Entering into a credit agreement when a consumer is already in default on the initial credit agreement
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Besides traditional consumer credit agreements, there are more specific agreements, including credit agreements that provide for payment terms in which the terms and conditions of repayment are covered by an agreement between the lender and a consumer when the latter is already in default on an initial agreement, and:
- such an agreement would avert legal proceedings for default of payment;
- the consumer is thus not subject to provisions less favourable than those in the initial agreement.
Who is concerned
Professional lenders as well as consumers who are taking on or have taken on consumer credit.
Prerequisites
The lender or credit intermediary is subject to an obligation to provide pre-contractual information.
Thus, before entering into a contract, the lender or credit intermediary must provide the consumer with the information necessary to compare the various offers and make an informed decision as to whether to enter into a credit agreement. Such information should relate to the clauses and credit conditions being offered, based on the preferences expressed and the information provided by the consumer.
The information must be provided either on paper or on another durable medium, such as email, using a specific form (the 'Standard European Consumer Credit Information Form'), and include, in particular:
- the type of credit;
- the total amount of credit;
- the duration of the credit agreement;
- the interest rate;
- if applicable, the length of time for which the lender is bound by the pre-contractual information, etc.
See the full list of information (French, Pdf, 150 Kb) to be provided to the consumer by the lender or credit intermediary.
In the case of communication by telephone, and if the consumer asks for the overdraft facility to be immediately available, the following information must be provided to the consumer:
- the total amount of credit;
- the lending rate, as well as all of its components;
- the effective annual percentage rate, illustrated through examples;
- the terms and conditions for termination of the credit agreement;
At the consumer's request, the consumer must also receive, at no cost, a copy of the draft credit agreement containing the information that must be included in all credit agreements, to the extent that the type of agreement entered into is subject to the obligation to include such information in the credit agreement. If at the time of the request, the lender knows that it does not intend to enter into an agreement with the consumer, it is not required to send the consumer a copy.
It should be noted that these pre-contractual obligations do not apply to suppliers of goods or services who act as credit intermediaries as a secondary line of business.
How to proceed
Conclusion of the contract
The credit agreement is drawn up on paper or on any other durable medium and each party receives a signed copy.
In addition, the following information must appear on a contract which was entered into by an agreement between the lender and the consumer when the consumer is in default of payment for the initial contract, in particular:
- the type of credit;
- the duration of the credit agreement;
- the total amount of credit and the direct debit conditions;
- the interest rate;
- where applicable, the amortisation schedule, etc.
See the full list of information (French, Pdf, 327 Kb) to be provided in the agreement.
If the agreement specifies that the payments made by the consumer do not immediately amortise the total credit amount, but instead are used to replenish the capital at the times and under the terms provided for in the credit contract, or an ancillary contract, the contract should clearly state that the credit agreement does not provide for a guarantee of repayment of the total amount of the credit debited from the consumer's account, unless such a guarantee is given.
If at the consumer's request, the agreement is entered into using a remote means of communication that does not enable such information to be provided, the lender must send the required contractual information immediately after conclusion of the contract.
Post-contractual obligations
Consumers must be informed of any change in the borrowing rate (interest rate) before the change enters into force. Notification must be given in paper form or another durable medium.
The amount to be paid after the new rate has entered into force must be specified. If the number or frequency of the payments has changed, this must be indicated.
If the change in the borrowing rate is caused by a change in the reference rate, and the new rate is made public by appropriate means, and the information concerning the new reference rate is also available on the premises of the lender, the consumer and the lender may agree that the consumer is to receive periodical information on changes in the borrowing rate.
Early repayment
Repayment procedure
The consumer may, at any time, repay in advance, either fully or partially, the amount provided for in the credit agreement. In that case, the consumer is entitled to a reduction of the total cost of the credit, which corresponds to the interest and charges due for the remaining term of the contract.
They must inform the lender of their intention to repay the credit in writing or on any other durable medium.
As soon as the lender has received notification of the consumer's intention, they must provide the consumer with the exact amount of the reduction in the total cost of
the credit. Where applicable, the lender must also inform the consumer of the amount of the compensation due for early repayment.
Compensation to be paid to the lender
In the case of early repayment, the lender has the right to ask the consumer to pay fair and objectively justified compensation for any costs directly linked to the early repayment of the credit, provided that:
- the amount of the early repayment exceeds EUR 10,000.00 over a 12-month period; and
- the early repayment of the credit occurs at a time when the lending rate is fixed.
No compensation is due if the repayment was made under an insurance contract providing a credit repayment guarantee or in the case of overdraft facilities. The same applies if early repayment falls within a period for which the borrowing rate is not fixed.
The amount of the compensation may not exceed:
- 1 % of the repaid amount, if the length of time remaining until the agreed termination of the credit agreement exceeds one year;
- 0.5 % of the repaid amount, if the length of time remaining until the agreed termination of the credit agreement does not exceed one year.
However, the lender may exceptionally claim compensation over and above the above-mentioned ceilings if they can prove that the loss they suffered from early repayment exceeds the ceilings defined by law. If the compensation claimed by the lender exceeds the loss actually suffered, the consumer may claim a corresponding reduction in the compensation.
However, any compensation to be paid to the lender may not exceed the amount of interest the consumer would have paid had they not repaid the credit before the agreed date of termination of the credit agreement.
Who to contact
-
Directorate for Consumer Protection
- Address:
-
271, route d’Arlon
L-1150
Luxembourg
Luxembourg
B.P. 119, L-2011 Luxembourg
- Phone:
- (+352) 247 73 700
- Email address:
- info@mpc.etat.lu
- Website:
- https://mpc.gouvernement.lu/en.html
-
Directorate for Consumer Protection Directorate for Consumer Protection
- Address:
-
271, route d’Arlon
L-1150
Luxembourg
B.P. 119, L-2011 Luxembourg
- Email address:
- info@mpc.etat.lu
Related procedures and links
Procedures
Links
Further information
-
Financial products and services
on Your Europe
-
Informations précontractuelles obligatoires pour les contrats de crédit conclus lorsque le consommateur est déjà en situation de défaut de paiement pour le contrat de crédit initial
Pdf • 150 Ko
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Informations obligatoires à indiquer dans les publicités pour les contrats faisant l’objet d’un accord entre le prêteur et le consommateur lorsque ce dernier est en situation de défaut de paiement pour le contrat de crédit initial
Pdf • 443 Ko
