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The legal war between borrowers and credit institutions revolves around specific procedural rules. Consumer credit litigation is a special field, with its own deadlines, penalties and subtleties.
The judge in charge of consumer protection disputes - formerly the tribunal d'instance - has exclusive jurisdiction in this area, regardless of the amount at stake. This judicial specialisation reflects the importance attached to consumer protection.
Biennial foreclosure: a strict time limit for taking action
A precise scope of application
The two-year foreclosure period limits the time during which a credit organisation can take legal action against a defaulting borrower. Article R. 312-35 of the French Consumer Code restricts this period to "payment actions" brought by the lender.
This restriction represents a major change compared to previous law. Before the Law of 11 December 2001, this time limit also applied to consumer actions.
"The judge may raise all the provisions of this code ex officio in disputes arising from its application" (Article R. 632-1, paragraph 1 of the Consumer Code).
Variable starting points
The calculation of the foreclosure period differs depending on the nature of the credit. The law determines four possible starting points:
- The date of expiry or termination of the contract
- The first unpaid incident leading to forfeiture of the term
- The first incident after a conventional recovery plan
- Exceeding the authorised overdraft
In the case of revolving credit, the time limit begins when "the total amount of credit granted has been exceeded without adjustment". This ambiguous wording has given rise to a great deal of litigation.
In a ruling dated 9 March 1999, the Court of Cassation stated that the period runs "from the date on which the credit facility ends". This position of the highest court differs from that of the lower courts, which generally set the starting point at the first payment incident that is not rectified.
Special cases
Particular attention has been paid to bank overdrafts. When a consumer is tacitly overdrawn for more than three months, the bank must make a regulated offer of credit. The starting point for the foreclosure period is when "the authorised amount of the overdraft is exceeded after the three-month period".
In a ruling dated 9 June 2017, the First Civil Chamber of the Court of Cassation stated that in the case of an overdraft tacitly granted, "the starting point of the time limit for foreclosure runs from the date on which the debit balance of the account falls due, constituted by the date on which, in the absence of cancellation, payment was requested by the bank".
The role of the judge: greater power
Power to identify irregularities ex officio
Developments in case law have considerably strengthened the judge's powers. Article R. 632-1 of the Consumer Code authorises him to raise any breach of consumer protection provisions on his own initiative.
This prerogative is the result of a long legal battle. It was initiated by the district courts, against the advice of the appeal courts. The CJEU subsequently validated this approach in several fundamental rulings (27 June 2000, 21 November 2002 and 4 October 2007).
French law finally enshrined this power in 2008. To exercise this power, two conditions must be met:
- Action already taken before the courts
- Respect for the adversarial principle
A sovereign assessment
In its ruling of 5 March 2020, the CJEU clarified the scope of the court's role in credit matters. It requires national courts to examine of their own motion whether there has been a breach of the obligation to assess the consumer's solvency.
The court may then impose the penalties arising from this failure, provided that they are effective, proportionate and dissuasive, in accordance with Article 23 of Directive 2008/48/EC.
Civil penalties: a dissuasive arsenal
Forfeiture of the right to interest
The main penalty for consumer credit is forfeiture of the right to interest. This penalty is imposed if the lender fails to fulfil its obligations to provide information and verify, in particular with regard to interest rate and TEG.
Article L. 341-8 of the French Consumer Code states that "the borrower is only obliged to repay the capital in accordance with the agreed repayment schedule".
This penalty applies in particular where the lender :
- Does not provide the required pre-contractual information
- Does not properly assess the borrower's creditworthiness
- Does not submit a tender that complies with legal requirements
- Does not comply with the specific rules for revolving credit
Total or partial forfeiture
The judge has discretion regarding the extent of the disqualification. In some cases, he may order a partial disqualification and adjust the penalty according to the seriousness of the breach.
However, this modulation is not always possible. The wording of articles L. 341-3 to L. 341-5 of the Consumer Code suggests that certain breaches automatically result in total forfeiture.
The CJEU intervened to ensure the effectiveness of this sanction. In its ruling of 27 March 2014, it condemned the position of the Court of Cassation, which allowed the lender to claim interest at the statutory rate despite the forfeiture. This substitution of the legal rate for the contractual rate emptied the sanction of its substance.
Invalidity of the contract
In certain cases, the contract may be null and void, in particular if the contract formation rules have not been complied with. This more radical penalty applies in particular when :
- The borrower undertakes to pay cash if the loan is refused (article L. 341-11)
- The withdrawal period is not respected
- The borrower's consent is vitiated
In the case of earmarked credit, cancellation of the main contract automatically entails cancellation of the credit agreement. The Court of Cassation confirmed this principle in its ruling of 9 December 2020.
Criminal sanctions: a real risk for professionals
A repressive arsenal
Although rarely applied, criminal sanctions remain a sword of Damocles for credit professionals. They punish various offences such as :
- Receiving payment before the withdrawal period has expired
- Signing bills of exchange or promissory notes
- Registration of consumers exercising their right of withdrawal in a file
- Having several offers signed that exceed the value of the property being financed
Substantial fines
Article L. 341-18 of the French Consumer Code provides for a fine of 300,000 euros for these offences. Additional penalties may also be imposed, such as a five-year ban on carrying on a professional activity.
This strict approach reflects the legislator's desire to protect consumers effectively against credit abuse.
Careful examination of consumer credit contracts often reveals irregularities that can lead to penalties. There are strict deadlines for disputing these irregularities, but there are many ways of defending them. A specialist lawyer can detect these loopholes and turn a dispute into an opportunity for the borrower in difficulty. Do not hesitate to contact us for a detailed analysis of your situation.
Sources
- Consumer Code, articles L. 312-1 to L. 312-94, R. 312-1 to R. 312-35 and D. 312-1 to D. 312-31
- Code of Judicial Organisation, article L. 213-4-5
- Court of Cassation, First Civil Chamber, 9 March 1999, Bull. civ. I, no. 85
- Court of Cassation, First Civil Chamber, 9 June 2017, no. 16-15.140
- CJEU, 5 March 2020, Case C-679/18, OPR Finance s.r.o/CK
- CJEU, 27 March 2014, Case C-565/12
- Court of Cassation, First Civil Chamber, 9 December 2020, no. 18-25.686
- Law no. 2001-1168 of 11 December 2001, article 16
- Law no. 2008-561 of 17 June 2008 reforming the statute of limitations in civil matters
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