Court of Justice: The sanction of free credit must be proportionate | In Principle

In C-472/23, Lexitor, the Court of Justice of the European Union held that the sanction of “free credit” must reflect the principle of proportionality, and need not be applied simply because of the presence of abusive provisions in the credit agreement having an impact on annual percentage rate.

On 13 February 2025 the Court of Justice issued a judgment pursuant to a request for a preliminary ruling from a Polish court on the possibility to applying the “free credit” sanction, meaning that the borrower must repay only the nominal amount of the credit received from the lender, without any additional costs—in other words, just repaying the principal without interest or fees.

The ruling was issued in the context of a Polish debt-collection agency which had bought out consumers’ claims for damages and then pursued these claims against the bank, under the sanction of free credit, for refund of interest paid and other costs incurred under the loan agreement.

Assignee accuses the bank of violating informational obligations

The case before the Court of Justice arose out of a dispute before the Warsaw District Court between a bank and a company (Lexitor sp. z o.o.) that acquires and enforces claims. The company was the assignee of the rights of a consumer who had concluded an agreement with the bank to take out a loan of PLN 40,000.

In performance of the disputed agreement, the bank charged interest not only on the principal which was actually paid out to the consumer, but also on amounts advanced to cover costs associated with the loan.

The assignee alleged in this respect that:

• If the interest were calculated solely on the amount of the disbursed loan principal, the annual percentage rate of charge (APRC) would actually be lower than the APRC stated in the credit agreement. In this regard, it was pointed out that the provision of the disputed agreement which allowed the lender to receive interest not only on the amount of loan principal actually disbursed, but also on the costs of the credit (which the consumer was required to pay), constituted an unfair term under Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.
• Under Art. 6(1) of Directive 93/13/EEC and Art. 385¹ of the Polish Civil Code, this term is not binding on the consumer and should be disregarded in calculating the APRC. For this reason, the APRC stated in the contract was incorrect (it was too high), as it was calculated assuming that interest would also be charged on the costs of the credit charged to the consumer.

Consequently, the assignee cited Art. 30(1) of the Consumer Credit Act of 12 May 2011, in conjunction with Art. 45 of that act, which provide respectively:

• “Subject to Art. 31–33, a consumer credit agreement must indicate: … the [APRC] and the total amount payable by the consumer set on the date on which the consumer credit agreement is concluded, including all the assumptions used in order to calculate that charge; … information on the other costs which the consumer is required to pay in connection with the consumer credit agreement, in particular charges, including charges for maintaining one or several accounts recording both payment transactions and drawdowns, together with charges for using a means of payment for those transactions and drawdowns, commissions, margins and the costs of ancillary services, in particular insurance, if known to the creditor, and the conditions under which those costs may change.”
• “In the event of failure by the creditor to comply with Arti. 29(1), Art. 30(1)(1)–(8), (10), (11), and (14)–(17), Art. 31–33, Art. 33a and Art. 36a–36c, the consumer shall, after submitting a written declaration to the creditor, repay the credit, without interest and any other credit charges due to the creditor, within the time limit and in the manner laid down in the agreement.”

The Consumer Credit Act was adopted to implement into Polish law Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers. Thus the grounds for issuance of Directive 2008/48/EC are also critical, as they guide the interpretation of the regulations primarily by the EU courts, but are also taken into account by national courts.

Warsaw court seeks interpretation by the Court of Justice

Because it had doubts about the interpretation of EU regulations, the Warsaw District Court sought a preliminary ruling from the Court of Justice on the following questions:

• “Must Article 10(2)(g) of [Directive 2008/48/EC], read in the context of recitals 6, 8 and 31 thereof, be interpreted as meaning that where, because some of the terms of a consumer credit agreement are deemed to be unfair, the [APRC] stated by the creditor on conclusion of the agreement is higher than if it is assumed that the unfair contractual term is not binding, the creditor has failed to fulfil its obligation under that provision?”
• “Must Article 10(2)(k) of [Directive 2008/48/EC], read in the context of recitals 6, 8 and 31 thereof, be interpreted as meaning that it is sufficient to inform the consumer of how often, in what situations, and by what maximum percentage charges related to performance of the agreement may be increased, even if the consumer is unable to verify whether a particular situation arises and the charge[s] may consequently be doubled?”
• “Must Article 23 of [Directive 2008/48/EC], read in the context of recitals 6, 8, 9 and 47 thereof, be interpreted as precluding national law which provides for only one penalty for failure to fulfil the obligation imposed on the creditor to provide information, irrespective of the degree of the failure to do so and the effect thereof on the consumer’s decision to conclude the credit agreement, where that penalty involves making the credit free of interest and charges?”

The answer from the Court of Justice

After hearing the parties, the Court of Justice ultimately held as follows:

• “Article 10(2)(g) of Directive 2008/48/EC … must be interpreted as meaning that the fact that a credit agreement refers to an annual percentage rate of charge, which proves to be overstated because certain terms of that agreement are subsequently found to be unfair, within the meaning of Article 6(1) of Council Directive 93/13/EEC …, and, therefore, are not binding on the consumer, does not constitute, in itself, an infringement of the obligation to provide information laid down in that provision of Directive 2008/48.”
• “Article 10(2)(k) of Directive 2008/48 must be interpreted as meaning that the fact that a credit agreement lists a certain number of circumstances justifying an increase in the costs connected with the performance of the agreement, without, however, a reasonably well-informed and reasonably observant and circumspect consumer being in a position to ascertain whether they have arisen and their effect on those costs, constitutes an infringement of the obligation to provide information laid down in that provision, where that indication is liable to call into question the possibility for that consumer to assess the extent of his or her liability.”
• “Article 23 of Directive 2008/48, read in the light of recital 47 of that directive, must be interpreted as not precluding national legislation which provides, in the event of infringement of the obligation to provide information imposed on the creditor in accordance with Article 10(2) of that directive, for a uniform penalty, consisting of depriving the creditor of its right to interest and charges, irrespective of the individual level of seriousness of such an infringement, where that infringement is capable of calling into question the possibility for the consumer to assess the extent of his or her liability.”

