The Court of Justice of the European Union ruled Thursday that banks cannot charge interest on additional consumer credit costs, following a Polish court inquiry.
EU Court Strikes Down Bank Practice
The Court of Justice of the European Union (CJEU) ruled on Thursday, in response to questions from a Polish court, that banks are prohibited from charging interest on additional costs associated with consumer loans.
The case originated from a dispute involving a consumer who was charged interest not only on the principal loan amount but also on their insurance premium.
Prejudicial Questions from Włodawa Court
The CJEU responded to preliminary questions from the Regional Court in Włodawa, concerning the interpretation of provisions within the consumer credit agreement directive and protection against unfair contract terms.
The consumer involved in the dispute seeks to repay the loan without interest and fees, arguing that the basis for their calculation was artificially inflated.
What Constitutes the ‘Total Loan Amount’?
The Polish court asked the CJEU whether banks could charge interest on amounts that never reached the client’s pocket, but instead covered ancillary loan costs.
The Luxembourg-based court definitively stated that charging interest on additional costs contradicts EU law.
Banks Must Act Fairly
The Court clarified that excluding additional costs from the interest calculation base does not prevent banks from imposing them.
Creditors can compensate for these costs, for example, through proportionally higher capital interest rates, but must do so clearly and transparently for the client.
Clear Information for Consumers
Consumers must be precisely informed about the amount on which interest is actually calculated.
This ruling opens the door to challenging thousands of credit agreements where banks “financed” insurance costs or commissions and subsequently charged additional interest on them throughout the contract’s duration.