Account of the case
On 20 March 2015, the customer took out two mortgages from the bank, both of which included a clause that the reference interest rate is always at least 0%. As a result, the customer has paid interest equal to the margin on the loans when the reference interest rate has been negative. In a complaint made to the bank on 7 September 2022, the customer demanded that the bank recalculate the interest on both loans from the beginning, apply the negative Euribor, and refund the amounts that were unduly charged.
The customer’s complaint
The customer has two home loans that have interest rate floor which means that if the reference rate is 0 % or below, the interest on the loan is not going down anymore. The customer considers that interest rate floors in the contracts are illegal. There are recent judgements of the European Court of Justice saying that such interest rate floors are abusive because it protects only the bank, while there is no "upper interest rate floor" to protect borrower. The customer is referring mostly to judgement in cases C-154/15 and C-307/15. Such illegal/abusive clauses are not binding.
The Finnish law regarding interest rate floor is against the rules of EU law (directive 93/13/EEC on unfair terms in consumer contracts) and the EU law takes precedence over national law. Directive 93/13/EEC prohibits abusive clauses towards consumers. The interest rate floor clause in the customer’s loan contract is abusive in this respect that it shifts the entire risk of Euribor fluctuation on consumer: if it goes up the bank is beneficiary, but when it goes down below zero, the bank is beneficiary again, because it does not affect bank.
Even if Finnish legislation specifically allowed this practice, it is apparent that this is made only towards home loan consumers but not the others. The interest rate floors are allowed for housing loans, while it is banned for other loans. The consumers are treated differently because of the type of loan they are taking. The explanation given is that the stability of banking system must be maintained. It is not consumers’ job to take care of the stability of banking system but rather banks’ themselves, eventually supported by authorities. If the national law does not implement EU directive at all or implements it incorrectly, then EU law may be applied directly as if that would be not a directive but regulation.
The customer requests the bank to recalculate both loans from scratch and apply negative Euribor when it was negative and repay all undue amounts charged.
The bank’s reply
The bank has stated that when establishing a customer relationship, and as the customer relationship has continued, the bank has collected only interest that has been individualized and agreed in the loan agreement in accordance with the Consumer Protection Act. The Bank has also told the customer which interest rate applies to the credit relationship, the grounds for determining interest and other terms and conditions that apply to the interest rate.
In accordance with chapter 7a, section 31, subsection 2 of the Consumer Protection Act, you can add a clause to a home loan agreement stating that the interest the consumer is to pay for the credit will not change if the reference interest rate is smaller than zero. The referenced section entered into force on 26 April 2019. The government proposal on an act amending the Consumer Protection Act clarifies the preceding legal state. The task of a working group appointed by the Ministry of Justice in January 2015 was to prepare a government proposal on terms and conditions for interest on loans. The conclusion of the assessment concerning the terms and conditions for interest was that the adverse impacts on the home mortgage markets would ultimately be greater than the benefits gained by individual customers. Based on this, a provision was added to the Consumer Protection Act stating that you could agree a home loan agreement that the interest the consumer paid for the credit would not change if the reference interest rate was smaller than zero.
Before the provision in question entered into force, no legal excuses prevented creditors and borrowers agreeing to include such a clause in the home loan agreement.
The loan agreement signed by the customer states "I hereby acknowledge that I have received a Standard European Consumer Credit Information form or a report equivalent to it containing advance information", and "I have received from the bank a copy of this promissory note and the Loan Terms and Conditions, which together constitute a loan agreement, and have read and agree to them".
The general contract terms and conditions states in clause 3.2: "When calculating the loan interest, the reference interest rate is always at least 0". The clause has been written in plain and intelligible language as is required of the creditor under the European Court of Justice's judgement to which the customer referred. The gist of the judgements to which the customer referred is that the consumer lacked sufficient information about the agreement terms and conditions and the consequences of concluding it before signing the contract. In similar cases, the Court has taken a stand according to which terms found unfair were never in force, due to which they cannot have an effect on the consumer.
