Granting a home loan represents a major financial commitment for both the borrower and the lending institution. Before granting finance, the bank or lending institution is required by law to carefully assess the borrower's ability to repay the loan. This stage, which is crucial to preventing overindebtedness, is governed by legal obligations that have been strengthened since 2016. Understanding these obligations helps borrowers to better understand the process and lenders to gauge the extent of their responsibilities.
The legal framework for solvency assessment post-reform 2016
European Directive 2014/17/EU on credit agreements for consumers relating to residential property (known as the "MCD" or "Mortgage Credit Directive") was transposed into French law by Order no. 2016-351 of 25 March 2016. This reform, which essentially came into force on 1 July 2016, profoundly changed the rules applicable to home credit, significantly strengthening the protection of borrowers. You can consult our complete guide to mortgages post-reform 2016 for an overview of these changes.
One of the main thrusts of this reform concerns the assessment of borrowers' creditworthiness. The aim is twofold: to ensure that the borrower is capable of meeting his or her commitments without getting into financial difficulty, and to make the lender more accountable in his or her decision to grant credit. Articles L. 313-16 et seq. of the French Consumer Code now set out the lender's obligations in this area.
The lender's obligations
Before making a decision to grant a mortgage, the lender must carry out a "rigorous" assessment of the borrower's creditworthiness. There are several key stages in this obligation.
Gathering the necessary information
The lender must gather sufficient, relevant and verifiable information from the prospective borrower about his or her financial situation and needs. Article R. 313-14 of the French Consumer Code specifies that the assessment must be based on information relating to :
- The borrower's income, savings and assets: This includes salaries, property income, pensions and regular welfare payments, as well as available savings (passbook savings, life insurance, etc.) and the value of existing assets (other property, securities portfolio, etc.).
- The borrower's regular expenses, debts and other financial commitments: The lender must take into account current expenses (rent if applicable, tax, maintenance payments, etc.), repayments on other outstanding loans (consumer, car, etc.) and any other regular financial commitments.
This information is essential and forms part of the wider framework of pre-contractual information for home loans. The lender must inform the borrower, at the pre-contract stage, of the need to provide accurate and complete information, and of the deadlines for doing so.
Checking the information provided by the borrower
Simply collecting declaratory information is not enough. The lender is obliged to verify, as far as possible, the accuracy of the information provided by the borrower. Article L. 313-16 of the French Consumer Code states that the assessment of creditworthiness is based on information that is "justified as being necessary and proportionate to the granting of credit".
In practical terms, the lender will ask for supporting documents: pay slips, tax returns, bank statements, repayment schedules for outstanding loans, title deeds, etc. The lender must ensure that the information is consistent and may ask for clarification or additional documents if necessary. The lender must ensure that the information is consistent and may ask for clarification or additional documents if necessary.
It is important to stress that if borrowers knowingly provide inaccurate or incomplete information, they expose themselves to risks. Not only could the loan contract be called into question, but there could also be consequences in the event of a subsequent payment incident. Case law, for example, has upheld the registration on the FICP of borrowers who provided inaccurate information at the time of taking out the loan (Cass. 1re civ., 25 May 2022, no. 21-14.713).
Consultation of the Register of Personal Loan Repayment Incidents (FICP)
To assess creditworthiness, the lender must consult the Fichier national des Incidents de remboursement des Crédits aux Particuliers (FICP), managed by the Banque de France. This file contains information on payment incidents linked to loans granted to individuals for non-business purposes, as well as information on over-indebtedness.
This consultation enables the lender to check whether the borrower has experienced repayment difficulties in the past or is the subject of over-indebtedness proceedings. If the credit is refused on the basis of information contained in this file, the lender must inform the borrower (article L. 313-16, paragraph 4).
The possible role of the Intermediary in Banking Operations and Payment Services (IOBSP)
When the credit application is made through a broker (IOBSP), the broker also plays a role in the assessment process. Although the lender is ultimately responsible for assessing creditworthiness, the IOBSP is involved in gathering the necessary information and documents from the borrower.
They are also subject to obligations to provide information and advice to borrowers. Depending on the status of the broker (bank agent, non-exclusive agent, broker), the extent of their obligations may vary. In particular, they must enquire about the borrower's financial situation, needs and objectives in order to propose suitable solutions. Some IOBSPs may even offer a formal advisory service.
The consequences of a faulty or incorrect valuation for the lender
The Consumer Code provides for specific penalties in the event of a lender failing to meet its obligations to assess creditworthiness. The stakes are high for credit institutions.
If the lender grants credit without having carried out the rigorous assessment of creditworthiness required by article L. 313-16, he may be deprived of the right to interest, in full or in the proportion set by the judge (article L. 341-28). This means that the borrower would only be required to repay the capital borrowed.
If the valuation has been carried out insufficiently or incorrectly (for example, by failing to take into account certain relevant factors or by failing to verify the information sufficiently), the penalty is a partial forfeiture of the right to interest, in the proportion set by the judge, which may not exceed 30% of the interest and is capped at 30,000 euros (article L. 341-27, 3°).
These civil penalties are in addition to the potential civil liability of the lender. If the granting of credit that is manifestly unsuited to the borrower's situation leads to the borrower becoming over-indebted, the borrower may seek to hold the lender liable for breach of its duty to warn (an obligation that has also been strengthened by the reform and codified in article L. 313-12) and obtain damages. This breach may have serious consequences, particularly as regards dealing with repayment difficulties.
It is important to note that the lender cannot avoid liability on the grounds that the information provided by the borrower was incomplete or inaccurate, unless it proves that the borrower deliberately concealed or falsified essential information (article L. 313-17).
Assessing creditworthiness is therefore much more than a simple administrative formality. It is a fundamental legal obligation for lenders, designed to ensure responsible access to property credit and protect borrowers against the risk of over-indebtedness. Failure to comply with these obligations can result in significant financial penalties for the credit institution. If you feel that the assessment of your ability to repay has not been carried out correctly, or if you are experiencing difficulties following the granting of a loan, it may be wise to contact our law firm to analyse your situation.
Sources
- Consumer Code: articles L. 313-16, L. 313-17, R. 313-14, L. 313-12, L. 341-27, L. 341-28.
- Order no. 2016-351 of 25 March 2016 on consumer credit agreements relating to immovable property for residential use.
- Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to immovable property for residential use.
- Case law cited (e.g. Cass. 1re civ., 25 May 2022, no. 21-14.713).
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