Home loans taken out before 1 July 2016: which legal regime still applies?

Order no. 2016-351 of 25 March 2016 radically changed the legal landscape for home loans in France, transposing European Directive 2014/17/EU. Essentially coming into force on 1 July 2016, this reform strengthened the protection of borrowers, particularly in terms of pre-contractual information and assessment of solvency. However, one question remains for the many home loan contracts concluded before this pivotal date: what legal regime continues to apply to them? These loans, often taken out for long periods (15, 20 years or even more), are still being repaid by many households. Understanding the rules that govern them remains essential for understanding the rights and obligations of the parties involved, particularly in the event of renegotiation, early repayment or dispute. This article seeks to clarify the survival of the old law for these specific contracts.

The principle: application of the old consumer law

The fundamental principle with regard to the application of the law over time is that of the non-retroactivity of new laws, unless expressly provided otherwise. The Order of 25 March 2016 and the Ratification Act of 21 February 2017 did not provide for retroactive application for all of their provisions concerning the formation and terms of mortgages.

Consequently, home loan contracts concluded before 1 July 2016 remain subject to the legal provisions in force at the time they were signed. These are mainly Former articles L.312-1 to L.312-36 and R.312-1 to R.312-4 of the Consumer Codeas they stood prior to the reform. These articles formed the core of the so-called "Scrivener II" legislation (resulting from law no. 79-596 of 13 July 1979), specifically dedicated to informing and protecting borrowers in the property sector.

It is therefore essential to refer to these old provisions when analysing a mortgage loan agreement that predates the reform. The new rules introduced by the 2016 ordinance (codified in articles L.313-1 et seq. of the French Consumer Code) do not apply to the formation or initial terms and conditions of these "old" contracts. For an overview of the current rules, please see our complete guide to mortgages post-reform 2016.

This application of the old law concerns in particular :

• The scope of the protective regime (which was defined by the former article L.312-2).
• Rules on advertising (former articles L.312-4 to L.312-6).
• The formalities of the preliminary offer of credit (former article L.312-8).
• The mandatory ten-day cooling-off period before acceptance (former article L.312-10).
• The rules governing the interdependence between the loan agreement and the property transaction financed (former articles L.312-15 to L.312-20).
• The conditions for early repayment and calculation of the indemnity (former article L.312-21).
• Certain civil penalties in the event of default by the lender (former article L.312-33).

Understanding the legal framework for mortgages before 2016 is therefore a necessity for any borrower whose contract dates from this period.

Specific points of the previous scheme that remain applicable

A number of features of the pre-2016 regime continue to apply to contracts entered into before 2016. It is worth recalling the main ones.

Formalities of the preliminary offer

The former article L.312-7 of the Consumer Code required the lender to make a written offer addressed to free of charge by post to the borrower and any guarantors who are natural persons. Case law considered that sending the offer by post was a substantial formality (Cass. 1re civ., 9 Dec. 1997, no. 95-15.494). An offer delivered by hand or sent by any other means (fax, simple email) was deemed irregular.

The former article L.312-8 detailed the compulsory details of this offer: identity of the parties, nature and purpose of the loan, terms and conditions for making the funds available, amount, total cost, TEG (Taux Effectif Global), insurance and securities required, conditions for any transfer, and a reminder of the cooling-off period.

One particularity concerned the repayment schedule. For fixed-rate loans, case law required a detailed schedule breaking down capital and interest for each instalment (Cass. 1re civ., 16 March 1994, no. 92-12.239). The practice of simplified schedules (for example, for 10,000 francs borrowed) was hotly contested before being temporarily validated a posteriori by the law of 12 April 1996 for earlier contracts, a validation itself criticised in terms of the right to a fair trial. For variable-rate loans, a detailed schedule was not required beyond the first known rate period.

Non-compliance with these formalities (missing or erroneous information, failure to send by post) was mainly sanctioned by the forfeiture of interest for the lender, in full or in the proportion determined by the judge (former article L.312-33). The nullity of the contract, which was accepted for a time, was rejected by the Court of Cassation in favour of forfeiture only (Cass. 1re civ., 23 Nov. 1999, no. 97-18.467).

Reflection period and acceptance

Unlike consumer credit, property borrowers did not have a right of withdrawal, but rather a right to cancel the contract. an incompressible cooling-off period of ten clear days from receipt of the offer (former article L.312-10). Acceptance could not take place before the expiry of this period. Any premature acceptance was null and void and could not be confirmed; the acceptance had to be renewed after the deadline (Cass. 1re civ., 18 Jan. 2000, no. 97-20.750).

