In BNP Paribas Personal Finance SA v VE, the Tribunal d’Instance de Paris made a request to the European Court of Justice for a preliminary ruling in relation to the application of Articles 3 and 4 of Council Directive 93/13/EEC (5 April 1993) on unfair terms in consumer contracts.
The main proceedings concern the alleged unfairness of the terms of a mortgage loan agreement entered into by the parties, which provided for a loan repayable, in principle, in 276 fixed instalments, which was denominated in Swiss francs and repayable in euros.
The loan agreement contained several terms forming part of a currency conversion mechanism, which had the effect of incorporating the foreign exchange risk into the monthly instalments paid by the consumer, including:
- payments at fixed intervals to be allocated to interest first;
- the accounts to be operated in Swiss francs (the account currency) and in euros (the payment currency); and
- a provision allowing the loan agreement to be extended by 5 years and the sum of monthly instalments increased in order to pay the account balance.
VE (the consumer) received a considerable amount of information before entering into the loan agreement, which emphasised, in particular, the stable nature of the euro – Swiss franc exchange rate. However, the foreign exchange risk resulting from the combined application of the above terms at issue in the main proceedings was not mentioned anywhere in the loan agreement.
As such, VE considers that they were misled by BNP Paribas Personal Finance (BNPP) regarding the nature of the loan agreement, since the agreement exposed them to an uncapped foreign exchange risk, and these terms are unfair.
BNPP said that VE was informed of the variation in the foreign exchange rate and of its consequences on the repayment of the loan.
In essence, the referring court asked the ECJ :
- whether the terms in the agreement that provided for the payments to go towards interest and for the period to be extended fell within the Unfair Contract Terms Directive in the first place; and
- if they did, whether the terms were fairly described.
The ECJ ruled that indeed, the terms did fall within the provisions of the Directive, given that those terms laid down an essential element characterising the loan agreement.
The terms needed to have been communicated with sufficient transparency to enable the average consumer, who is reasonably well informed and observant, to understand the specific functioning of the financial mechanism in question and to be able to evaluate the risk of potentially significant adverse economic consequences of such terms throughout the term of the agreement.
The ECJ went on to conclude that the nature of the terms in question created a significant imbalance in the parties’ rights and obligations under that agreement, such that VE was subject to a disproportionate foreign exchange risk that they were far less likely to understand than the lender was.
Furthermore, regardless of how much information BNPP may have provided VE, all of the information put forward assumed the exchange rate would remain stable, and so there was nothing to explain to the customer the wholly foreseeable risk that it would not.
The ECJ concluded that despite BNPP providing the customer with a lot of pre-contractual information about the loan, it did not provide enough information dealing with the risks associated with significant decreases in exchange rates when that was an obvious risk in light of the fact that the loan agreement was denominated in a foreign currency but paid in the local currency.