Unfair Contract Terms Directive, Article 1, 1. Unfair Contract Terms Directive, Article 2 Unfair Contract Terms Directive, Article 3, 1. Unfair Contract Terms Directive, Article 5 Unfair Contract Terms Directive, Article 6, 1.

1. Interest and penalty clauses in a credit agreement can be regarded as unfair if it seems that they have not been accepted by the consumer because he was unable to understand them clearly.
2. Interest and penalty clauses that appear in small print on the back of a credit agreement, while on the front it states in very visible print that the agreement is based on an “interest-free credit offer”, can be regarded as unfair.
3. Article L. 311-37 of the Consumer Protection Act (Code de la consommation, CC) prevents the consumer in principle from invoking the fact that a contract term is null and void when the case is brought more than two years after the contract has been definitively concluded.
4. It is necessary to establish whether article L. 311-37 CC is in line with article 6-1 of Directive 93/13 of 5 April 1993, since it refuses to admit any attempt to raise unfair terms in consumer credit agreements. Hence, it is necessary to refer a preliminary question to the ECJ.

With an agreement of 26 January 1998, the Cofidis Corporation granted Mr Fredout a credit arrangement, which could be paid off on a percentage payment basis and came with a credit card. After the borrower had failed to make several payments, Cofidis declared that he had defaulted on the contract and, on 18 November 1998, made a formal demand for payment of the outstanding monies. The borrower subsequently claimed that the credit offer was invalid on the grounds that, on the reverse of the credit agreement, there were financial terms pertaining to the interest rate and late-payment penalties applicable, whereas the front page of the agreement suggested that the offer was for “interest-free credit”.

The Vienne Court of First Instance deferred its ruling and, under article 177 of the EC Treaty, referred the following preliminary question to the ECJ: “Under article L. 311-37 of the Consumer Protection Act (Code de la consommation) it is not permissible for a consumer or a magistrate to raise, ex officio, the unfair nature of a term in a consumer credit agreement if two years have elapsed since the agreement was drawn up. In so doing, it also allows the lender to make use of this term in any legal dispute. Is this article therefore in line with the spirit of EU Directive 93/13 of 5 April 1993 and, in particular, article 6 indent 1 of this Directive?”. The ruling was made for the following reasons:
The court explored the question of whether the consumer had been able to understand clearly the interest and penalty clauses contained in the loan agreement or whether they constituted unfair terms under article L. 132-1 CC.
The court indicated that the credit offer was sent to the borrower’s residence via a mass mailing. Thus, the contract was drawn up without the borrower’s meeting one of the lender’s agents in person, which merely reinforced the need for a clear credit offer.
In this particular case, the offer came in the form of a printed double-sided sheet. On the front page, there was no reference to standard interest charges or to a penalty clause. Rather, it stated simply that the monthly repayments were proportional to the overall level of credit. As such, it was not possible for the consumer to understand the actual cost of the credit arrangement by reading only the front page of the document, where his signature appeared.
On the other hand, the back page detailed a number of financial terms in small print. These were difficult to read, meaning that there was no guarantee that the consumer would take note of them. Moreover, this lack of legibility had to be seen in the context of the explicit and clearly visible mention of “free” on the front page. This might logically lead the consumer to draw the wrong conclusion. As a result, these financial terms could be regarded as unfair.
In principle, a professional cannot use an unfair contract term in a legal dispute because French law always and consistently makes an exception for terms that are null and void. However, in the case of consumer credit, article L. 311-37 CC stipulates that litigation concerning consumer credit agreements is time-bound to two years from the moment at which they came into existence (ie when they were definitively concluded). Once this period has elapsed, an exception based on the contract’s being invalid is not admissible. Pursuant to this article, the court therefore cannot – either at the consumer’s request or even on the basis of an ex officio request – annul an unfair term in a consumer credit agreement when the contract was definitively drawn up more than two years prior to the case being brought.
Nonetheless, article 6-1 of the Directive of 5 April 1993 states that: “Member States shall lay down that unfair terms used in a contract with a consumer by a seller or supplier shall not be binding on the consumer under the provisions in their national law…”. As such, it was necessary to establish whether article L. 311-37 CC was in line with article 6-1 of the Directive (and the spirit of the Directive), since it refuses to admit any attempt to raise unfair terms after the two-year period for foreclosure has elapsed. As a result, the court referred the matter to the ECJ for its opinion.
Cf. the ECJ judgment of 21.11.2002, C-473/00- Cofidis

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