Acquiring banking products or services abroad, whether for credit, investment or simply opening an account, raises a fundamental question for any individual or company director: what law protects your interests in the event of a dispute? The answer is far from simple, and depends on the situation. In Europe, mechanisms have been put in place to guarantee a minimum level of protection for consumers, who are considered to be the weaker party to the contract. Consumer protection is a major exception to general principles The Rome Convention and, more recently, the Rome I Regulation. This article explains the rules governing this protection and the precise conditions under which they apply.
The general framework of consumer protection in cross-border banking law
In principle, international contract law is governed by the principle of party autonomy. This means that the parties are free to choose the law that will govern their contract. However, this freedom is not absolute, especially when there is an imbalance between the contracting parties. European law has therefore introduced specific rules to protect consumers when they contract with a professional established in another country. To explore in more detail how consumer protection can derogate from the principle of party autonomyIt is essential to understand the legislative basis.
This protection is governed by two major texts: the Rome Convention of 1980 for contracts concluded before 17 December 2009, and Regulation (EC) No. 593/2008, known as "Rome I", for contracts concluded after that date. These legal instruments aim to ensure that consumers are not deprived of the protection offered by the mandatory provisions of the law of their country of habitual residence, even if the contract designates the law of another State. In practical terms, if the law of the foreign professional is less protective than French law on essential points, the mandatory French provisions may still apply.
Scope of the protective articles (Rome Convention and Rome I Regulation)
The Rome Convention (article 5) and the Rome I Regulation (article 6) do not cover all banking transactions without distinction. Initially, the Rome Convention covered contracts for the supply of services or movable property, as well as contracts intended to finance such supply. For a long time, this wording fuelled debate about its application to unrestricted credit, i.e. loans for which the use is not predefined, or to mortgages. Case law has fluctuated, with some rulings accepting the inclusion of loans by describing them as "provision of a service", while others excluded them.
The Rome I Regulation has put an end to these uncertainties by adopting a broader approach. Article 6 applies to most consumer contracts, by way of exclusion. In particular, contracts for services provided exclusively in a country other than that of the consumer are excluded, as are certain contracts relating to financial instruments. It is worth noting that mortgages, which were a grey area under the Convention, now clearly fall within the scope of protection offered by the Rome I Regulation, provided that the other application criteria are met. This development has considerably enhanced legal certainty for cross-border borrowers.
Who is a 'consumer' under private international law?
The notion of "consumer" is at the heart of the protection system. It is not enough to be an individual to benefit from it. The definition adopted is a functional one: a consumer is a natural person who enters into a contract for a use that can be regarded as unrelated to his or her professional activity. So the question is not so much who you are (manager, employee, pensioner), but why you are contracting.
The analysis is made on a case-by-case basis. A loan taken out by the director of an SME to finance the purchase of his or her principal residence is a consumer act. On the other hand, a loan taken out by the same executive to inject funds into his company is a professional act that excludes him from the benefit of this specific protection. The distinction can be trickier for mixed-use contracts (half-private, half-business). In this case, the courts look for the predominant purpose of the transaction. If the professional aspect is only marginal, the contract may be classified as a consumer. It is important to note that this protection is reserved for natural persons. A company, even a very small one, cannot claim consumer status within the meaning of these regulations.
Conditions for implementing protection
For a consumer to benefit from the protection of the law of his country of residence, it is not enough for the contract to fall within the material and personal scope of the texts. Additional conditions, relating to the conduct of the professional, must be met. These conditions have evolved between the Rome Convention and the Rome I Regulation, reflecting changes in commercial practices, particularly online.
Under the Rome Convention, protection was triggered if the conclusion of the contract had been preceded in the consumer's country by a "specially made offer" or "advertisement", and if the consumer had performed "the acts necessary for the conclusion of the contract". This mainly referred to situations involving active canvassing, such as a loan offer sent by post to the consumer's home in France, which they signed and returned. On the other hand, a consumer who spontaneously travelled abroad to sign a contract could not generally invoke this protection.