Acceptance also had to be given by letter, as evidenced by the postmark (former article L.312-10, para. 2). This requirement, which parallels that of sending the offer by post, was also considered a substantial formality. Failure to comply with it rendered the acceptance, and therefore the loan agreement itself, null and void (Cass. 1re civ., 25 Nov. 2010, no. 09-14.336).

Conditions precedent and the interdependence of contracts

Under the previous system, the loan contract and the property purchase (or the works financed) were highly interdependent.

Under the old article L.312-15, the main deed of sale (promesse de vente, preliminary contract, etc.) had to indicate whether the price would be paid using one or more loans covered by the Scrivener II law. If the loan was used, the deed was must be entered into subject to the suspensive condition of obtaining the loan(s) (former article L.312-16). This condition could not be valid for less than one month.

Case law considered this condition to have been met as soon as a credit institution makes a regular offer corresponding to the characteristics of the financing stipulated in the preliminary contract (Cass. 1re civ., 9 déc. 1992, n°91-12.498). Acceptance of the offer by the borrower was not necessary for the condition to be deemed fulfilled vis-à-vis the vendor. However, the borrower had to have taken fair steps to obtain the loan; otherwise, the condition was deemed to have been fulfilled through his fault (application of the former article 1178 of the Civil Code).

Conversely, the loan offer was accepted under the resolutory condition of non-conclusion of the main contract within four months (former article L.312-12). If the sale was not completed within this period (e.g. refusal by the seller, failure to exercise the option), the loan contract was automatically terminated.

Specific penalties

In addition to the forfeiture of the right to interest for irregularity of the offer, the previous regime provided for specific penalties, in particular :

• Nullity of the acceptance (and therefore of the contract) if the 10-day cooling-off period is not respected or if the acceptance is not sent by post.
• Immediate repayment in full of sums paid in advance by the purchaser if the suspensive condition of obtaining a loan is not met (former article L.312-16, para. 2), with increased interest if the vendor is late (former article L.312-17, para. 3).
• The possibility for the court to suspend performance of the loan contract in the event of a dispute affecting performance of the work financed (former article L.312-19), but case law had limited the scope of this to the period prior to acceptance of the work (Cass. 1re civ., 26 May 1994, no. 92-12.524).

Developments in case law relating to these old contracts

Although the legal framework applicable to contracts entered into before 1 July 2016 is fixed, the courts' interpretation of these old provisions has continued to evolve, even after the reform. These developments may have an impact on disputes concerning these loans.

Limitation of actions

The question of the statute of limitations for actions relating to mortgages taken prior to 2016 has undergone some notable reversals.

• Action by the lender for payment : For a long time, case law applied the ordinary five-year limitation period (formerly article 2277 of the Civil Code, then article 2224) or the five-year commercial limitation period (article L.110-4 of the Commercial Code). However, in a series of noteworthy rulings from 2012-2014, the Cour de cassation ruled that an action for payment of a mortgage loan granted by a professional to a consumer fell within the scope of the biennial limitation period of Article L. 218-2 (formerly L. 137-2) of the Consumer Code (e.g. Cass. 1re civ., 10 July 2014, no. 13-15.511). The starting point of this period has also fluctuated: initially set at the first unpaid payment incident, it was then considered to run from the due date of each unpaid monthly instalment, and for the outstanding capital, from the acceleration of the term (Cass. 1re civ., 11 Feb. 2016, series of rulings). This last solution, which was favourable to the lender who thus controlled the starting point for the capital, seems to have been called into question by more recent decisions which set the starting point for the period at the expiry of the period set by the formal notice preceding the acceleration (Cass. 1re civ., 13 March 2024, no. 22-24.170).
• Action by the borrower for annulment or forfeiture : An action for nullity of the contract (for example, for failure to observe the cooling-off period) was subject to the ordinary five-year limitation period (formerly article 1304 of the Civil Code, then article 2224). An action for forfeiture of the right to interest (for irregularity of the offer) was subject to the five-year limitation period under article L.110-4 of the French Commercial Code (Cass. 1re civ., 7 Oct. 2020, no. 18-23.576). The starting point was set at the date on which the borrower knew or should have known of the irregularity (often the date of conclusion of the contract if the error was apparent in the offer). The plea of nullity or forfeiture was deemed perpetual if the contract had not begun to be performed, but subject to the same time limit as the action if performance had begun.

