The law of 23 December 2016 implementing Directive 2014/17/EU of the European Parliament and Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property.
Context:
The law of 23 December 2016 on credit agreements for consumers relating to residential immovable property (hereinafter the “Law“) implements into Luxembourg law the 2014/17/EU directive which aims at achieving a European market for mortgage lending while guaranteeing a higher level of protection for consumers. It is in line with a movement of regulatory inflation that has been initiated for several years at the European and Luxembourg level reinforcing the protection of consumers.
In this regard, the Law lays down a legal framework for mortgage loan agreements such as the new codified article L. 226 of the Luxembourg « Code de la Consommation » entitled « Chapitre 6 – Contrats de crédit immobilier » which sets out the scope of application of the law, the competent authority, the best practices for the conclusion of mortgage loan agreements and information and rights concerning mortgage loan agreements.
The following types of agreements are covered: Credit consumer agreements guaranteed by mortgages, by another surety used in real estate or by right associated to real estate for residential use such as credit consumer agreements intended for the purpose of acquiring or retaining property rights in land or in an existing or projected building.
The provisions included in the Code de la consommation broadly retains the text of Directive 2014/17/EU.
The main points of the law:
- Reinforcement of the protection of the consumers consisting in the provisions of personalised information by means of a European standardised information sheet (« FISE »).
- Assessment of the consumer’s creditworthiness.
- Formalisation of the law on early repayment of credit.
- Creation of a real estate loan intermediary.
Among the principles of the Law:
The Law provides for a vast array of information and practices which must precede the conclusion of a mortgage loan agreement, notably un terms of advertising and general pre-contractual information, with the aim of preventing the lender from using wordings likely to give the consumer false expectations concerning the availability or the cost of a loan.
The lender or, as the case may be, the mortgage loan intermediary, is under an obligation to provide to consumers personalised information that they need to compare the various terms of credit available on the market, to evaluate the implications thereof and take an informed decision when concluding a mortgage loan agreement.
Prior to the conclusion of a mortgage loan agreement, the lender must closely scrutinise the creditworthiness of the consumer. This evaluation takes into account the relevant factors to assess the likelihood as to whether the consumer will be able to fulfil its obligations under the mortgage loan agreement.
The lender must inform the consumer of any modifications of the borrowing rate prior to such modification taking place. This information shall indicate the amount of payments to be made after the effective date of the new borrowing rate and shall specify the number and frequency of the new payments.
The law implements the definition of «taux annuel effectif global» or «TAEG», i.e. the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, taking into account, where applicable, costs (such as the ones in connection with the opening and maintaining of the given account, the use of means of payment to carry out transactions and withdrawals from that account, and other costs related to payment transactions) which corresponds, on an annual basis, to the present value of all obligations including existing and future liabilities, agreed between the lender and the consumer.
Sanctions :
Every clause of a mortgage loan agreement in violation of the new Law will be deemed to be null and void. This nullity can only be invoked by the consumer.
In addition, the CSSF can also impose against a legal person or a natural person subject to the law, a warning, a reprimand or also an administrative fine which will not exceed 250,000 euros.-
In this context, the new regulation will naturally oblige lenders in the Luxembourg market to (i) inform and update their teams dedicated to mortgage lending operations (ii) ensure their documentation conforms with the legislation and (iii) implement specific procedures to ensure adequate protection of the Law.
