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Deadlines: Motivation ministry:   14 December 2022
Written observations:                   17 January 2023

Keywords: unfair terms, consumer contracts, interest rates, credit agreements


•            Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

•            Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property

•            Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers

Facts of the case:

On 4 July 2019, the plaintiffs signed a mortgage deed form prepared by the defendant covering a loan they took from the defendant. The heading of the form stated that this was a non-indexed bridge loan with variable interest. The principal of the loan was ISK 6 500 000, the loan period was 15 years, and the loan was to be repaid in monthly instalments. The first repayment date was 1 August 2019, and interest was to be paid as from the disbursement date of the loan, which was not stated in the mortgage deed; however, a copy of the payment slip for the first repayment date shows that the principal bore interest as from 22 July 2019; thus, it can be deduced that it was on that date that the loan was disbursed. It was stated in the mortgage deed that variable mortgage interest was to apply; this was recorded at 6.60% when the mortgage bond was drawn, and it has been demonstrated that the interest rate applying on the first repayment date was 6.4%. The mortgage deed contained special provisions covering the defendant’s authorisation to adjust the interest rate. The plaintiffs consider there are cogent reasons for obtaining an advisory opinion from the EFTA Court regarding the interpretation of legal rules which concern variable interest rates and which stem from the EEA Agreement and, in particular, from Directive 93/13/EEC on unfair terms in consumer contracts, Directive 2008/48/EC on credit agreements for consumers and Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property. The heart of the dispute between the parties concerns, in particular, the interpretation and application of Article 34 of the Consumer Property Mortgage Act No 118/2016. The plaintiffs conclude that the creditor is only permitted to use reference rates that are clear, accessible, objective, and verifiable. They argue that it is not sufficient for the creditor to have provisions in its terms, as it has in the present case, where reference is made to the Central Bank of Iceland’s interest rate, interest rates on the market and the terms of financing available to the creditor. The defendant, on the other hand, takes the view that its terms are in conformity with the second sentence of Article 34(1) of the Act. When it comes to the substantive resolution of this case, it is clear that this will involve the interpretation of the provisions set out in the first and second sentences of Article 34(1) of Act No 118/2016; these derive from two European directives, as has been described above. One of the considerations with a bearing on the case is the interplay between these directives and how their provisions are to be interpreted in the light of the circumstances of the present case.

Request for an advisory opinion:

Is it compatible with Directive 2014/17/EU, in particular, Article 24 of the Directive, and, as appropriate, Article 10(2)(f) of Directive 2008/48/EC (cf. recital 19 of the Preamble to Directive 2014/17/EU), that the terms of a consumer property mortgage, in which the interest rate is variable, state that adjustments of the interest rate are to take account of, amongst other things, the Central Bank of Iceland’s interest rate, interest rates on the market and other terms of finance available to the creditor?

Cited (recent) case-law: Volkswagen Bank (C-33/20, C-155/20 and C-187/20), (C-125/18), Banca B. (C-269/19), Dexia Nederland (C-229/19), (C- 26/13)

Policy Area: EZK