Disputes over the TEG (Taux Effectif Global)

Irregularities in the TEG (absence, miscalculation, omission of costs) gave rise to a great deal of litigation under the old law. The penalties have evolved: initially, the interest stipulation was null and void (resulting in the legal rate being substituted for the agreed rate). Then, case law settled on the forfeiture of interest (former Article L.312-33) as the sole penalty, even in the event of an error in the TEG (Cass. 1re civ., 30 Sept. 2010, no. 09-67.930). The Order of 17 July 2019 confirmed this solution for the future, but the Court of Cassation applied it retroactively to older contracts still in dispute (Cass. 1re civ., 10 June 2020, n°18-24.284). Forfeiture may be total or partial, at the judge's discretion, depending in particular on the loss suffered by the borrower. The error must exceed a certain margin (the first decimal place after the decimal point) in order to be penalised.

Capitalisation of interest (Anatocism)

The former article 1154 of the Civil Code (now 1343-2) authorises the capitalisation of accrued interest due for a whole year, if the contract or a court decision so provides. However, case law has held that this rule is incompatible with the specific provisions of consumer law limiting the sums that can be claimed from a defaulting borrower (former articles L.311-30 to L.311-32 for consumer credit, and L.312-22 and L.312-23 for home credit). Thus, a clause providing for the capitalisation of contractual interest in the event of the expiry of the term of a home loan subject to the old law was deemed to be unlawful and inapplicable (Cass. 1re civ., 9 Feb 2012, no. 11-14.605; Cass. 1re civ., 20 Apr 2022, no. 20-23.617). This solution protects the borrower against a rapid increase in his debt after the expiry of the term.

Relationship with certain new public policy provisions

While the principle is the application of the law in force at the time the contract was concluded, certain new provisions may nevertheless affect old contracts, particularly when they are considered to be laws of "imperative" public order or interpretative laws.

When it comes to home loans, the application of new rules to existing contracts remains exceptional. The main aim of the 2016 reform was to transpose a European directive and modernise the system, with no intention of disrupting existing contracts through immediate measures of public policy.

However, there are a few points worth noting:

• Over-indebtedness procedure : The rules governing the treatment of overindebtedness (Book VII of the Consumer Code) apply immediately to proceedings opened after their entry into force, even if the debts arise from old contracts. This means that a borrower whose credit dates from before 2016 can benefit from the current measures for dealing with over-indebtedness (conventional plan, imposed measures, partial write-off, personal recovery procedure).
• Loan insurance : Successive laws aimed at making it easier to terminate and replace loan insurance (Hamon Act 2014, Bourquin Amendment 2018, Lemoine Act 2022) have provided for specific application procedures for current contracts, allowing borrowers with old contracts to benefit from these new termination options (annual or infra-annual) under certain conditions.
• Civil penalties (TEG) : As mentioned above, case law has applied the penalty of forfeiture of the right to interest (resulting from the 2019 Order) to ongoing disputes concerning TEG errors on old contracts, thereby harmonising the penalty regime.

Apart from these specific cases, most of the rules governing the rights and obligations arising from home loans taken out before 1 July 2016 are still governed by the former articles L.312-1 et seq. of the French Consumer Code.

The complexity of the relationship between the old and new laws, as well as the constant developments in case law, underline the importance of a precise legal analysis for any borrower faced with questions relating to a home loan that predates the 2016 reform.

If you took out a home loan before 1 July 2016 and are experiencing difficulties or have questions about your rights (renegotiation, early repayment, validity of certain clauses, dispute with the bank), it is a good idea to have your contract examined. For an in-depth analysis of your situation and tailored advice, contact our law firm.

Sources

• Consumer Code: former articles L.312-1 to L.312-36 and R.312-1 to R.312-4 (applicable to contracts concluded before 1 July 2016)
• Consumer Code: articles L.313-1 et seq. (applicable to contracts entered into since 1 July 2016)
• Consumer Code: articles L.711-1 et seq (relating to over-indebtedness)
• Civil Code: articles 1178 (old), 1304-3 (relating to suspensive conditions); article 1343-2 (old 1154, relating to anatocism)
• Law no. 79-596 of 13 July 1979 on the information and protection of borrowers in the property sector
• Order no. 2016-351 of 25 March 2016 on consumer credit agreements relating to immovable property for residential use
• Case law of the Cour de cassation cited in the article (concerning in particular formalism, prescription, TEG, anatocism)