Remarks on the Consumer’s Right to Early Repayment and the Injunctions Applicable to Professional Creditors in Credit Agreements

Abstract

The article focuses on certain essential elements of the consumers’ right to early repayment; as an empowering prerogative based on which the consumer is entitled to full or partial anticipated discharge of the payment obligations under the credit agreements. While the problematic of unfair terms is frequently focused on; in credit scoring literature; early repayment rights have received much less attention; despite a higher rate of litigious situations related to the clauses fixing the amount of the creditors’ compensation. On one hand; the article points out the consumer’s entitlement to a reduction in the total cost of the credit; consisting of the interest and the costs attached to additional services. Prepayment of the loan by the borrower is often the result of an optional refinancing on lower interest rates; as an embedded option cost that results in a lower total cost of the credit. On the other hand; there is substantial heterogeneity in the modalities of establishing the minimum and maximum amount for creditors’ compensation. In the event of early repayment of the credit; the professional/creditor is entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed. The second part of the study deals with the consumer’s right to discharge fully or partially the obligations under a credit agreement; at any time; unconditionally of the number of rates already paid or the total value of the early payments. Third; the article encompasses the problematic of the mandatory legal provisions ceiling the professionals’ right to compensation; which may not exceed 1 % of the amount of credit repaid in advance; if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. According to the mandatory legal provisions; if the contractual period does not exceed one year; the creditor’s compensation for early repayment may not exceed 0;5 % of the amount of credit on anticipated repayment. The fourth part of the observations is allocated to the study of the cases in which the professionals’ compensation for early repayment may not be claimed: (i) if the repayment has been made under an insurance contract intended to provide a credit repayment guarantee; (ii) in the case of overdraft facilities; or (iii) if the repayment falls within a period for which the parties have established a variable borrowing rate. Finally; the legal injunctions which may be enforced upon the professional creditor for the breach of contractual duties such as the duty of transparency are also discussed. Nonetheless; the article argues that the creditor’s right to fair compensation for early repayment does not include a percentage of the costs of ancillary services and that the legal ceiling of the early repayment compensation must be centered on the value of the regular interest rate. Thus; the amount of the early repayment compensation would be connected to the regular interest rate; excluding the annual total cost of the credit/the payments for ancillary services.