CJEU - NO TO INTEREST ON CONSUMER CREDIT EXPENSES - WHAT IT MEANS - Filenews 23/4
The Court of Justice of the European Union (CJEU) has issued an important ruling on consumer rights in the field of consumer credit, ruling that banks cannot impose interest on amounts that are not actually paid to the borrower, but are intended to cover credit-related expenses.
The case started in Poland, where a consumer had signed a consumer credit agreement with a bank. Part of the loan was used to pay for optional credit insurance, with the bank charging interest not only on the loan amount, but also on insurance premiums. The borrower appealed to the courts seeking a declaration that he does not owe interest on the amounts that did not constitute actual financing to him.
The CJEU underlined that the "total amount of the credit" and the "total cost of the credit" are strictly distinct concepts and that interest can only be applied to the actual amount received by the consumer. Interest may not be charged on amounts relating to expenses such as insurance or other charges that are not paid directly to the consumer.
However, the Court of Justice recognised that such costs can be passed on to the consumer through a higher interest rate, provided that the rules of transparency are respected.
This decision is expected to influence banking practices across the EU, enhancing consumer protection and ensuring transparency in the calculation of interest on consumer credit agreements.
CNA
