Thinking of taking out a loan? The legal status of your loan determines your rights. The consumer credit regime offers essential guarantees, but does not apply to all borrowers or to all loan transactions. For an in-depth understanding, discover the legal definitions and the evolution of this legal framework.
Criteria for applying the consumer credit regime
The personal criterion: the notion of consumer
The definition of a borrower is set out in article L.311-1, 2° of the French Consumer Code: "any natural person who has a relationship with a lender, in the context of a credit transaction carried out or planned for a purpose unrelated to their commercial or professional activity". In addition to this definition, it is essential to know the strict rules for the formation of consumer credit agreements to guarantee borrower protection.
Two key elements stand out:
- Only natural persons can qualify as consumers
- Credit must be taken out for non-business purposes
Case law has clarified this concept. The Court of Cassation ruled on 17 July 1996 that the status of employee could presume the status of consumer (Cass. 1re civ., 17 July 1996).
Non-business borrower status
Credit must be taken out for personal needs. A doctor buying medical equipment does not benefit from this protection. On the other hand, the same doctor buying a television for his home will be protected.
This is assessed on a case-by-case basis. Some courts have agreed to classify certain loans taken out by professionals as consumer credit when the borrower was acting outside his or her area of responsibility. For example, a lawyer taking out a loan to finance personal work (CA Versailles, 19 June 1995).
Legal entities
Legal entities are excluded from this protection. Neither associations, companies nor co-ownerships can benefit from this protection.
Case law has long been divided on this point. The Court of Paris was favourable to a political party (CA Paris, 1re ch B, 5 July 1991). But now, article L.311-1, 2° of the Consumer Code is clear: only natural persons can be considered as consumers.
Operations excluded from the scope of application
Certain types of credit are not covered by the consumer credit regime, even when taken out by private individuals. This is particularly true of earmarked loans, the classification of which is affected by the direct link between the purchase and its financing.
Home loans
Transactions for the purchase of property are subject to a separate regime. Article L.312-4, 1° of the French Consumer Code excludes :
- Loans to purchase land or buildings
- Loans secured by mortgage or comparable collateral
- Loans to finance building work secured by a real estate guarantee
These transactions are covered by the property loan regime, which is better suited to the amounts involved.
Very small or very large loans
Article L.312-4, 3° of the French Consumer Code excludes :
- Loans under €200
- Loans over €75,000
There is one notable exception: credit consolidation transactions may exceed this ceiling while remaining subject to the consumer credit regime.
Short-term overdrafts
Overdraft authorisations repayable within one month are excluded (art. L.312-4, 4°). These routine banking transactions do not justify the formalities imposed on consumer credit. However, they do not justify the formalities imposed on consumer credit, certain bank overdrafts can fall under this protective regime under specific conditions.
Free mini-credits
Credit transactions not exceeding three months which do not carry any interest or charges (or only negligible charges) are also excluded (art. L.312-4, 5°).
This is typically the case with the "pay in 3 instalments with no charges" offers from retailers.
Specific situations
Dual-purpose loans
How do you classify credit that is used for both personal and business purposes? For example, the purchase of a car used for both leisure and business purposes?
Following a ruling by the Cour de cassation on 22 November 2007, the contract must expressly stipulate that the loan is to be used for professional purposes. Without this stipulation, the credit falls under the protective consumer regime (Cass. 1re civ., 22 Nov. 2007).
This clear rule protects borrowers against subsequent reclassifications.
Spouses who are joint borrowers
When spouses take out credit together, the situation can become complicated.
If the credit finances the professional activity of only one spouse, the professional nature of the credit generally prevails. The co-borrower spouse cannot therefore claim to be a consumer (Cass. 1re civ., 8 July 1997).
A recent judgment confirms this position: "The fact that a co-borrower is not involved in the activity for which the loan was granted has no effect on the professional classification of a loan" (Cass. 1re civ., 20 May 2020, no. 19-13.461).
This solution may seem harsh, but it prevents circumvention of the law.
Cross-border credit
Loans concluded with foreign financial institutions raise questions of private international law.
European regulation no. 593/2008 of 17 June 2008 (Rome I) stipulates that the applicable law is that of the country in which the consumer has his or her habitual residence.
Even if the contract provides for the application of a foreign law, consumers resident in France cannot be deprived of the protection of French law.
Voluntary extension of the protection regime
Sometimes lenders voluntarily agree to apply the consumer credit regime to transactions that would normally be excluded.
The Court of Cassation has validated this practice: "Although loans intended, in particular, to finance the needs of a professional activity are excluded from the scope of the law of 10 January 1978, nothing prevents the parties from voluntarily subjecting the credit transactions they conclude to the rules laid down by the said law" (Cass. 1re civ., 6 July 1988).
Warning: this contractual extension must be complete. The lender cannot choose certain provisions and exclude others (Cass. 1re civ., 9 Dec. 1997).
This voluntary submission provides the lender with a secure legal framework and the borrower with additional guarantees.
How a credit agreement is classified determines the level of protection you enjoy. A mistake can deprive you of essential rights such as the cooling-off period or the right to dispute. The range of situations is vast and the nuances numerous. A precise legal analysis is often required.
For a personalised analysis of your eligibility for consumer credit protection and to check your specific rights, please contact contact our firm of specialist lawyers. Some advice before you sign could save you a lot of trouble in the future.
Sources
- Consumer Code, articles L.311-1, L.312-1 to L.312-4
- Cass. 1st civ. 17 July 1996, Contrats, conc. consom. 1996, comm. 158
- CA Versailles, 19 June 1995, JCP G 1996, pan. 147
- CA Paris, 1re ch. B, 5 July 1991, Contrats, conc. consom. 1992, comm. 16
- Cass. 1st civ. 22 November 2007, JurisData no. 2007-041500
- Cass. 1st civ. 8 July 1997, D. affaires 1997, p. 1319
- Cass. 1st civ., 20 May 2020, n° 19-13.461, JurisData n° 2020-006856
- Cass. 1st civ. 6 July 1988, Bull. civ. I, no. 229
- Cass. 1st civ. 9 December 1997, Bull. civ. I, no. 364
- European Regulation no. 593/2008 of 17 June 2008 (Rome I)
- Raymond G., "Droit de la consommation", LexisNexis, coll. Droit & professionnels, 4th ed. 2017
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