There are already around 10,000 cases before the Polish courts in which borrowers claim that banks have violated the Consumer Credit Act. As a result of these lawsuits, the sanction of free credit could be applied. This is a completely new challenge for the entire sector. So let us take a look at what this sanction is and what it means for banks.
What is the sanction of free credit and when can it be applied?
The free credit sanction is regulated in Article 45 of the Consumer Credit Act.
If a bank fails to comply with its obligations under this law, the consumer may, upon written statement, repay to the lender the amount of the debt without interest or other costs, within the time and in the manner specified in the agreement.
The way to free credit opens if:
- The amount of the credit does not exceed PLN 255,550
- The consumer makes the relevant statement within one year of concluding the agreement
Even minor, unintentional breaches of the content or form of the agreement can give rise to claims by the borrower, although they often do not affect the borrower’s interests or the functioning of the agreement.
The sanction of free credit – what do the courts think?
A review of the case law in this area shows that the sanction should cover only those aspects that are relevant to the consumer when assessing the extent of the liability assumed.
Such consumer claims also expose banks to reputational damage, so it is important to ensure that banks are supported both at the pre-litigation stage, in settlement negotiations and in ongoing litigation.
There have also been cases of instrumental exploitation of the legitimate idea of consumer protection by some compensation law firms, which seek to exploit the sanction of free credit, even in the case of loans that have already been repaid. And this can lead to many pathologies.
Courts have drawn attention to the legal defects of assignment agreements concluded between debtors and debt purchase companies. These agreements often do not specify the conditions and the price of the assignment, leaving the buyer with complete discretion, which may mean that these provisions are illegal or even that the assignment agreement is invalid.
It is also important to analyse these agreements in terms of the ‘subject matter’ of the assigned claim and the correctness of the statement made to exercise the sanction of free credit. A sound assessment of the circumstances of a particular case is crucial to a positive outcome.
Sanction of free credit – questions to the CJEU
Polish courts have submitted requests for a preliminary ruling to the CJEU asking, inter alia, whether a national court should assess the fairness of an assignment agreement and its compliance with consumer rights.
The CJEU’s recent ruling that the breach of two obligations of fundamental importance may have different consequences for the consumer and the sanctions applied, which are not necessarily identical, should be proportionate and take into account both the individual gravity of the breach and the different consequences for the consumer, is significant.
An analysis of the CJEU’s response to questions referred for a preliminary ruling will be important for banks in their litigation strategy, which we can effectively help them to develop and implement.
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