Understanding the components of the Annual Percentage Rate (APR) is essential for any borrower. This rate, which is used to compare the real cost of borrowing, includes much more than just interest. Some charges are systematically included, while others are excluded. These distinctions can have significant financial and legal consequences.
Elements included in the TEG
Interest and charges relating to the credit transaction
The TEG covers the interest on the loan, including that for the pre-financing period. Article L.314-1 of the French Consumer Code specifies that all "direct or indirect" costs associated with the granting of credit must be included.
The following are included in the calculation :
- Application fees
- Registration fees
- Commissions received by the lender
- Fees for drafting notarial deeds
- Remuneration paid to intermediaries involved in granting the loan
Case law has confirmed this position. In a decision dated 14 December 2004, the Court of Cassation ruled that these costs must be included "even if they correspond to actual disbursements" (Cass. com., 14 Dec. 2004, no. 02-19.532).
Mandatory loan insurance premium
When insurance is imposed by the lender as a condition for granting credit, the premium must be included in the TEG. The Court of Cassation reiterated this in a ruling dated 6 February 2013 (no. 12-15.722).
If this insurance is not offered by the lender but is required, the lender will must find out how much it will cost from the borrower before calculating the TEG (Cass. 1re civ., 9 July 2015, no. 14-14.121).
Cooperative membership and guarantees
Case law has established that the TEG must also include :
- The amount of the shares that a cooperative bank requires the borrower to subscribe to (Cass. 1re civ., 24 Apr. 2013, no. 12-14.377)
- The amount of the security deposit required by mutual guarantee companies (Cass. 1re civ., 9 Dec. 2010, no. 09-14.977)
- Application fees for a life insurance policy to be pledged to the lender
Items excluded from the TEG
Fees separate from the credit transaction
The following are exempt from the calculation of the TEG :
- Costs relating to the sale of the property financed
- VAT on the costs included, if recovered by the borrower
- Notarial fees for loans governed by articles L.311-1 of the French Consumer Code (Code de la consommation)
Cost of informing the guarantor
The Court of Cassation settled the debate in a ruling on 15 October 2014 (no. 13-19.241): the annual information fee for the guarantor, even if borne by the borrower, does not constitute a condition for obtaining the loan and is not included in the TEG.
Optional insurance premiums
Non-mandatory insurance is excluded from the TEG :
- Optional death and disability insurance premiums (Cass. 1re civ., 12 July 2012, no. 10-25.737)
- Damage insurance premiums, even if the lender requires the property to be insured (Cass. 1re civ., 6 Feb. 2013, no. 12-15.722)
However, article L.312-7 of the French Consumer Code stipulates that the cost of optional insurance must be expressed as the annual effective rate of insurance (AEIR) to enable comparison.
Special case of intervention fees
The bank account intervention fee pays for the preliminary examination prior to the decision to pay or reject an uncovered transaction. It is excluded from the TEG because it is considered a service fee (Cass. com., 8 July 2014, no. 13-20.147).
However, if these fees are deducted only in the event of a payment that increases the debit balance, they constitute additional interest and must be included in the APR.
Legal consequences of an error in the composition of the TEG
An error in the inclusion or exclusion of an item in the TEG can have significant legal consequences. Since Ordinance no. 2019-740 of 17 July 2019, the single penalty is "forfeiture of the right to interest in the proportion set by the judge" (article L.341-48-1 of the French Consumer Code).
However, this penalty only applies if the error in the TEG is greater than one decimal place and is to the detriment of the borrower (Cass. com., 15 Feb. 2023, no. 21-10.950).
The time limit for bringing an action is 5 years from the day on which the borrower knew or should have known of the error (articles 1304 and 1907 of the Civil Code). For a professional, this period generally runs from the date the contract is signed.
In this highly technical dispute, the expertise of a banking law professional can be decisive in assessing your chances of success and guiding you towards the best legal strategy.
Sources
- Consumer Code: articles L.314-1, L.312-7, L.341-48-1
- Civil Code: articles 1304, 1907
- Cass. com., 14 December 2004, no. 02-19.532
- Cass. 1st civ., 6 February 2013, no. 12-15.722
- Cass. 1st civ. 24 April 2013, no. 12-14.377
- Cass. 1st civ., 9 December 2010, no. 09-14.977
- Cass. 1st civ., 15 October 2014, no. 13-19.241
- Cass. 1st civ. 12 July 2012, no. 10-25.737
- Cass. com. 8 July 2014, no. 13-20.147
- Cass. com. 15 February 2023, no. 21-10.950
- 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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