The professional duties of mortgage lenders and intermediaries

A home loan is often the biggest financial commitment in a consumer's life. This complex operation is logically accompanied by a strict regulatory framework that imposes precise obligations on credit professionals, whether lenders or intermediaries. These rules are designed to ensure protection for individual borrowers and rebalance a contractual relationship that is by nature unbalanced. Understanding these duties is essential if you are to assert your rights in the event of a breach.

The obligation to provide information and explanations: clarity first and foremost

Customer information is the cornerstone of consumer protection when it comes to home loans. Even before making an offer, the lender or intermediary must provide clear and comprehensible general information on the proposed contracts, as stipulated in article L. 313-6 of the French Consumer Code. This initial information, often in the form of standardised documentation, must enable potential borrowers to familiarise themselves with the general characteristics of property loans.

At the more advanced pre-contractual stage, information becomes personalised. Article L. 313-7 requires the European Standardised Information Sheet (ESIS) to be provided no later than when the offer is issued. This crucial document details the specific terms and conditions of the credit being considered for the borrower, and should enable the borrower to make an effective comparison of the offers available on the market.

But the obligation does not stop at simply providing raw information. Article L. 313-11 of the French Consumer Code requires the lender or intermediary to provide borrowers, free of charge, with "adequate explanations" to enable them to determine whether the proposed contract and any ancillary services (such as insurance) are suited to their needs and financial situation. This requirement also stems from a more general duty of loyalty imposed on professionals in their dealings with customers.

This obligation to explain relates in particular to :

• The information contained in the FISE, ensuring that it is fully understood.
• The main features of the loan: rate (fixed, variable, revisable), term, repayment terms, total cost.
• The specific effects of credit: consequences of non-payment, invocation of guarantees (mortgage, surety).
• Ancillary services: possibility of separate cancellation, implications.

Recent case law confirms the scope of this obligation. The Court of Cassation has reiterated that the mere fact that the borrower signs a preliminary offer mentioning the provision of the FISE is only an indication. The professional must be able to prove by other means that he has actually fulfilled his obligation to provide information and explanations (Cass. Civ. 1re, 7 June 2023, no. 22-15.552). Formality is not an end in itself; it must ensure that the borrower really understands the commitment.

The duty to warn: preventing debt risks

More demanding than mere information or explanation, the duty to warn requires the professional to specifically alert the borrower to the risks that the proposed credit poses to his financial situation. This duty, which has long been shaped by case law, is enshrined in article L. 313-12 of the Consumer Code: "The lender or credit intermediary shall warn the borrower free of charge when, in view of the borrower's financial situation, a credit agreement may entail specific risks for the borrower".

Unlike previous case law, which sometimes distinguished between informed and uninformed borrowers, the law seems to impose this duty more systematically in the case of home loans governed by the Consumer Code. The mere fact that the contract falls within this framework is enough to trigger the obligation.

The warning must be personalised and detailed. It is not simply a general statement. The professional must draw the borrower's attention to the potential dangers associated with the transaction:

• Obvious risk of over-indebtedness in view of income and expenses.
• Inadequacy of the proposed financial package in relation to repayment capacity.
• Specific risks associated with certain types of loans (uncapped variable rate, foreign currency loans, loans in foreign currencies, etc.). in fine).
• Risks associated with negative amortisation (when the first instalments do not even cover the interest, thereby increasing the outstanding capital), as emphasised by the Court of Cassation (Cass. Civ. 1re, 25 May 2022, no. 21-10.635).

The assessment of the borrower's financial capacity, which is the basis of the duty to warn, must be comprehensive and take into account all of the borrower's assets and income, including the value of the property being financed, while deducting the amount of the existing and future debt (Cass. Civ. 1re, 9 November 2022, no. 21-16.846). Failure to comply with this obligation will result in the liability of the lending banker.

It is essential to note that the starting point for the limitation period for a liability action based on a breach of the duty to warn is not the date on which the contract was entered into, but the date on which the sums for which the borrower is unable to make payment fall due (Cass. Com., 25 January 2023, no. 20-12.811). This protects a borrower who only discovers the consequences of a failure to warn when the first repayment difficulties arise.

Rigorous assessment of creditworthiness: responsible lending

Responsible credit is based on a serious prior analysis of the borrower's ability to repay. Article L. 313-16 of the French Consumer Code is very clear: "Credit is granted to the borrower only if the lender has been able to verify that the obligations arising from the credit agreement are likely to be fulfilled in accordance with the terms of the agreement".

This obligation requires the lender (and the intermediary who prepares the application) to carry out a "rigorous assessment of the borrower's creditworthiness". This assessment must be based on sufficient, reliable and verifiable information concerning :

• The borrower's income, savings and assets.
• Its regular expenses, existing debts and other financial commitments.

The lender must take into account the relevant factors for assessing the borrower's ability to meet his or her obligations over the entire term of the loan. This includes a reasonable projection, taking into account, for example, foreseeable events (impending retirement) or the risks inherent in the loan (possible increase in the variable rate).

The lender must warn the borrower of the need to provide accurate and complete information, and of the consequences of refusal (impossibility of assessing creditworthiness and therefore of granting credit). The information gathered and the supporting documents must be kept for the duration of the contract.

If the information provided by the borrower proves to be knowingly inaccurate or falsified, the lender may subsequently call the contract into question. The Court of Cassation has upheld the registration in the FICP (Fichier national des Incidents de remboursement des Crédits aux Particuliers) of borrowers who provided inaccurate information at the time of taking out the loan, resulting in a forfeiture of the term (Cass. Civ. 1re, 25 May 2022, no. 21-14.713).

