Until 2016, the Supreme Court had not ruled on the permissibility of upfront fees for consumer loans, while academic literature expressed different opinions. In 2016, the Supreme Court ruled that upfront fees, as part of the essential obligations of the contract, are not subject to content control and therefore their agreement is permissible. In late 2022 and early 2023, a series of Supreme Court rulings were issued on the topic of general terms and conditions of fitness studios, which caused a stir in the banking world and have implications for banks, although these rulings actually originated from a different industry. Surprisingly, the Supreme Court in these decisions on fitness studio T&Cs referred to recent case-law of the European Court of Justice and stated that the Supreme Court's case law on term-independent "upfront" or "manipulation fees" prior to these decisions on fitness studio T&Cs should be reassessed in the light of EU law. As a result, there have been a number of lawsuits challenging the legality of the contractual agreement of upfront fees.
Supreme Court Judgment of 23 January 2024, 2 Ob 238/23y
The plaintiff in this particular case was the Association for Consumer Information (Verein für Konsumenteninformation). The General Terms and Conditions of the defendant bank included the following content under the heading "Conditions" (“Konditionen”):
- “One-off upfront fee of 4.000% of the loan amount charged to the loan account (Clause 1). [Einmalige Bearbeitungsgebühr von 4,000% des Kreditbetrags, die dem Kreditkonto angelastet wird (Klausel 1).]
- Collection fees of EUR 75.00 (Clause 2a), bank transfer fees of EUR 15.00 (Clause 2b) and postage and printing costs of EUR 25.00 (Clause 2c), which will be deducted from the loan disbursement amount. [Erhebungsspesen in Höhe von EUR 75,00 (Klausel 2a), Überweisungsspesen in Höhe von EUR 15,00 (Klausel 2b) und Kosten für Porto und Drucksorten in Höhe von EUR 25,00 (Klausel 2c), die vom Kreditauszahlungsbetrag abgezogen werden.]
- Account management fee: EUR 7.00 per quarter (Clause 3). [Kontoführungsgebühr: EUR 7,00 pro Quartal (Klausel 3).]“
The plaintiff sought an order prohibiting the defendant from using or relying on the above-mentioned clauses in general terms and conditions or contract forms used by it in its business dealings with consumers. While the court of first instance granted the claim in its entirety, the court of appeal upheld this decision with the exception of Clause 3 (Account management fee). The most important findings of the Supreme Court's decision in this particular case, which concerned the above-mentioned clauses 1-3, are as follows:
- In order to make it possible to check whether fees or the services remunerated with them overlap, it is however necessary for the consumer to understand which service is assigned to which fee in relation to the contract as a whole. This does not require the listing of the respective individual services. At least the respective service category (the type of service actually provided), however, must be comprehensible in relation to the respective fee and thus distinguishable from one another. If this is not the case, there is a lack of transparency.
- Measured against the contract as a whole, the agreed upfront fee therefore proves to be intransparent due to the lack of verification of overlap with the other fees.
Summary
This new decision of the Supreme Court (solely) expressed that the contractual agreement of upfront fees for consumer loans might be considered intransparent in certain cases – namely, if there is an overlap with other fees because other fees such as "collection fees", "bank transfer fees" or "postage and printing costs" are also contractually agreed, insofar as it appears unclear which service is assigned to which fee. The Supreme Court, however, did not make any general statement on the permissibility of upfront fees or their controllability. Further proceedings in connection to upfront fees are pending.
(Author: Lejla Tuholjaković)