In addition to the above and before chapter 7a, section 31, subsection 2 of the Consumer Protection Act entered into force, the Banking Complaints Board declared, in two of its decisions (PKL 9/16 and PKL 43/16), that there were no legal excuses preventing the parties agreeing on a procedure in which the interest rate was always at least 0.
The bank has had the right to add a clause to the loan agreement according to which the interest rate would always be at least 0.00 % when it granted the home loan to the customer. The clause is not against the settlement procedure of the European Court of Justice. The clause applicable to the customer's loan agreement is also plain and intelligible. The customer had an opportunity to read the clause, and in the loan agreement, they declared they had read and agreed to the general terms and conditions of the loan agreement.
Referring to what is presented above, the bank considers that it has no obligation to recalculate the interest paid by the customer or acknowledge the negative reference interest rate's impact and reimburse the difference for this part as demanded by the customer.
Reports
The customer has signed two promissory notes for consumers on 20 March 2015, one for 216,750.00 euros and one for 14,706.00 euros. By signing the document, the customer has promised that they have received from the bank a copy of this promissory note and the Loan Terms and Conditions, which together constitute a loan agreement, and have read and agree to them. The customer has also confirmed that the bank has offered them an opportunity to familiarize themselves with the documentation and they hereby declare that they have used this opportunity to the extent they considered necessary.
Resolution recommendation
Formulation of the question
In order to resolve the dispute between the customer and the bank, the Banking Complaints Board must assess whether the clause used by the bank in the mortgage granted to the customer, which stipulates that the reference interest rate is always at least 0 %, is illegal or unreasonable.
The applicable norms of law and terms and conditions
Changes in interest and payments
According to Consumer Protection Act (38/1978) chapter 7 section 24 subsection 1 (746/2010) that was in effect when the agreement was made:
”Kuluttajaluottosopimuksen ehdoissa voidaan sopia, että luotosta maksettava korko muuttuu sopimuksessa yksilöidyn viitekoron muutosten mukaisesti. Sovellettavan viitekoron on oltava julkisesti saatavilla ja perustuttava luotonantajan yksipuolisesta määräysvallasta riippumattomiin tekijöihin. Koron muutokset on toteutettava tasapuolisesti ja kuluttajia syrjimättömällä tavalla.”
Translation in English:
”The terms of a consumer credit agreement may stipulate that the interest payable on the credit changes in accordance with changes in the reference interest rate specified in the agreement. The reference rate applied shall be publicly available and based on factors independent of any unilateral control of the creditor. Any changes in the interest rate shall be carried out equally and in a manner that is non-discriminatory to consumers.”
Unfair terms
According to Council Directive 93/13/EEC on unfair terms in consumer contracts article 6:
“1. Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.
2. Member States shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-Member country as the law applicable to the contract if the latter has a close connection with the territory of the Member States.“
According to Consumer Protection Act (38/1978) chapter 4 section 1 (1072/2000) that was in effect when the agreement was made:
“Jos tässä laissa tarkoitetun sopimuksen ehto on kuluttajan kannalta kohtuuton tai sen soveltaminen johtaisi kohtuuttomuuteen, ehtoa voidaan sovitella tai jättää se huomioon ottamatta. Sopimuksen ehtona pidetään myös vastikkeen määrää koskevaa sitoumusta. Kohtuuttomuutta arvioitaessa otetaan huomioon sopimuksen koko sisältö, osapuolten asema, sopimusta tehtäessä vallinneet olot ja, jollei 2 §:stä muuta johdu, olojen muuttuminen sekä muut seikat.
Jos 1 momentissa tarkoitettu ehto on sellainen, että sopimuksen jääminen voimaan muilta osin muuttumattomana ei ole ehdon sovittelun vuoksi kohtuullista, sopimusta voidaan, jollei 2 §:stä muuta johdu, sovitella muiltakin osin tai se voidaan määrätä raukeamaan.”
