Banks cannot charge interest for the costs associated with consumer credit, rules CJEU
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The Court of Justice of the EU has established that contractual interest applies only to amounts actually made available to the consumer, not to the costs associated with the credit, such as insurance premiums.
The Court of Justice of the EU clarified the rules regarding the calculation of interest in consumer credit contracts, in a case from Poland concerning an insurance premium included in the amount on which the bank applied interest. The decision establishes that amounts used for costs associated with credit cannot be treated as part of the credit actually made available to the consumer.
In short 1. The CJEU decided that contractual interest cannot be applied to amounts used to pay costs associated with a consumer credit.
2. The case comes from Poland, where a bank charged interest on a credit insurance premium described as "voluntary."
3. The Court established that "the total amount of credit" and "the total cost of credit for the consumer" are distinct concepts that exclude each other.
4. Interest applies to amounts actually made available to the consumer, not to those allocated by the creditor for the payment of costs related to the credit.
5. The national court must resolve the dispute in accordance with the interpretation given by the CJEU, which is binding for other national courts in similar cases.
Case C-744/24, Bank Polska Kasa Opieki, concerns a consumer credit contract concluded in Poland. Part of the credit amount was used to pay for a credit insurance described as "voluntary."
The bank charged interest not only on the amount made available to the consumer through the credit contract but also on the insurance premium. The consumer requested before a national court, among other things, the reimbursement of the credit without interest or other costs, arguing that the bank applied interest on an amount that included the cost of insurance.
The national court asked the Court of Justice whether this practice is compatible with Directive 2008/48/EC on consumer credit contracts. The Court answered negatively.
The CJEU indicated that the concepts of "total amount of credit" and "total cost of credit for the consumer" are, in the sense of the directive, concepts that exclude each other. Therefore, the total amount of credit cannot include amounts intended to fulfill obligations agreed upon in connection with the credit, such as insurance costs or other types of fees that the consumer must pay.
The Court specified that the interest rate applicable to the credit applies to the drawn amount, which corresponds to the total amount of credit. This includes amounts made available to the consumer but excludes amounts allocated by the creditor for the payment of costs associated with the credit that are not actually paid to the consumer.
Under these conditions, the bank cannot apply contractual interest to amounts used for such costs. The decision does not mean that these costs cannot be borne by borrowers.
The CJEU specified that these costs can be transferred to borrowers through other mechanisms, for example, through a proportionally higher interest rate. This approach must, however, respect the objectives of the directive, including the transparency of the consumer credit market and the provision of adequate information to consumers.
The Court linked this transparency to the ability of consumers to more easily compare credit offers, including through information regarding the annual percentage rate, APR, at the level of the European Union.
The case reached the CJEU through a preliminary reference made by the national court. In this procedure, courts in member states can ask the Court of Justice to interpret Union law or to rule on the validity of an act of the Union.
The Court of Justice does not resolve the national dispute. The national court must decide the case according to the interpretation given by the Court, and the CJEU's ruling is also binding for other national courts facing a similar issue.
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