Le Annual Percentage Rate (APR) is often at the heart of disputes between borrowers and banks. Case law has evolved considerably in recent years, changing the balance between borrower protection and the legal certainty of loan contracts.
Changes in civil penalties
Historically, the courts declared interest clauses null and void if the TEG was missing or incorrect. This radical sanction allowed the legal rate to be substituted for the conventional rate.
Case law has gradually evolved towards a more proportionate approach. The Court of Cassation has ruled that "the indication of an erroneous TEG is equivalent to the absence of a TEG". (Cass. 1re civ., 16 October 2013, no. 12-18.190) But it also held that the penalty should be tailored to the actual harm suffered by the borrower.
Order no. 2019-740 of 17 July 2019 formalised this change by introducing a single penalty: forfeiture of the right to interest in a proportion set by the judge. Article L. 341-48-1 of the Consumer Code now states that "the lender may be deprived of the right to interest in the proportion determined by the court, having regard in particular to the harm suffered by the borrower"..
This approach applies equally to consumer credit, mortgages and business loans.
When an error in the TEG is punishable
All the TEG errors are not punishable. Two essential criteria determine the admissibility of an action.
The decimal point threshold
Article R. 314-1 of the French Consumer Code states that the TEG must be calculated to at least one decimal place. The Court of Cassation has logically deduced that only an error greater than this first decimal place is punishable.
Thus, a TEG displayed at 4.2% when it should have been 4.24% will not be penalised (Cass. 1re civ., 27 November 2019, no. 18-19.097).
Calculation over a standard month
Many borrowers disputed the clause stating that "the interests were calculated on the basis of a bank year of 360 days, a half-year of 180 days, a quarter of 90 days and a month of 30 days"..
The Court of Cassation upheld this method of calculation, which complies with the appendix to article R. 314-3 of the Consumer Code, which states that"a standard month has 30.41666 days"..
For such a clause to be invalidated, the borrower must prove three things:
- Application of the clause generated additional costs
- This additional cost is to its detriment
- Its impact is greater than the decimal point stipulated in the regulations
This case law was confirmed by several rulings in 2019 and 2021 (Cass. 1re civ., 10 October 2019, no. 18-19.151; Cass. 1re civ., 3 February 2021, no. 19-21.599).
The time limit for bringing an action: limitation period and starting point
The limitation period for challenging an incorrect TEG is 5 years. However, the starting point for this period differs depending on the borrower's status.
For non-business borrowers
In the case of a non-business borrower, the period runs from the time when the borrower knew or should have known of the error.
Judges are free to determine this date, but the tendency is to consider that if the error was detectable simply by reading the contract, the starting point is the date on which the offer was signed (Cass. 1re civ., 1 March 2017, no. 16-10.773).
The Court of Cassation ruled that "the starting point for the action for forfeiture of the right to interest is the day on which the offer of credit was made, where a reading of the loan agreement reveals the errors relied on". (Cass. 1st civ., 13 March 2019, no. 17-26.456).
For professional borrowers
For professional borrowers, the rule is stricter: the period runs systematically from the date of the contract (Cass. com., 3 December 2013, no. 12-23.976).
This position has been regularly reaffirmed by case law: "the limitation period for an action for annulment of the stipulation of the overall effective rate runs from the date of signature of the loan agreement". (Cass. 1st civ., 2 February 2022, no. 20-15.737).
Burden of proof for TEG errors
The borrower must demonstrate the rate error by providing concrete evidence of the calculation error or the failure to take into account costs normally included in the TEG. A simple expert report without convincing demonstration is not sufficient (Cass. 1re civ., 1 October 2014, no. 13-22.778).
This burden of proof is a real obstacle for borrowers, as it requires in-depth technical knowledge of financial matters.
Criminal and administrative penalties
In addition to civil penalties, failure to state the TEG is punishable by a fine of 150,000 euros (article L. 341-49 of the French Consumer Code).
The Autorité de contrôle prudentiel et de résolution (ACPR) also has an arsenal of administrative sanctions ranging from warnings to withdrawal of authorisation (article L. 612-39 of the Monetary and Financial Code).
In practice, the ACPR favours a gradual approach. It generally starts by asking for explanations, then issues warnings before considering more severe sanctions.
Legal strategies for challenging an incorrect APR
Disputes over the TEG require a precise analysis of the loan contract and the calculation methods used by the bank.
Action to challenge the TEG must be taken quickly after the error is discovered, particularly for professional borrowers. A prior audit of the contract by a specialist helps to identify potential errors and assess the chances of success.
Recent case law has made these disputes more complex, but not impossible. A TEG that is understated by more than one decimal point can still result in partial forfeiture of the right to interest, where applicable in connection with usurious rateswith substantial financial gains for the borrower.
Older loans are generally more likely to contain errors in the calculation of the TEG. To assess whether action should be taken, a borrower may request a preliminary analysis. Our firm offers this service at preferential rates, followed by payment of the result if there is a significant chance of success.
Sources
- Consumer Code, articles L. 314-1 to L. 314-9, L. 341-48-1, L. 341-49, R. 314-1, R. 314-3
- Monetary and Financial Code, article L. 612-39
- Order no. 2019-740 of 17 July 2019 on civil penalties applicable in the event of default or error in the TEG (French version)
- Cass. 1st civ. 16 October 2013, no. 12-18.190
- Cass. com. 3 December 2013, no. 12-23.976
- Cass. 1st civ. 1st October 2014, no. 13-22.778
- Cass. 1st civ. 1st March 2017, no. 16-10.773
- Cass. 1st civ., 27 November 2019, no. 18-19.097
- Cass. 1st civ. 10 October 2019, no. 18-19.151
- Cass. 1st civ., 13 March 2019, no. 17-26.456
- Cass. 1st civ., 3 February 2021, no. 19-21.599
- Cass. 1st civ., 2 February 2022, no. 20-15.737
- Order of 26 September 2016 on the calculation of usury rates by maturity band
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