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Deadlines: Motivation ministry:    13 March 2023
Written observations:                    24 April 2023

Keywords: credit agreements, consumers, residential immovable property


•            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 and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010

•            Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC

Facts of the case:

The dispute between the parties concerns whether the provision on variable interest in a mortgage deed issued by the plaintiffs when they received a loan from the defendant should be declared invalid and whether the defendant was entitled to raise the borrowing rate applying to the amount owed by the plaintiffs under the bond in three interest-rate adjustments during 2021. The mortgage deed, dated 21-01-2021, states that the plaintiffs acknowledge that they have received a loan of ISK 57 610 000 from the defendant for a term of 480 months, with the first repayment date set for 01-03-2021. This was a non-indexed property mortgage loan, to be repaid in equal instalments, with variable interest. In their pleading, the plaintiffs state that in spring 2021 they realised there was something wrong with the terms of the mortgage deed and the manner in which the defendant was implementing the interest-rate adjustments. Consequently, they state that they paid a greater amount of interest on their loan than ought to have been the case. The plaintiffs base their claims in this case on the argument that the creditor is obliged to explain precisely the terms of reference that influence interest-rate adjustments and the method, or formula, applied to determine interest rates on the basis of these terms of reference. They argue that the terms stated in the mortgage deed between the parties do not meet this requirement. More specifically, the plaintiffs point out, firstly, that in the agreement between the parties, the defendant fails to state the terms of reference on which the variable interest applying to the loan is based in the manner stipulated in Article 34 of the Consumer Property Mortgage Act No 118/2016. This provision is based on Article 24 of Directive 2014/17/EU and prescribes that reference rates, i.e. reference interest rates and indices used to determine borrowing rates, must be “verifiable”. In this connection, the plaintiffs point out that Annex II to Directive 2014/17/EU specifies that the information sheet relating to a property mortgage is to explain the “formula” used to revise the borrowing rate and its different components. The plaintiffs argue that it is not possible to set out such a formula if the reference values for interest-rate revisions are unclear, vague, inaccessible and non-verifiable. Neither in the standard information sheet from the defendant nor in the terms of the mortgage deed covering variable interest, was any definition of the formula to be found. The defendant rejects the assertion that the variable interest term in the mortgage deed between the parties is unlawful. It maintains that its provision of information, both prior to the actual granting of credit and in the bond itself, was in all respects in conformity with the Consumer Property Mortgage Act No 118/2016.

Request for an advisory opinion:

Is it compatible with Directive 2014/17/EU (see, in particular, Article 24 thereof) and, as appropriate, with Article 10(2)(f) of Directive 2008/48/EC (cf. recital 19 of Directive 2014/17/EU), that the terms of a consumer property mortgage with variable interest state that adjustments of the borrowing rate will take account of factors including operating costs and other unforeseen costs?

Cited (recent) case-law: Volkswagen Bank GmbH and Others (C-33/20, C-155/20 and C-817/20), (C-125/18), Invitel (C-472/10)

Policy Area: EZK