The bank overdraft, that red line that appears on your account, may seem simple on the surface. But when does it go from being a simple cash-flow facility to a consumer creditWith all the legal protections that implies? This article untangles the legal subtleties that govern this common banking practice.
1. When does an overdraft become credit?
Your bank sometimes allows you to overdraw your account. This flexibility has its limits. After a certain period, what seemed to be a temporary arrangement becomes a full-fledged credit agreement subject to the Consumer Code.
Under article L.311-1 of the French Consumer Code, an overdraft falls within the definition of a "credit transaction" when it exceeds certain time thresholds. This changeover is not theoretical: it entails the application of a protective legal arsenal for borrowers.
2. Legal definition of overdraft
Express overdraft vs. tacit overdraft
Article L.311-1, 12° and 13° of the French Consumer Code distinguishes between two types of overdraft:
- Le discovered on purpose (or "overdraft authorisation"): this is an explicit contract under which the bank authorises its customer to exceed the available balance, up to an agreed limit.
- Le tacit overdraft (or "overdraft"): this is an overdraft implicitly accepted by the bank, without any prior formal agreement.
This distinction is not cosmetic. As we shall see, it partly determines the applicable legal regime.
The duration criterion
Duration is the central criterion for determining the applicable legal regime. The legislator has created three categories of duration:
- Overdrafts of less than one month
- Overdrafts between one and three months
- Overdrafts of more than three months
The period is calculated from the first day on which the account is continuously in debit. Beware, however: certain accounting manipulations aimed at artificially interrupting this period could be sanctioned by the courts, as emphasised by the Grenoble Court of Appeal (CA Grenoble, 3 July 1996).
3. The regime applicable depending on the duration of the overdraft
Overdrafts of less than one month
Overdrafts repayable within one month are excluded from the scope of the provisions relating to consumer credit, under article L.312-4, 4° of the French Consumer Code.
In practical terms, this means that these short-term overdrafts escape all consumer credit protection There is no cooling-off period, no obligation to provide standardised information and no right of withdrawal.
However, the bank must comply with its general information obligations, particularly with regard to the charges applied.
Discovered between one and three months
Overdrafts lasting between one and three months benefit from a hybrid system. Article L.312-84 of the French Consumer Code specifies that they are subject to certain protective provisions, but not all.
Among the applicable protections are the following:
- The obligation to check the borrower's solvency (L.312-16)
- Rules on penalties in the event of default (L.312-38 and L.312-39)
- Rules of procedure in the event of a dispute
However, they are not subject to other obligations, such as the full formalities of the credit agreement.
Overdrafts of more than three months
As soon as an overdraft is extended beyond three months, the regime changes radically. It is then fully subject to all consumer credit provisions.
Article L.312-84 of the Code then requires the bank to make an offer of credit in due and proper form, with all the compulsory details. If it fails to do so, the case law is clear: the bank is liable to the forfeiture of his right to interest (Cass. 1re civ., 26 nov. 2014).
This is not an anecdotal point: many banking disputes concern precisely this issue.
4. Specific information requirements
Pre-contractual information
For overdrafts of between one and three months, article R.312-32 of the French Consumer Code requires the lender to provide the borrower with specific pre-contractual information.
This information must cover :
- The identity and address of the lender
- Type of credit
- The amount of the authorisation
- The duration of the contract
- The borrowing rate and its conditions
- Applicable fees
- APR (Annual Percentage Rate)
- Cancellation conditions
- Terms and conditions of reimbursement
This information must be provided on a durable medium before the contract is concluded.
Account statement
Article L.312-88 of the Consumer Code, as amended by the Order of 4 October 2017, requires the bank to send the borrower a statement of account containing specific information on a regular basis.
According to article R.312-34, this statement must mention :
- The period covered
- The date and balance of the previous statement
- Transactions carried out since
- The new balance
- The borrowing rate applied
- Fees collected
- Le APR (Annual Percentage Rate)
- The minimum amount payable for the next due date
This obligation is designed to ensure transparency and enable customers to monitor changes in their situation.
5. How to terminate your overdraft
Advance notice
For open-ended overdraft authorisations, article L.312-91 of the French Consumer Code provides for a controlled termination mechanism.
The bank may terminate the authorisation by giving at least two months' notice in a durable medium (paper or electronic). This period must allow the customer to take steps to rectify the situation.
Legitimate reasons
There is one important exception to the notice requirement: in the case of "legitimate reason", the bank may terminate without notice. However, it must communicate the reasons to the customer, if possible before the termination.
The law does not define these legitimate reasons exhaustively, but case law suggests that the customer's proven insolvency constitutes one of them. In all cases, the bank may be held civilly liable for wrongful termination.
Disputes on these grounds pose a major practical difficulty: they generally arise after the overdraft has been terminated, putting the customer in a delicate situation.
The assistance of a specialist lawyer is often needed to effectively challenge an unfair termination. As the time limits are short and the stakes are high, it is advisable to react quickly as soon as you are notified that the overdraft has been terminated.
The firm remains at your disposal for analyse your banking situation and determine whether your overdraft has been managed in accordance with legal requirements. An initial consultation may enable you to identify any irregularities that could give rise to a claim for compensation.
Sources
- Consumer Code, articles L.311-1, L.312-4, L.312-16, L.312-38, L.312-39, L.312-84, L.312-88, L.312-91, R.312-32, R.312-34
- Court of Cassation, 1st Civil Chamber, 26 November 2014
- Grenoble Court of Appeal, 3 July 1996
- JurisClasseur Droit bancaire et financier, Fasc. 719: CONSUMER CREDIT. - Consumer Code regime, Updated 25 April 2023
- Order no. 2017-1433 of 4 October 2017 on the dematerialisation of contractual relations in the financial sector
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