Notary office in Saint-Jean-Cap-Ferrat - FRANCE

Overview

Prior to the reform, the case law regime of inaccuracy or absence of the APR revolved around two situations, depending on whether they affected the private loan offer or the notarised deed itself. In the first case, the sanction is the forfeiture of the right to interest, in full or in the proportion determined by the court. In the second case, the sanction is the replacement of the contractual rate with the statutory rate.

Government order no. 2019-740 of 17 July 2019 on civil sanctions applicable in the event of the absence or inaccuracy of the annual percentage rate provides for a single civil sanction in the event of the absence or inaccuracy of the APR, i.e. forfeiture of the lender's right to interest "in the proportion determined by the court, particularly in view of the loss to the borrower".

Initially designed to reduce the volume of litigation relating to the APR, the text of the reform contradicts the case law of the CJEU and the Mortgage Credit Directive which, for the establishment of such a sanction, require it to be "effective, proportionate and dissuasive". The concept of "loss" put forward by the order is unknown in EU law. Such a contradiction suggests that disputes are ongoing, so that, on the contrary, the risk of the complete loss of contractual interest sustained by the lender in the event of the absence or inaccuracy of the APR will prevail.

In the end, all loans remain subject to the obligation to indicate an APR, but also to the obligation to present a duration period (for business loans and loans to private individuals) and a rate period (for loans to private individuals).

The text of the reform carrying a "uniform" sanction for the absence or inaccuracy of the APR. – A government order adopted on 17 July 2019 on the annual percentage rate (APR)¹ provides that the absence or inaccuracy in the presentation of the APR may henceforth give rise to only one sanction: forfeiture of the lender's right to interest "in the proportion determined by the court, particularly in view of the loss to the borrower". This text is the result of a report drawn up by Mr E. Constans² which made it possible to draw up article 55 of the Law of 10 August 2018 for a State serving a trustworthy society³ (the so-called "ESSOC" Law) allowing the government to take measures, by Order, relating to APR-related civil sanctions.
The new articles of the Consumer Code on the sanction for the absence or inaccuracy of the APR. - The following articles have been amended as a result of the reform of the government order of 17 July 2019:

• article L. 341-1 (pre-contractual information on consumer credit);
• article L. 341-4 (content of the consumer credit offer);
• articles L. 341-25, L. 341-26 (pre-contractual information on real estate credit);
• article L. 341-34 (content of the real estate credit offer); and
• article L. 341-54 (information on life annuity mortgages).

Then, a first paragraph of Article L. 341-48-1 was introduced and applies to the Consumer Code such that "in the event of the failure to refer to or the inaccurate reference to the annual percentage rate provided for in article L. 314-5, the lender may be deprived of the right to interest in the proportion determined by the court, particularly in view of the loss to the borrower".
In addition, article L. 313-4 of the Monetary and Financial Code is amended accordingly. It now refers to the civil sanction in article L. 341-48-1, referred to above, which makes it possible to apply the new sanction to business loans and "free sector" loans.

Previous French case law relating to the sanction for the absence or inaccuracy of the APR, and "replacement by the statutory rate". - Historically, for real estate loans, when the incorrect APR appears on the loan offer, the sanction is the forfeiture of the right to interest, in full or in the proportion determined by the court⁴. When reference to the inaccurate APR is made on the notarised deed following the offer, the sanction imposed on the basis of article 1907 of the Civil Code, which refers to "the borrower's lack of consent to the overall cost of the loan"⁵, is the invalidity of the clause providing for the contractual rate and its replacement with the statutory rate⁶, without the court having to investigate whether the borrower's consent is in fact vitiated⁷.

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¹ Government order no. 2019-740 of 17 July 2019 on civil sanctions applicable in the event of the absence or inaccuracy of the annual percentage rate, published in the Official Journal [JO - Journal Officiel] of 18 Jul. 2019, text no. 23.
² E. Constans, Annual percentage rate (APR), report, Jul. 2017, published on the website of the Financial Sector Advisory Committee [CCSF - Comité consultatif du secteur financier], attached to the Banque de France, ccsfin.fr/médias/documents.
³ L. No. 2018-727, 10 August 2018, Official Journal [JO - Journal Officiel] of 11 August 2018, text no. 1.
⁴ L. 341-34 Consumer Code (former art. L. 312-33 of the Consumer Code). Civil Division, 1st Chamber, 16 Jan. 2013, no. 05-12.081, D. 2013. 890, note J. Lasserre Capdeville; AJDI 2013. 360; CCC 2013. Comm. 94, obs. G. Raymond. The judgment of the Civil Division, 1st Chamber states: "In so ruling, while the sanction [...] is not the automatic forfeiture of any right to interest, but the power which the law gives to the court to decide the loss of all or part of the right to interest in the proportion it determines, the court of appeal has breached [former article L. 312-33 of the Consumer Code]".
⁵ Com. 12 Jan. 2016, No. 14-15.203, D. 2016. 196, 2305, obs. D. R. Martin, and 2017. 539, obs. H. Aubry; RTD civ. [Quarterly Journal of Civil Law] 2016. 356, obs. H. Barbier; RTD com. [Quarterly Journal of Commercial Law] 2016. 825, obs. D. Legeais; Civil Division, 1st Chamber, 12 Oct. 2016, no. 15-25.034, D. 2016. 2165, obs. V. Avena-Robardet.
⁶ Court of Cassation, Civil Division, 1st Chamber, 18 Feb. 2009, No. 05-16.774: JurisData No. 2009-047131 cited by J. Lasserre Capdeville and M. Correia, Droit du taux d’intérêt [Interest rate law]: JCP E 8 March 2018, no. 10, no. 42. Civil Division, 1st Chamber, 22 Sep. 2016, no. 15-21.524, D. 2017. 539, obs. H. Aubry; RTD com. [Quarterly Journal of Commercial Law] 2016. 825, obs. D. Legeais.
⁷ Civil Division, 1st Chamber, 14 Dec. 2016, no. 15-26.306, D. 2017. 443, note J. Lasserre Capdeville, and 539, obs. H. Aubry.

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