Credit mechanisms are based on a natural imbalance between lender and borrower. The law attempts to correct this asymmetry by imposing strict information requirements, in particular on the Annual Percentage Rate (APR). Understanding these obligations protects your rights as a borrower and may, in certain situations, enable you to dispute undue charges.
The obligation to provide information depending on the type of credit
For consumer loans
The French Consumer Code requires credit institutions to provide full information on the Annual Percentage Rate of Charge (APR) - the equivalent of the TEG for consumer credit. This information must appear in:
- The pre-contractual information sheet (article L.312-12 of the French Consumer Code)
- The credit agreement offer (article L.312-18)
Le APR represents not only the interest, but also all the compulsory charges linked to the credit.. The legislator requires this transparency to enable consumers to compare different commercial offers effectively.
For home loans
For a mortgage, the regulations stipulate:
- Mandatory mention of the TEG in the loan offer (articles L.313-24 and L.313-34 of the French Consumer Code)
- Prior information in the documents provided before the offer is made (article L.313-8)
Banks must indicate this rate to at least one decimal place. This obligation applies even to loans that are no longer subject to usury.
For business loans
Business loans, although less regulated, are still subject to the obligation to display the TEG in the credit agreement. Article L.314-5 of the Consumer Code requires that "the total effective interest rate [...] shall be stated in any written loan agreement"..
This obligation is a matter of public policy. Failure to comply is punishable by a fine of 150,000 euros (article L.341-49 of the French Consumer Code).
Information on period rate and period length
Information on the period rate varies according to the type of credit:
- For consumer credit and home loans: the borrower must be informed of the duration of the period (article R.314-3 of the French Consumer Code).
- For business loans: the period rate and its duration must be explicitly communicated.
A ruling by the First Civil Chamber of the Court of Cassation on 19 February 2013 (no. 12-14.381) confirmed this obligation for business loans, subject to penalties.
The special case of variable-rate loans
Variable-rate loans present a specific problem. Case law has ruled that it is sufficient to state the TEG once and for all in the loan document, whether the rate is fixed or variable.
According to a Court of Cassation ruling of 20 May 2020 (no. 19-10.982), "in the event of a stipulation to revise the original interest rate in line with changes in an objective index, the lender is under no obligation to inform the borrower of the change in the overall effective rate resulting from such a revision"..
This position confirms that the lending institution is not obliged to inform the borrower of each variation in the TEG resulting from the application of the index.
Information on the TEG (gross interest rate) for overdraft credit facilities
There are different formalities for account overdrafts:
- The agreement must state an indicative interest rate, calculated for immediate and full use of the credit.
- Periodic statements must show the APR actually applied
A ruling by the Commercial Division of the Court of Cassation on 6 April 1999 (no. 96-15.337) specified that the actual TEG indicated in the agios statements may serve as an exemplary TEG for the future.
Le calculation of the TEG poses particular difficulties for overdrafts, as it includes, in addition to conventional interest, certain commissions such as:
- Overdraft commission
- The overrun commission
- Immobilisation commission
Other charges, such as the intervention fee, are excluded from the calculation because they pay for a service separate from the credit.
Consequences of a failure to provide information: possible remedies
Ordinance no. 2019-740 of 17 July 2019 has unified the penalties for missing or incorrect TEGs. Article L.341-48-4 of the French Consumer Code 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 penalty now applies to all types of credit.
Case law has established several principles:
- The error must be greater than one decimal place to be punishable (Cass. 1re civ., 27 November 2019, no. 18-19.097)
- Calculation on the basis of a standard month (Lombard year) is valid
- The limitation period for bringing an action is 5 years from the day on which the borrower knew or should have known of the error.
Le law firm Law & Finance regularly examines loan contracts to check that the APR is correct. If you have the slightest doubt about the accuracy of the rate you have been charged, a thorough legal check could enable you to obtain a partial or total forfeiture of the right to interest from your lender.
Sources
- Consumer Code, articles L.312-12, L.312-18, L.313-24, L.313-34, L.313-8, L.314-5, L.341-49, L.341-48-4, R.314-3
- Court of Cassation, 1st Civil Chamber, 19 February 2013, no. 12-14.381
- Court of Cassation, 1st Civil Division, 20 May 2020, no. 19-10.982
- Court of Cassation, Commercial Division, 6 April 1999, No. 96-15.337
- Court of Cassation, 1st Civil Chamber, 27 November 2019, no. 18-19.097
- Order no. 2019-740 of 17 July 2019 on civil penalties applicable in the event of default or error in the TEG (French version)
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