" I want to buy this kitchen on credit" . A banal phrase, but one that conceals a complex legal reality: earmarked credit. Behind this commonplace transaction lies a special legal regime, a source of protection for the consumer, but also of complications for those who do not master its subtleties.
What is affected credit?
Article L.311-1, 11° of the French Consumer Code defines affected credit as: ". credit used exclusively to finance a contract for the supply of specific goods or the provision of specific services; these two contracts constitute a single commercial transaction" . To find out more about the basics and specifics of this financing, discover the overall legal framework for consumer credit.
In simple terms, an earmarked loan finances a specific purchase. This is different from traditional consumer credit, where the use of the funds remains unrestricted.
This mechanism is common for :
- Buying electrical appliances
- Renovation work
- Installing solar panels
- The acquisition of vehicles
Interdependence: the cornerstone of the system
The essential feature of earmarked credit is the interdependence of the contracts. The purchase and its financing form a "single commercial transaction" according to the legal formula.
This interdependence is manifested by the obligation to mention the link with the other in each contract. For a long time, the Court of Cassation required this express mention in order to classify a credit as affected (Cass. 1re civ., 7 Feb. 2006, Bull. civ. I, no. 58).
European Directive 2008/48/EC, transposed by the law of 1 July 2010, partially relaxed this requirement. However, in practice, the absence of a clear indication of the goods financed complicates the classification of credit as earmarked, underlining the importance of rules governing the formation of consumer credit agreements to guarantee the validity of the single transaction.
"A seller of a fitted kitchen who fails to specify the method of financing in the order form is liable to take legal action. The consumer could challenge the interdependence of the contracts.
The legal consequences: a domino effect
If the credit is not concluded
If the bank refuses the loan within 7 days of the borrower accepting the offer, the main contract (the sale) is automatically cancelled. Article L.312-52 of the French Consumer Code is explicit.
The seller may not demand cash payment in lieu - unless the consumer expressly and freely agrees. Any clause to the contrary is null and void (art. L.341-11 of the French Consumer Code).
If the buyer withdraws from the loan
The standard withdrawal period is 14 days. For affected loans, this can be reduced to a minimum of 3 days at the express written request of the consumer.
If the buyer exercises this right of withdrawal, the main contract will also lapse. For more details on this essential protection, see our article on the borrower's right of withdrawal. This is a direct application of article L.312-52 of the French Consumer Code.
If the main contract is cancelled
Article L.312-55 of the French Consumer Code states that a credit agreement is automatically terminated if the main agreement is cancelled or terminated by a court of law.
This rule applies to all grounds for cancellation: lack of consent, warranty for latent defects, non-conformity, etc.
Enforcement: specific rules
Payment conditional on performance
The obligation to reimburse only begins with delivery of the goods or performance of the service (art. L.312-48).
The lender cannot release the funds until it has received a certificate of performance signed by the buyer. The Court of Cassation has ruled that: " The onus is on the lender, who can only deliver the funds to the seller or service provider on receipt of a document certifying at least partial performance of the main contract, to demonstrate such performance. "(Cass. 1re civ., 3 May 1995).
A lender who releases funds too quickly commits a fault. Since 2017, case law has even strengthened this obligation by requiring the lender to check the validity of the main contract (Cass. com., 18 Jan. 2017, no. 15-19.349).
Suspension in the event of a dispute
In the event of a dispute over performance of the main contract, article L.312-55 allows the court to suspend performance of the credit agreement until the dispute has been resolved.
This suspension is not automatic - it must be requested from the court. It is only possible if the lender is an intervener in the proceedings or a defendant.
Specific litigation
Jurisdiction
Since 1 January 2020, disputes relating to consumer credit, including earmarked credit, have come under the jurisdiction of the Protection Litigation Judge (art. L. 213-4-5 of the Code de l'organisation judiciaire).
Prior to this date, such disputes came under the jurisdiction of the tribunal d'instance. This change is part of the reform of the justice system, which abolished the magistrates' courts.
Questions of proof
The burden of proof in disputes over assigned credit is often decisive.
Where non-performance of the main contract is concerned, it is normally up to the buyer to prove this. But for the certificate of performance, it is up to the lender to prove that it has received it before releasing the funds.
There is a debate in the case law about the sums paid to the seller in the event of rescission. For a long time, the Court of Cassation held that the consumer had to reimburse the lender for the sums paid to the seller (Cass. 1re civ., 2 May 1989).
More recently, the case law has become more nuanced: " If the termination or cancellation of an earmarked credit agreement, as a consequence of the termination or cancellation of the agreement recording the sale or provision of services financed by the agreement, entails an obligation on the part of the borrower to return the capital lent to the lender, the lender who has paid out the funds without ensuring that the principal agreement is formally in order or has been fully performed may be deprived of all or part of its claim to repayment. "(Cass. 1re civ., 25 Nov. 2020, no. 19-14.908).
There is an abundance of case law on photovoltaic panels, a sector that has given rise to numerous disputes. Consumer credit litigation highlights the issues of proof and the lender's liability. In these cases, the Court tends to penalise the lender for failing to verify the regularity and full performance of the contract.
Earmarked loans offer valuable protection to consumers through their interdependent mechanism. But they also create stronger obligations for professionals.
When making a major purchase, it is essential to examine the wording of contracts carefully. Legal advice before signing can avoid many complications. Our lawyers specialising in consumer law can help you analyse your credit agreements or represent you in the event of a dispute.
Sources
- Consumer Code, articles L.311-1, L.312-48, L.312-52, L.312-55, L.341-11
- Cass. 1st civ. 7 Feb 2006, Bull. civ. I, no. 58
- Cass. 1st civ. 3 May 1995, Contrats, conc. consom. 1995, comm. 175
- Cass. com. 18 Jan. 2017, no. 15-19.349
- Cass. 1st civ. 2 May 1989, Bull. civ. I, no. 181
- Cass. 1st civ., 25 Nov. 2020, no. 19-14.908
- Directive 2008/48/EC of 23 April 2008
- Law no. 2010-737 of 1 July 2010 reforming consumer credit
- Code of Judicial Organisation, article L. 213-4-5
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