Slovakia, District Court of Prešov, 31 August 2010

Identification of the case

• Paragraphs 52 and 53 of the Slovak Civil Code
• Paragraph 4 of Law No 258/2001 on consumer loans (Zákon č. 258/2001 Z.z. o spotrebiteľských úveroch)

• Directive 93/13/EEC on unfair terms in consumer contracts
• Directive 2005/29/EC on unfair commercial practices

Summary of the case

A Slovakian lending company (SOS finance spol s.r.o.) grants consumer credits on the basis of standard loan agreements. The agreement indicated a yearly interest rate of 48,63%, however it did not included the additional costs for granting the credit.

In 2008, a married couple took out a credit of 4979 EUR which was to be paid back in 32 monthly rates of ca 199 EUR. The 33rd monthly rate, the last one, was supposed to be equal to the loaned amount, i.e. 4979 EUR. Instead, the total amount to be returned was 11.352 EUR. Thus, upon the court's calculations the yearly interest rate in practice was equal to 58,76%.

As the couple delayed in the payment of one of the instalments, the company demanded for the payment of the penalty. As the consumers deemed that the credit agreement included unfair provisions started proceedings to avoid the consumer credit contract.

• Civil judicial enforcement

Nullity of contract v voidability of unfair clause in the contract

The CJEU held that national courts must first, use national law principles to assess whether there are unfair contract terms in a consumer contract and second, assess objectively whether a contract can continue without its unfair terms, rather than simply declaring the whole contract invalid. An immediate invalidity of the contract cannot be accepted as it would result in a more beneficial position for the consumer than the one that both parties may have on the market.

However, given the minimum harmonization clause (art 8 dir. 93/13) MS may provide for higher consumer protection, thus including a provisions that invalidate the entire consumer contracts that contain unfair terms.

As regards the connection between the unfair clause and unfair commercial practice, the CJEU affirms that the latter is regulated by  Directive 2005/29. The directive, however, does not include any consequence as regards the contract that was concluded as a result of the unfair practice. The effects (remedies) might be evaluated only on the basis of Directive 93/13.

However, the fact that the service provider gave a lower estimate of a yearly interest rate than the real one to the consumer should be seen as an unfair commercial practice. This element, then, should be taken into account when assessing unfairness, based on art. 4 of the Directive 93/13 according to which all circumstances attending the conclusion of the contract are to be taken into account.

Role of the Charter and role of the general principles on enforcement

• Right to an effective remedy before a tribunal

• Effectiveness

The principle of effectiveness is applied even if it is not expressly stated. Given that the Directive 2005/29 does not provide for a specific consequence in case of contracts concluded on the basis of an unfair commercial practice, the consumer may only find a remedy on the basis of the Directive 93/13.

Elements of judicial dialogue

• Direct dialogue between CJEU and National court (preliminary reference)

• CJEU C-

Preliminary reference.

Enhancing the protection of consumers also in cases of unfair commercial practices.