EFTA Court advisory opinion delivered

Today the EFTA Court delivered an advisory opinion in a case pending before the Reykjavik District Court against Landsbankinn hf. The case centres on whether, during the period of validity of the previous Act on Consumer Loans, No. 121/1994, the bank provided satisfactory information during the negotiation of contracts for consumer loans that were linked to the consumer price index. The Act was passed in order to incorporate the provisions of Council Directive 87/102/EEC on consumer credit (the Consumer Credit Directive) into Icelandic law.  

During court proceedings, the Icelandic courts decided to request an advisory opinion from the EFTA Court, specifically on whether basing the calculation of total borrowing costs and annual cost percentages “on 0% inflation, and not on the known rate of inflation on the date when the loan is taken” was compatible with the provisions of the Directive. The case under consideration does not concern a real estate mortgage loan.  

Other questions under consideration were identical to those on which the EFTA Court gave its advisory opinion on 28 August 2014 in Case E-25/13 Gunnar V. Engilbertsson v Íslandsbanki hf.  

The EFTA Court concluded that “it is not compatible with Directive 87/102/EEC to calculate the total cost of the credit and the annual percentage rate of charge on the basis of 0% inflation if the known rate of inflation at the time of the credit agreement is not 0%.” The advisory opinion includes the following: “Provided that the level of protection established by the Consumer Credit Directive, as interpreted by the Court, is not compromised, it is for the national court to assess, having regard to all the circumstances of the case, the legal consequences of and the remedies for such incorrect information. In that assessment, the national court should take into account whether the consumer in question is an average consumer, who is reasonably well-informed, observant and circumspect.”  

The EFTA Court reiterates its previous opinion, that Directive 93/13/EEC does not generally prohibit contractual terms on the indexation of loans in contracts between lenders and consumers. 

The opinion of the EFTA Court is an advisory opinion, and it is the role of the Icelandic courts to decide, on the basis of Icelandic law, how much the EFTA Court's opinion will affect their judgments in legal disputes about price indexation. It is not known when a final judgement in the aforementioned case will be made by the Icelandic courts.  

The EFTA Court provides further discussion of its opinion in a press release issued today. The press release and the opinion of the EFTA Court in its entirety can be found on the EFTA Court website: www.eftacourt.int.