Insights

On 17 October 2024, the Court of Justice of the European Union (the “CJEU”) delivered a ruling in the case of Riverty GmbH (legal successor of Arvato Finance BV) v MI (Case C-409/23), on the qualification of the so-called ‘buy-now-pay-later’ (“BNPL”) schemes, where consumers purchase goods or services and are able to postpone payment, in the context of consumer credit rules applicable at European Union level by way of Directive 2008/48/EC Of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (the “Consumer Credit Directive” or the ”Directive”). This ruling provides an analysis of what type of interest and what costs are to be considered when determining whether a credit agreement falls within scope of the Directive when it comes to BNPL schemes.

Facts of the Case

The dispute in these proceedings concerned a provider (Arvato Finance BV, operating under the name ‘AfterPay’, who was legally succeeded by Riverty GmbH) of a deferred payment service as a BNPL scheme in the Netherlands. The scheme allowed customers to defer payments for online purchases without paying interest or incurring significant upfront fees, in return for a payment fee of EUR 1. The provider’s general payment terms presupposed that, after acceptance of the request to use that service, the merchant selling the goods or services assigns to AfterPay the fees relating to the amount for which the customer was liable in respect of the order placed online.

The customer would therefore pay AfterPay upon receipt of an invoice therefrom and payment was to be made within fourteen days from receipt of the invoice. Any failure on the part of the customer to forward the amount due to AfterPay within the stipulated period would allow AfterPay to charge administrative fees, monthly statutory interest on the amount due and all reasonable costs incurred for collection of the amount, which costs were at a minimum of EUR 40.

MI, being the customer in this case, had failed to pay the amount due to AfterPay within the fourteen-day period and thereafter, triggering the imposition of administrative fees and an additional amount of EUR 40 in respect of costs incurred by AfterPay for the collection. The failure by MI to pay the amounts persisted and led to the initiation of action before the District Court of Arnhem in the Netherlands to enforce the payment obligation plus statutory interest.

The District Court referred several questions to the Dutch Supreme Court (Hoge Raad der Nederlanden) (the “Referring Court”) in view of Article 2(2)(f) of the Directive, which excludes from within its scope credit agreements which are free of interest and without any other charges and credit agreements under the terms of which only insignificant charges are payable. In this respect, the Referring Court was faced with the question as to whether interest charged other than that relating to fees for making the credit available, and collection costs in the event of non-payment of a credit agreement must be considered as part of the “total cost of the credit to the customer” in terms of Article 3(g) of the Directive, and whether they must be taken into account in the determination as to whether the agreement in question falls within scope of the Consumer Credit Directive.

 The Findings of the CJEU

Given that the credit agreement in question was of a total amount of less than EUR 200, and that the Consumer Credit Directive allows Member States to extend the applicability of the Directive to credit agreements involving a total amount of credit of less than such amount, the CJEU firstly noted that this extension was taken up under the Netherlands national law. The credit agreement was therefore not excluded from the scope of the Directive’s provisions on this basis.

In referring to an assessment of the part of Article 2(2)(f) of the Consumer Credit Directive which excludes agreements granted free of interest and without any other charges from the scope of the Directive, the CJEU noted that the interest charged to the defendant for defaulting on the payment obligations and the costs for the collection of the amounts due constitute interest and default charges. The CJEU noted that the Directive does not define ‘interest’ and ‘other charges’, and referred to different language versions of this provision of the Directive in providing an interpretation of such terms.

The CJEU underscored that the primary goal of the Consumer Credit Directive is to ensure a high level of consumer protection in credit agreements and so, exemptions under Article 2(2)(f) must be narrowly interpreted to preserve the Directive’s protective framework. In applying such rationale, the CJEU noted that the interest and charges to be considered for the purpose of Article 2(2)(f) must be those provided for at the time of conclusion of the credit agreement and other charges do not form part of the ‘interest’ and ‘other charges’ referred to in such provision. A customer’s failure to pay and the duration of such failure are essentially unforeseeable at the time of conclusion of the credit agreement and are therefore not to be included.

Reference was also made to the Directive’s provisions on the calculation of the annual percentage rate of charge, in which the default charges are excluded. The CJEU here noted that such a calculation is based on the assumption that the credit agreement will remain valid for the agreed period and that the creditor and the consumer will adhere to the obligations under the agreement within the time limits stipulated therein.

Another point raised by the Referring Court was related to the circumstances at the time of the conclusion of the agreement provide grounds to assume that the liability for charges imposed upon default in payment forms part of the creditor’s business model, and that this should be taken into account when examining the scope of the Directive. The CJEU, however, concluded that it is for the Referring Court to determine whether a creditor is seeking to circumvent its obligations under the Directive by anticipating the non-payment by the consumer from the time of the conclusion of the credit agreement.

Conclusion reached by the CJEU

The CJEU ruled that the Consumer Credit Directive must be interpreted as meaning that, other than where the creditor anticipates the consumer’s default in payment from the time the credit agreement is concluded, the non-performance by the consumer of the credit agreement in order to seek a financial advantage, the interest payable by the consumer for non-payment and the collection costs imposed do not fall within scope of the concepts of ‘interest’ and ‘other charges’ within the meaning of Article 2(2)(f) of the Directive. This stands irrespectively of whether such interest and other charges are statutory or contractual in their nature.

Disclaimer: Ganado Advocates is responsible for contributing 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 25/12/2024.