The Rome I Regulation has modernised this approach. Protection now applies if the trader "pursues his business activity in the country in which the consumer has his habitual residence" or if, "by any means, he directs that activity to that country". This notion of "directed activity" is better suited to the digital age and is intended to cover situations where a professional, without being physically present, actively targets a foreign market, for example via a website.
Interpretation of the concept of "activity directed" by the professional (Rome I Regulation)
The concept of "directed activity" is the cornerstone of consumer protection in modern cross-border trade. How does a judge determine whether a foreign trader has 'directed' his activity to France? The Court of Justice of the European Union (CJEU) has clarified that the mere fact that a website is accessible from France is insufficient. The professional must demonstrate a clear intention to target the French market.
To do this, the judge relies on a range of non-exhaustive clues. Relevant factors include :
- Mention of France among the countries to which the professional offers his services.
- The use of the French language or the euro on the website (although these elements alone are not decisive).
- The provision of telephone numbers with an international dialling code to France.
- Mention of French customers or testimonials from French customers.
- Use of a top-level domain name linked to France (such as ".fr").
- Spending on paid search engine optimisation to target French internet users.
If all of these indicators show that the trader has intentionally sought to attract customers to France, the criterion of directed activity will be met. The consumer will then be able to benefit from the mandatory provisions of French law, even if the contract is subject to the law of the trader's country.
Relationship with the French law on confidence in the digital economy (LCEN)
In France, Law no. 2004-575 of 21 June 2004 on confidence in the digital economy (LCEN) also contains provisions on the law applicable to e-commerce. Article 17 provides that e-commerce activity is in principle subject to the law of the Member State in which the service provider is established. This seems to correspond to the basic rule of the law of the professional.
However, the same article states that this principle cannot "deprive a consumer [...] of the protection afforded to him by the mandatory provisions of French law". More importantly, it adds that this protection applies "in accordance with the international commitments entered into by France". The effect of this reference is to give precedence to the conflict of laws rules contained in European instruments such as the Rome I Regulation. In this way, the LCEN does not create a parallel regime but refers to the precise conditions laid down by European law, in particular that of "directed activity", to determine whether French mandatory protection should apply.
The relationship between consumer protection and police laws
A complex issue arises when the specific conditions for consumer protection (for example, the absence of activity directed towards France) are not met. Is the consumer then totally powerless and subject to the foreign law chosen in the contract? Not necessarily. In certain circumstances, they may be able to invoke another mechanism: mandatory rules.
A mandatory rule is a national provision deemed so essential for safeguarding a country's public interests (economic, social or political organisation) that it must be applied to any situation falling within its scope, regardless of the law normally applicable to the contract. For a long time there was controversy as to whether consumer protection rules and public order legislation were two mutually exclusive mechanisms. The Cour de cassation has clarified that this is not the case. A consumer who cannot benefit from the protection afforded by Article 6 of the Rome I Regulation may try to invoke the overriding nature of certain provisions of French law.
However, not all the rules in the Consumer Code are classified as public order legislation. Case law is restrictive. For example, the formalism of surety bonds and the rules governing the two-year limitation period have been excluded from this definition. On the other hand, provisions relating to the exclusive jurisdiction of the tribunal d'instance for consumer credit or certain rules on interest rates have been considered as such. This approach therefore remains technical and subject to judicial discretion, illustrating the complexity of the relationship between traditional protective rules and the use of mandatory rules in international banking law.
Analysing the law applicable to an international banking contract and identifying the protections available requires in-depth expertise in European regulations and their interpretation in case law. An erroneous assessment of criteria such as "directed activity" can deprive you of fundamental protection. For an analysis of your situation and to secure your steps, our firm of lawyers specialising in banking law with you.
Sources
- Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I)
- Rome Convention of 19 June 1980 on the law applicable to contractual obligations
- Law no. 2004-575 of 21 June 2004 on confidence in the digital economy (LCEN)
- Case law of the Court of Justice of the European Union (CJEU) and the French Court of Cassation
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