Commenting on the paper from Central Bank VERĐTRYGGING 101 - Lögmćti verđtryggingar í ljósi Evrópuréttar

Commenting on the statement done in page 24 (lögmćti verđtrygginar) "Thvi verdur ad teljast afar haepid ad aetla ad verdtrygging verdi daemd ologleg af theim grundvelli ad hun samraemist ekki Evroputilskipunum um neytendalan."

See Report and news at Eyjan http://eyjan.pressan.is/frettir/2013/12/16/bann-vid-verdtryggingu-sagt-draga-ur-velferd-andstadan-byggd-a-misskilningi/


1. The author forgets to mention that the letters from the European Commission put forward a different opinion on the problem (letter 12.2.2013 to Prof. Méndez Pinedo og letter 20.2.2013 to Samtök Heimilanna).
See letters at


http://www.heimilin.is/varnarthing/frettirhagsmunasamtokin/item/1627-sv%C3%B6r-fr%C3%A1-framkv%C3%A6mdastj%C3%B3rn-esb-um-ver%C3%B0tryggingu.html

2.  Directive 93/13/EC prohibiting abusive clauses applies to both consumer and mortgage credit.

3. Commission Recommendation 2001/193/EC introduced more than a decade ago a European code of conduct for home loans where transparency of information and disclosure of real cost of credit at the time of contracting is the main paradigm of protection for consumers.

4. The European Parliament has recently adopted the the Mortgage Credit Directive based on the same model

See all European legislation in force and new Directive on mortgage at
http://ec.europa.eu/internal_market/finservices-retail/credit/mortgage/index_en.htm

5. Both Icelandic legislative power (Act nr 33/2013. Neytendalán) and a Committee of specialists reporting for the executive power (Skýrsla Apríl 2013 - neytendavernd á fjármálamarkađi) expressed doubts on the legality of indexation in the light of EU/EEA legal order but left the interpretation of the law to the judicial power.

6. The issue is now under judicial review at both national/European level. The Supreme Court has sent a request to the EFTA Court  in October 2013 requesting an opinion on the interpretation of Directive 93/13/EC to Icelandic indexed loans. The report was probably finished before but the District of Reykjavík has very recently requested another opinion adding the Directive 87/102 on consumer credit (now Directive 2008/48/EC) and general principles of European consumer law to the matrix.

6. It is now for the EFTA Court to decide on the legality of indexation in the light of all European consumer (credit) law applicable in Iceland through the EEA Agreement since 1.1.1994 taking into account the most recent and relevant case-law from the Court of Justice of the European Union.

We should expect an assessment of inflation indexed loans with special focus on mandatory requirements for disclosure of information (Directive 87/102/EC) and prohibition of abusive clauses and commercial practices (Directives 93/13/EC and 25/2009/EC).

Some guidance given by CJEU (non exhaustive list of relevant cases).

Case C-350/03 Schulte 2005
Member States must ensure that a bank which has not complied with its obligation to inform the consumer of right to cancellation bears the consequences of the materialisation of those risks so that the obligation to protect consumers is safeguarded.

Case C-240/98 Océano Grupo Editorial SA v Roció Murciano Quintero 2000
Abusive clauses are those who cause, contrary to the requirement of good faith, a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

Case C-76/10 Pohotovost 2010
Application of Directive 87/102/EC on consumer credit. National courts can declare that the failure to mention the annual percentage rate (APR) in a consumer credit contract means that the credit granted is deemed to be interest-free and free of charge.

Case  C-453/10 Pereničová and Perenič v SOS 2012

National legislation may provide for a contract between a consumer and a trader which contains an unfair term to be void if that ensures better protection of the consumer

Case C-618/10 Banco Espańol de Crédito SA v Joaquín Calderón Camino
Spanish procedural legislation is not compatible with EU law in so far as it makes impossible or excessively difficult protection for consumers under Directive prohibiting abusive clauses.

Case SC Volksbank România C-602/10
Member States can expand scope of Directive 2008/48 to offer better consumer protection in areas non harmonised by directive (mortgages, retroactive protection, prohibition of charges, direct access to justice)

Case C-415/11 Aziz v Catalunyacaixa
Spanish national procedural law on evictions from property deprives consumers from protection against abusive clauses and is illegal under European law.

Case C-92/11 RWE  (lack of transparency of price variation clauses - public law). Assessment by national courts.

Directive 2003/55/EC (Internal market in natural gas) and Directive 93/13/EEC (Articles 1(2) and 3 to 5). Contracts between suppliers and consumers – General conditions – Unfair terms – Unilateral alteration by the supplier of the price of the service – Reference to mandatory legislation designed for another category of consumers – Applicability of Directive 93/13 – Obligation of use of plain and intelligible language and transparency.
See paragraphs 47 and 49

“47. A standard term which allows such a unilateral adjustment [of price] must, however, meet the requirements of good faith, balance and transparency laid down by those Directives“.
“49. ... the contract (must) set out in transparent fashion the reason for and method of the variation of the charges for the service to be provided, so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to those charges...“

Case  C 488/11 Asbeek Brusse and da Man Garabito v Jahani BV,
On the consequences of unfairness. The effective implementation of the Directive 93/13 requires that courts declare the terms wholly unbinding: reducing a penalty instead of considering it as never stipulated would weaken the dissuasive effect of the European rules.

C-59/12 -BKK Mobil Oil  BKK Mobil Oil
Public law bodies  can fall under the personal scope of the Unfair Commercial Practices Directive 2005/29/EC. the practices of public institutions can thus qualify as unfair commercial practices. But the criteria to determine public from commercial practices are in the end remains unclear.

 

***

In light of the above, according to EU/EEA law acquis and case law from the Court of Justice of the European Union, any specialist in European consumer law may very well argue that price-indexation clauses which are not disclosed in a plain and intelligible language and transparent in the contract are potential abusive clauses in European law.The prohibition of abuse applies to both consumer credit and mortgage credit and to public and private institutions.

Under European law, cconsumers are only obliged to pay the amount given as credit (principal) and the cost of credit disclosed at the time of contracting (interest and indexation cost properly calculated under the European standard rules of APCR).

What remains to be adjudicated is whether an act of a national parliament (Act 38/2001) can escape the prohibition of abuse set by European law. And, in the light of the case RWE, wheter mandatory legislation may allow the financial institutions to do non-disclosed and unilateral alterations of the price of money (cost of credit) once the credit contract has entered into force. 

The final assessment of the legality of indexation, the framework applicable and the interpretation of national law/European law is for the EFTA Court and the Supreme Court of Iceland, not for the Central Bank (through a report done by an employee). For this assessment, the whole body of European consumer law must be taken into account, not only the Directive on consumer credit (information requirements) referred to in the report.


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