Effects of the ruling—APRC and informational issues for consumer borrowers

In responding to the first question, the Court of Justice correctly observed, and consequently held, that under Art. 19(3) of Directive 2008/48/EC the APRC is calculated under the assumption that the credit agreement will remain in force for the agreed term and that both the lender and the borrower will comply with their obligations in compliance with the conditions and time specified in the agreement.

Another way of looking at this is that the APRC is calculated as of the time the credit agreement is signed. Moreover, in calculating the APRC it is assumed that the agreement will remain in force for the agreed term. It is thus justified to conclude that indicating in the agreement an APRC that later proves to be overstated (because some provisions of the agreement are found to be legally non-binding) does not in itself infringe the informational obligation. Therefore, the sanction of “free credit” referred to in Art. 45 of the Consumer Credit Act cannot be applied in this case.

Undoubtedly this response from the Court of Justice is advantageous for consumer lenders. This is because, even if the agreement includes a non-binding provision impacting the stated APRC, this does not mean per se that the lender has infringed its informational obligations under Directive 2008/48/EC or the Consumer Credit Act.

On the second question, the Court of Justice actually stressed the authority of the national court ruling on allegations of the lender’s infringement of its informational obligations. The court observed that if the credit agreement provides for changes in the costs of performing the agreement based on variable economic indicators (including indicators under the bank’s own control), or vaguely described indicators, then the existence of these circumstances can be hard for the consumer to verify, whether before signing the agreement or over the course of performance. However, the court stressed that it cannot automatically be concluded from the use of such indicators that the lender has infringed its informational obligations under Directive 2008/48/EC or the Consumer Credit Act. Rather, the individual assessment by the referring court is crucial.

Consequently, the referring court must examine to what extent the borrower was in a position to evaluate when, and under what criteria, their obligations to the lender might increase in the future (assuming that the borrower is an average consumer who is reasonably well informed and reasonably observant and circumspect). This assessment will be made individually in each case.

The Court of Justice also pointed out that in this respect, the national court must take into account, among other things, the following aspects of the case:

• What factors were the fees dependent on, and to what extent could they change?
• What events are subject to fees charged by the lender (i.e. whether these are fundamental or ancillary, initiated at the consumer’s own request or arising out of the consumer’s neglect or failure, etc)?

Effects of the ruling—the sanction of free credit and the principle of proportionality

This issue was raised in the final grounds for the judgment, in par. 48–58.

First it was explained that in interpreting Directive 2008/48/EC, and particularly Art. 23, it is vital to consider recital 47 of the preamble to the directive, which provides: “Member States should lay down rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and ensure that they are implemented. While the choice of penalties remains within the discretion of the Member States, the penalties provided for should be effective, proportionate and dissuasive.”

In other words, while the choice of sanctions lies within the discretion of the member states, the sanctions must be not only an effective deterrent (as stressed by the debt collection companies buying up claims against lenders), but also proportionate. In this respect, it is recognised that the severity of the sanction must be appropriate to the seriousness of the infringement and comply with the principle of proportionality (which is also a core principle of the Polish legal system, enshrined in Art. 31(3) of the Constitution). The referring court therefore cannot take an automatic approach in applying the sanction of free credit to each and every infringement of informational obligations under the Consumer Credit Act.

This assessment must always be not only individual (i.e. made on the grounds of the specific case and the specific infringement), but also conducted applying the principle of the proportionality and adequacy of the sanction. The guidance from the Court of Justice that the referring court should verify whether the infringement of these duties impacted the consumer’s assessment of the scope of their obligations under the credit agreement is useful in this respect. Moreover, in par. 58 of the ruling, the Court of Justice expressly indicated that only an infringement capable of calling into question the possibility for the consumer to assess the extent of his or her liability entitles the member state to apply the sanction of “free credit.”

In other words, if the infringement of informational obligations did not impact the consumer’s decision to enter into the agreement, the sanction of free credit cannot be applied, because it would violate the principle of proportionality.

Therefore, a minor infringement of informational obligations cannot lead to application of the sanction of free credit by the referring court.

Summary

The ruling by the Court of Justice in C-472/23, Lexitor, is extremely important for the consumer credit market. On one hand, it seems to reassure banks and other lenders that not every infringement of informational obligations involving the annual percentage rate of charge will result in the sanction of free credit. On the other hand, it gives each consumer whose rights in this respect were violated the ability to pursue an individual challenge and determine in the specific court case whether the infringement of these duties impacted the consumer’s decision to take on a credit obligation or not. It essentially opens up a full range of potential resolutions, depending on the nature of the infringement and the specific contractual provisions used by the lender, and requires all market participants to take this risk into account.

Mateusz Kosiorowski, adwokat, Dr Maciej Kiełbowski, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners