Acceleration Clauses in Personal Loan Agreements in the context of the Unfair Terms Directive

The general provisions found under Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (the “Unfair Terms Directive”), which is aimed at safeguarding consumer rights in contracts with suppliers, have often been analysed and supplemented by judgments of the Court of Justice of the European Union (“CJEU”) over the years. Particularly in relation to banking and financial contracts, the CJEU has assessed specific terms in such contracts, including clauses on variable interest rates and foreign currency loans, alleged to be unfair.

The CJEU’s ruling in the joint cases of Abanca Corporación Bancaria SA v. WE (C-6/24) and VX (C-231/24), delivered on 8 May 2025 is in fact another judgment added to the list of cases concerning the interpretation of the Unfair Terms Directive, particularly in the context of personal loan agreements.

Background and Facts of the Case

Abanca Corporación Bancaria SA (the “Bank”) extended two separate personal loan agreements with the two defendants in this case. The terms and conditions of the two loan agreements included a clause granting the Bank the right to initiate a procedure to accelerate the repayment of the full loan in the event of non-payment by the borrowers, hence rendering the outstanding balance due for immediate repayment (the “Acceleration Clause”).

In accordance with the loan terms and conditions, one of the conditions which should have subsisted in order for the Acceleration Clause to be considered triggered is that the borrower must have been given notice by the Bank to pay the amount due within one month. In this respect, it is worth noting that Spanish law on mortgage loan agreements explicitly requires that the possibility of a creditor to trigger the acceleration of repayments in case of default is conditional upon the provision by the lender to the borrower of such one-month notice. A similar requirement is however not found under Spanish law applicable to personal loan agreements.

The borrowers defaulted in their repayments and the Bank proceeded to initiate the procedure to trigger such Acceleration Clause by bringing two cases in respect of both borrowers before the Juzgado de Primera Instancia No 8 de La Coruña (Court of First Instance No 8, A Coruña, Spain) (the “Referring Court”).

In considering whether the Acceleration Clause in the personal loan agreements is an unfair term in accordance with the national law transposing the Unfair Terms Directive, the Referring Court needed to determine which factors it should take into account for the assessment of the unfairness of such a clause.

In this regard, the Referring Court was faced with the question it eventually referred to the CJEU for a preliminary ruling: is an acceleration clause which enables or prevents acceleration within a certain period of time consistent with the Unfair Terms Directive, particularly Article 3(1) thereof (further explained below), or does the possibility of acceleration have to be provided for in national law? The provision under Spanish law applicable to mortgage agreements may have particularly triggered this question brought forward by the Referring Court, since national law does not equally provide for the acceleration of repayments in case of default which would be preceded by a one-month notice.

Furthermore, the Referring Court also referred a sequential question on what period of time would be considered reasonable as a condition for the enforcement of such acceleration of repayments.

CJEU Considerations

General considerations

By referring to the primary objective of the Unfair Terms Directive being that of ensuring consumer protection, the CJEU reiterated the notion contemplated by such Directive that the consumer is in a weak position, both in respect of bargaining power and of the level of knowledge. This is evidenced in Article 3(1) of this Directive, which categorises as unfair any contractual terms which has not been individually negotiated where it causes a significant imbalance in parties’ rights and obligations under the contract, to the detriment of the consumer in question. Article 6(1) of the Directive renders such an unfair term to be not binding on the consumer.

The CJEU acknowledged that the Unfair Terms Directive only generally defines the criteria which must be considered to render unfair a contractual term that has not been individually negotiated. Previous case law on this matter has highlighted that all circumstances relevant to the conclusion of the contract and to all other terms of the contract must be considered in this respect.

The CJEU in fact referred to a previous judgment where it was held that, in determining whether a clause in a contract places the consumer in an unfair detrimental position, national courts must examine whether the option available to the supplier to request the repayment of the total amount due is conditional upon the consumer’s non-compliance with an obligation which is “of essential importance” in the contractual relationship. Amongst other factors, consideration must also be had to the option being provided for in cases where consumer’s non-adherence to legal obligations is serious enough in the context of the duration and amount of the loan.

In its consideration of the questions referred, the CJEU noted that the consumers’ obligations that were not complied with (namely, the non-payment of the loan instalments) is essential in the context of the contractual relationship and sufficiently serious in light of the duration and amount of the loan.

National law provisions on acceleration

In assessing the Referring Court’s question as to whether national law should expressly provide for a consumer’s ability to avoid the accelerated repayment of the loan, the CJEU referred to the assessment which the Referring Court must conduct of the effectiveness and adequacy of the means available to the consumer to avoid the application of such accelerated repayment. In this respect, the CJEU concluded that the absence of a rule under national law specifically applicable to personal loan agreements in this respect is irrelevant to the assessment and does not on its own render the Acceleration Clause unfair within the meaning of the Unfair Terms Directive.

Consequently, the possibility for the consumer to avoid the accelerated repayment being set out in the Acceleration Clause in the loan agreement is a factor which is to be considered by the Referring Court in assessing whether such Clause is unfair, and it is therefore unnecessary for national law on personal loan agreements to explicitly provide for this possibility.

Adequacy of the one month notice period

With respect to the time period afforded to the consumer to pay overdue amounts (i.e. one month) before acceleration is triggered, the CJEU also referred to preceding case law on this matter. The CJEU previously held that, for a limitation period to be considered effective, it must be long enough to allow a consumer to bring an effective action to enforce the rights granted under the Unfair Terms Directive and the consumer must have had the opportunity to become aware of such rights before the limitation period started to run or expired.

A further consideration made by the CJEU was the practical implementation of the provision under Spanish law applicable to loan agreements secured by mortgages on immovable property, which provision similarly affords the consumer a period of one month to repay the amounts due. The CJEU noted the relevance of this legal provision, despite the fact that this national law applies to different types of loan agreements.

The fact that the one-month period is sufficient in practice to enable the consumer to repay the amounts is to be taken into account, according to the CJEU. The CJEU here expressed its view on the unfairness of the clause allowing the consumer a period of one month’s notice, as it noted that a conclusion by the Referring Court to the effect that such period is an adequate and effective means to enable the consumer to avoid the application of the Acceleration Clause would be plausible.

Conclusion

Although the CJEU generally leaves it to the discretion of national courts to determine what clauses in consumer contracts should or should not be considered “unfair”, this CJEU ruling sheds light on how fairness is calculated in respect of clauses in loan agreements, particularly where acceleration clauses requiring the immediate repayment of the total loan sums due are concerned. The questions submitted in these joint cases for preliminary ruling also continue to highlight the generality of the Unfair Terms Directive, which is a rather old legal instrument that may now be deemed to require a review to better eliminate grey areas addressed by national courts.

Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in ‘The Malta Independent’ on 04/06/2025.