion

In view of the present social state of affairs, it’s essential to keep away from irresponsible credit score, because it contributes vastly to the financial and monetary disaster. Due to this fact, along with stipulating ex submit options, comparable to private insolvency, preventive options should be rethought and strengthened to keep away from conditions of shopper indebtedness and over-indebtedness.[30] Moreover, this is not going to be sufficient if there isn’t a efficient supervision of the actions of credit score establishments by the competent our bodies.

Nonetheless, in follow, violations of the duty to analyse customers’ creditworthiness are frequent and we due to this fact imagine it’s essential to strengthen monitoring, in any other case there might be an exponential enhance in conditions the place customers default on credit score agreements as a result of they don’t have the monetary capability to fulfil them.

Then again, even when this management does exist, it should be matched by a sanction to dissuade establishments from fulfilling their responsibility. Nonetheless, we realise that in Portugal there may be (in the intervening time) solely an administrative sanction in place for non-compliance with the obligations imposed on monetary establishments. We due to this fact query whether or not this sanction is a adequate dissuasive measure, in accordance with the CJEU’s judgment.[31]

[1] Judgment Nárokuj s.r.o. v EC Monetary Providers, a.s., 11 January 2024, case C‑755/22, ECLI:EU:C:2024:10.

[2] See, concerning the state of vulnerability of the buyer, Sandra Passinhas, “O lugar da vulnerabilidade no Direito do Consumidor português”, in Estudos de Direito do Consumidor, ed. António Monteiro (Coimbra: Centro de Direito do Consumo; Faculdade de Direito da Universidade de Coimbra, 2019), 258.

[3] JO L 42 de 12.2.1987, 48.

[4] This data may be discovered within the Fee’s 1995 and 1996 studies on the appliance of Directive 87/102/EEC, obtainable at https://www.europarl.europa.eu/doceo/doc/A-4-1997-0010_PT.html  and accessed on 23.12.2023.

[5] This concept stems from the Opinion of the Committee on the Setting, Public Well being and Client Safety, annexed to the Report of the Committee on Authorized Affairs and the Citizen on the European Fee report on the appliance of Directive 87/102/EEC (COM(95)0117 – C4 – 0185/95, 25.

[6] JO C 234, 30.9.2003.

[7] As acknowledged in Recital 9 of Directive 2008/48/EC, L 133 67.

[8] Up to date by Legislation no. 57/2020 of 28 August.

[9] Recital 6 of Directive 2023/2225.

[10] This Directive was pushed by the New Client Agenda (13 November 2020, Brussels, COM(2020) 696 remaining), which emerged within the aftermath of the COVID-19 pandemic, which highlighted weaknesses within the safety of shopper pursuits. This doc is out there at and was accessed on 24-01-2024.

[11] Pedro Madeira Froufe/José Caramelo Gomes, Mercado interno e concorrência, Alessandra Silveira/ Mariana Canotilho/Pedro Madeira Froufe (edos.), Direito da União Europeia. Elementos de Direito e Políticas da União (Edições Almedina, 2006), 460-461.

[12] Unfair and deceptive behaviour by firms is already regulated by Directive 2005/29/EC of the European Parliament and of the Council of 11 Could 2005, obtainable at and accessed on 28-12-2023.

[13] Article 7 and Article 8(7)(a) of the CCC II.

[14] It must also be famous that though the earlier Directive already stipulated the responsibility to offer pre-contractual data, this has been densified by the brand new regulation, altering the supply of the standardised data sheet (FIN).

[15] This precept was first enshrined within the Fee’s 2002 proposal for a Directive (obtainable at and accessed on 23-01-2024) and determines that the creditor is obliged to analyse the buyer’s monetary capability in centralised databases with the intention to assess whether or not or not they’re able to taking out the credit score responsibly.

[16] However the provisions on credit score threat, that are laid down in Directive 2013/36/EU of the European Parliament and of the Council on entry to the exercise of credit score establishments and the prudential supervision of credit score establishments, OJ L 176, 27.6.2013, 338-436.

[17] See Cláudia Cristina Moreira Salazar, “Crédito responsável e dever de avaliação da solvabilidade do consumidor”, (Grasp’s diss., Universidade Católica Portuguesa, 2012), 17.

[18] José Engrácia Antunes, “Dos contratos de eat em especial”, Revista da Ordem dos Advogados, I-II (2018): 175, obtainable at https://portal.oa.pt/media/130213/jose-engracia-antunes_roa_i_ii-2018-revista-da-ordem-dos-advogados.pdf.

[19] This concept is current in each directives, in recital 26 of Directive 2008/48/EC and recital 53 of Directive 2023/2225.

[20] As may be seen from Article 18 of the DCD II, which is a part of Chapter V: evaluation of solvency and entry to the database.

[21] Respecting the precept of knowledge minimisation enshrined within the Normal Knowledge Safety Regulation (GDPR), Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016.

[22] The brand new directive, taking into consideration the social evolution that has taken place, additionally gives for the potential of the evaluation being carried out utilizing synthetic intelligence, in recital 56 and Article 18(8).

[23] As is acknowledged in Article 18(11) of the brand new directive.

[24]   Credit score establishments correspond to the credit score grantor and, for the needs of this directive, correspond to pure or authorized individuals who, throughout the scope of their business or skilled competences, grant or promise to grant a shopper credit score, as acknowledged in Article 3(2) of Directive 2023/2225.

[25] This concept may be discovered within the Radlinger and Radlingerová judgment, 21 April 2016, case C-377/14, EU:C:2016:283, recital 61.

[26] As acknowledged in recital 53 of Directive 2023/2225.

[27] On this regard, see judgment House Credit score Slovakia, 9 November 2016, case C-42/15, EU:C:2016:842, recital 62.

[28] Judgment Nárokuj s.r.o. v EC Monetary Providers, a.s., 11 January 2024, Case C-755/22, ECLI:EU:C:2024:10.

[29] Judgment OPR-Finance, recital 30.

[30] See Jorge Morais Carvalho, Guide de Direito do Consumo, 7^th version (Almedina, 2020), 439.

[31] It’s price mentioning that there isn’t a file of those administrative offences being utilized to credit score establishments.

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