Credit institutions or banks sometimes declare that the term of a loan that has fallen due, i.e. has expired, has lapsed. This practice, which stems from the lender's misapplication of the rules of law, has often been encountered by our firm. Analysis.
Forfeiture of term: definition
The acceleration clause allows the lender to deprive the borrower of the benefit of the term. It may be invoked in a number of circumstances, the first of which is non-payment of one or more instalments.
This will result in the contract being rescinded and all future instalments, i.e. those not yet due, becoming payable. If there are 10 instalments of €1,000 still to be paid, the bank will be able to claim payment of €10,000 from the date of the decision.
This clause is governed by articles L. 312-39 and L. 313-51 of the French Consumer Code. These articles apply to consumer credit and home loans respectively.
Article L. 312-39 of the Consumer Code :
"In the event of default by the borrower, the lender may demand immediate repayment of the outstanding capital plus any interest that has fallen due but has not been paid. Until the date of actual payment, the outstanding sums accrue interest on arrears at a rate equal to that of the loan.
Article L. 313-51 of the Consumer Code :
"If the lender requests that the contract be rescinded, it may demand immediate repayment of the outstanding capital and payment of the interest due. Until the date of actual payment, the outstanding sums shall bear interest on arrears at a rate equal to that of the loan.
All this means that in the event of unpaid instalments, the bank will be able to claim, from the date on which the term expires :
- The outstanding capital,
- Unpaid instalments,
- Compensation for termination of the contract (or indemnité d'exigibilité),
- Interest on late payments.
Almost all forfeiture clauses in pre-2023-2024 contracts are now considered unfair. There have been significant developments in case law in this area, making it possible to challenge the way in which the contract is terminated. This is not the subject of this publication, and readers wishing to find out more can consult our dedicated publication.
- Read also : What is a forfeiture of term?
- Read also : ABUSIVE CLAUSES & ENFORCEMENT: what if it wasn't all over?
Acceleration of the term of a loan that has fallen due and the indemnity for repayment
The mistake that credit institutions often make is to consider that debt collection must always be preceded by an acceleration of the term.
This is not true, because the acceleration of the term is necessary to recover the outstanding capital. This implies two things.
The first is that the lender can choose not to break the contract, limiting recovery to the outstanding instalments only. This is a logical solution when the debtor's situation is such that breaking the contract could lead to long-term arrears.
The second is that you can only accelerate the loan if there are still instalments to pay. This means that the outstanding capital becomes due and payable. The outstanding capital is the sum of future instalments (e.g. 10 instalments of €1,000). If there are no future instalments, then technically the loan cannot be accelerated.
This is the typical case of a loan that has reached the end of its repayment schedule, or a loan that is due to be repaid. in fine.
When a bank makes the mistake of accelerating a loan when there is no future due date, it damages the debtor's interests. This is because accelerated repayment entitles the lender to claim payment of a penalty. This indemnity, also known as a penalty clause, is equal to a percentage of the outstanding capital of up to 7 %.
It is in this context that the Court of Cassation has had to clarify the following:
"Whereas, according to these texts, the indemnity provided for in a real estate loan contract in the event of default by the borrower may only be due if the lender has requested resolution;
Whereas, in order to order Mr X... to pay the Caisse Régionale de Crédit Agricole Mutuel Centre-Loire (the bank) the sum of 68,348.20 euros, including an indemnity for acceleration, in respect of a bridging loan granted under an offer of 14 May 2004, accepted on the following 25 May, the judgment under appeal states that the acceleration was declared by the bank on 8 June 2005;
That in so deciding, after having noted the existence of a cash payment on 1 June 2004 and an instalment with a total grace period of eleven months repayable with interest in arrears on 1 June 2005, so that the last instalment of the loan had expired on 8 June 2005, the Court of Appeal violated the aforementioned texts;".
Accordingly, the bank could not validly declare that the term had expired on 8 June 2005 and demand payment of an indemnity when the bridging loan in question had matured on 1 June 2005.
This means that the bank can neither accelerate the term of the loan nor demand a penalty payment if the loan has already fallen due.
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