Translation in English:
”If a term in a contract referred to in this Act is unreasonable from the point of view of the consumer or if an unreasonable result would ensue from its application, the term may be adjusted or it may be disregarded. Also a commitment as to consideration shall be deemed a contract term. In the assessment of unreasonableness, due note shall be taken of the contract as a 8 whole, of the positions of the parties, of the circumstances under which the contract was concluded and, unless otherwise follows from section 2, of the changes in circumstances, as well as of other relevant points.
If a contract term referred to in paragraph (1) is of such nature that it cannot reasonably be required that the rest of the contract remain in force unaltered after the adjustment of the term, the contract may, unless otherwise provided in section 2, be adjusted also in other respects or be ordered to lapse.”
According to the same chapter section 2:
“Jos 1 §:ssä tarkoitettu sopimusehto on laadittu etukäteen ilman, että kuluttaja on voinut vaikuttaa sen sisältöön, on 1 §:ää sovellettaessa noudatettava tässä pykälässä säädettyjä rajoituksia.
Jos ehto sopimusta tehtäessä vallinneissa olosuhteissa on ollut kohtuuton, ei ehdon kohtuuttomuutta myöhemmin arvioitaessa saa kuluttajan vahingoksi ottaa huomioon olosuhteiden muuttumista.
Jos ehdon sovittelu tai sen jättäminen huomioon ottamatta koskee sellaista ehtoa, joka hyvän tavan vastaisesti johtaa osapuolten oikeuksien ja velvollisuuksien huomattavaan epätasapainoon kuluttajan vahingoksi, sopimusta ei voida sovitella muilta osin. Tällöin sopimus jää voimaan muilta osin muuttumattomana, jos se sellaisenaan voi pysyä voimassa.”
Translation in English:
”If a contract term referred to in section 1 has been drafted in advance without the consumer having been able to influence its contents, section 1 shall be applied in compliance with the restrictions provided in this section.
If a term has been unreasonable under the circumstances at the conclusion of the contract, a change of circumstances shall not be taken note of, to the detriment of the consumer, in any later assessment of the unreasonableness of the term.
If the adjustment or disregard of a term relates to a contract term which, contrary to good practice, will lead to a significant imbalance in the rights and obligations of the parties to the detriment of the consumer, the other terms of the contract shall not be adjusted. In this case, the contract shall, in other respects, remain in force unchanged if it can be retained in force as such.”
Terms and conditions of the agreement
According to Loan Interest Rate clause in the promissory note:
“A change in the reference interest rate alters the loan interest rate in accordance with clause 3.2 of the Loan Terms and Conditions.”
According to clause 3.2 of the Loan Terms and Conditions titled “Effect of a change in the reference interest rate on loan interest”:
“When calculating the loan interest, the reference interest rate is always at least 0.”
Evaluation of the case
On 20 March 2015, the customer entered into two mortgage agreements with the bank. The promissory notes refer to clause 3.2 of the loan terms regarding changes in the loan interest rate, which states: “When calculating the loan interest, the reference interest rate is always at least 0.” As a result, the customer has paid interest at least equal to the margin, even though the reference interest rate has been negative for part of the time. The customer considers such an interest floor to be illegal and unreasonable. The customer requests the bank to recalculate both loans and apply negative Euribor when it was negative, and repay all undue amounts charged.
The consumer credit legislation was reformed in 2017 after the customer took out the loans. According to the new chapter 7a, section 31, subsection 2 (851/2016) of the Consumer Protection Act, notwithstanding chapter 7, section 24, subsections 1 and 2, a mortgage agreement may stipulate that the interest payable by the consumer does not change if the reference interest rate is less than zero. This new provision does not apply to the customer’s loans, which must be assessed according to the Consumer Protection Act (746/2010) in force at the time the agreement was made. The applicable law for the customer’s loans did not mention an interest floor.