The obligation to assess creditworthiness is crucial. Any creditor who grants credit without carrying out this assessment, or who does so in a way that is manifestly inadequate, exposes himself to the most severe penalty: the total forfeiture of the right to interest (article L. 341-28 of the French Consumer Code). If the creditor fails to comply with all the assessment rules (for example, by not checking the information sufficiently), the forfeiture may be partial (up to 30% of interest, capped at €30,000, under article L. 341-27 of the same code).

Optional valuation of the property

Introduced by European Directive 2014/17/EU and transposed into Article L. 313-20 of the Consumer Code, the valuation of the property financed is a possible but not compulsory practice in France. Its purpose is to provide additional security for the value of the underlying asset, particularly when the loan is secured by a mortgage.

If the lender decides to use this method, it must comply with certain rules:

• Be carried out by a property valuer with proven professional competence.
• The expert must be independent of the loan decision-making process (whether internal or external to the lending institution) to ensure an impartial and objective assessment.
• The assessment must follow reliable, internationally recognised standards.
• It results in a detailed appraisal document, recorded on a durable medium.

The cost of this assessment, if borne by the borrower, must be included in the calculation of the Annual Percentage Rate (APR), in accordance with article R. 314-4 of the French Consumer Code.

The mortgage advisory service: a regulated service

The reform of home credit has clarified the distinction between the activity of granting credit (or intermediation) and the advisory service. The latter is defined in article L. 313-13 of the Consumer Code as "the provision to the borrower of personalised recommendations concerning one or more credit agreements". This is a distinct and optional activity, which goes beyond the general obligations to provide information and warnings. Providing advice entails greater responsibility on the part of the professional.

The professional (lender or intermediary) must explicitly tell the borrower whether or not they offer this service. If they do, they must specify before any contract is signed:

• Whether or not it is "independent" advice.
• Whether the recommendation will relate solely to its own range of products or to a broader spectrum of the market.
• Whether the borrower has to pay for this service and, if so, how much.

An adviser qualifies as "independent" (Article L. 313-14 of the Consumer Code) if he meets two cumulative conditions:

• The decision is based on an analysis of a sufficiently large number of credit agreements available on the market (at least three according to article R. 313-12 of the same code).
• The borrower pays the lender exclusively for this service (the lender is prohibited from charging commission).

To provide a personalised recommendation, the advisor must gather detailed information about the borrower's personal and financial situation, needs, preferences and objectives. The recommendation must be substantiated and provided in a durable medium.

Failure to comply with the rules governing advisory services (for example, claiming to be independent when you are being paid by a lender) is punishable by a fine of up to 300,000 euros (article L. 341-30 of the French Consumer Code). Providing a recommendation that does not comply with the law is punishable by a fine of 30,000 euros (article L. 341-29 of the same code).

Penalties for breaches of professional obligations

The legislator has introduced an arsenal of sanctions to ensure that the duties of lenders and intermediaries are effective. These penalties may be civil or criminal, depending on the nature and seriousness of the breach.

Civil penalties

The most frequent and most emblematic civil penalty is the forfeiture of interest. Provided for in several articles of the Consumer Code (L. 341-25 to L. 341-28, L. 341-34), it deprives the lender of all or part of the agreed interest.

• Partial forfeiture Forfeiture: This is the "default" penalty for many breaches (failure to provide an adequate explanation, failure to warn, incomplete assessment of creditworthiness). The judge sets the proportion of the forfeiture (up to 30% of interest) up to a ceiling of 30,000 euros.
• Total forfeiture This is reserved for the most serious breaches, such as a total failure to assess creditworthiness (article L. 341-28) or a failure to communicate the FISE (article L. 341-26).

Case law has clarified the rules governing this penalty. In particular, in the event of error or omission of the APR in the offer, the penalty is forfeiture (total or partial depending on the judge's assessment), and not nullity of the interest stipulation (Cass. Civ. 1re, 10 June 2020, no. 18-24.284). The aim is to harmonise penalties and ensure proportionate protection for borrowers.

Once the loan has been cancelled, the borrower is only required to repay the principal in accordance with the repayment schedule. Any sums already paid in respect of forfeited interest must be repaid or deducted from the outstanding capital (article L. 341-47 of the French Consumer Code).

Criminal penalties

Certain breaches are also offences or contraventions.

• Failure to comply with the formalities of the preliminary offer (compulsory information, etc.) is punishable by a fine of 150,000 euros (article L. 341-37 of the French Consumer Code).
• Failure to comply with the obligations to provide general information, explanations or warnings is punishable by a fine of 30,000 euros (articles L. 341-23, L. 341-24, L. 341-31 of the same code).
• Additional penalties may be added, such as a ban on carrying on a professional activity (article L. 341-44 of the same code).

Although these criminal penalties are provided for, they are used less frequently than civil penalties, but they underline the legislator's desire to punish the most serious breaches.

Assessing whether lenders and intermediaries have breached their professional obligations requires a detailed legal analysis of the facts and contractual documents. If you feel that your rights have not been respected when you took out or completed your home loan, a banking lawyer can advise you. A consultation may enable you to identify any breaches and consider the appropriate remedies to obtain redress.

Sources

• Consumer Code, in particular articles L. 313-6 to L. 313-20 (Pre-contractual obligations and assessment), L. 341-19 to L. 341-47 (Penalties).
• Directive 2014/17/EU of 4 February 2014 on credit agreements for consumers relating to immovable property for residential use.
• Order no. 2016-351 of 25 March 2016 on consumer credit agreements relating to immovable property for residential use.