In the government proposal (HE 77/2016 vp.) concerning the amendment of the Consumer Protection Act, it is stated that the provisions regarding changes in interest rates are proposed to be clarified to explicitly indicate that the interest on the credit can only change in accordance with changes in the reference interest rate during the credit relationship. However, it is considered justified that in mortgage loans, the lender may charge the consumer the loan margin even when the reference interest rate is negative, provided this has been agreed upon in the credit agreement (Section 5.3 Muut ehdotukset, p. 36). Additionally, the government proposal states the following on the matter (Section 7 Asian valmistelu, p. 42, unofficial translation):
“Among the individual issues, the most attention was given to the provisions concerning changes in interest rates during the credit relationship, and particularly to the fact that, according to the rationale of the report, the lender could not always secure the right to receive the loan margin with a contractual clause in the case of a negative reference interest rate. […] The proposed interpretation could, in turn, lead to an increase in mortgage margins and weaken the position of small banks that rely on deposits for refinancing, thereby reducing competition in the mortgage market. Although the proposed interpretation would have benefits for consumers, it has been assessed that the ultimately harmful effects on the functioning of the mortgage market would outweigh the individual benefits to consumers. Therefore, the proposal has been amended in further preparation to include an explicit provision in Chapter 7a of the first bill that a mortgage agreement may stipulate that the interest payable by the consumer does not change if the reference interest rate is less than zero.”
Although there was no mention of a zero-interest floor in the Consumer Protection Act at the time the agreement was made, the Banking Complaints Board considers that the legislator’s intention in the 2017 reform of the Consumer Protection Act was not to create a new rule for zero-interest floors in housing loans, but to clarify the prevailing situation. The Banking Complaints Board considers that although there was no mention of a zero-interest floor for housing loans before the 2017 reform, the legislation did not explicitly prohibit it either.
In addition, it must be assessed whether the clause regarding the zero-interest floor in the customer’s housing loans is unreasonable or has led to an unreasonable outcome.
In loans taken out after the 2017 reform, there is a legally permitted clause stating that the interest payable by the consumer on a housing loan does not change if the reference interest rate is below zero. The Banking Complaints Board considers that since the national legislator has deemed such a contractual clause permissible, it cannot, in principle, be considered an unreasonable clause after the legislative change. The Board also considers that the matter should not be assessed differently even before the legislative change.
The customer has claimed in their complaint that the Court of Justice of the European Union has ruled that the clause regarding the minimum interest rate is prohibited. The customer is referring to the judgement in cases C-154/15 and C-307/15. The judgements referred to by the customer concern whether it was permissible to limit the temporal application of an unfair clause. In these cases, the highest court in Spain (Tribunal Supremo) had limited the consumers’ ability to claim compensation for an unfair contractual clause. In its judgement, the Tribunal Supremo had found that the minimum interest rate clauses in consumer loans were legal, but that sufficient information had not been provided to the borrowers. The Banking Complaints Board considers that the Court of Justice of the European Union has not prohibited a clause regarding minimum interest rate. For clarity, the Banking Complaints Board notes that in the present case, the customer has not claimed that they were not provided with sufficient information about the minimum interest rate clause or that it was unclear.
The Banking Complaints Board therefore considers that the clause in the customer’s housing loans, which states that the reference interest rate of the loan is at least zero, is not unreasonable and has not led to an unreasonable outcome.
Final outcome
The Banking Complaints Board considers that the clause in the customer’s housing loan agreements, which states that when calculating the loan interest, the reference interest rate is always at least 0, has not been illegal or unreasonable, and has not led to an unreasonable outcome.
The Banking Complaints Board does not recommend that the bank recalculates the interest charged on the loan or compensates the customer.
The Banking Complaints Board’s decision was unanimous.
BANKING COMPLAINTS BOARD
Chairman Sillanpää
Secretary Heino
Members
Atrila
Laine
Punakivi
Tervonen