1. 

Where a debt recovery agent is instructed by lenders to pursue outstanding debts from borrowers in default under a credit agreement (‘the initial agreement’) by presenting to them agreements for deferred repayment, does it act as a credit intermediary for the purposes of Directive 2008/48/EC? ( 2 ) If so, do the arrangements it makes fall outwith the scope of that directive where the fees charged for its services are not more than the amounts stipulated in the initial credit agreement which the borrower must pay to the lender in any event? By this request for a preliminary ruling the Oberster Gerichtshof (Supreme Court, Austria) seeks guidance from the Court on the scope of Directive 2008/48, which governs credit agreements for consumers.

2.

Directive 2008/48 has a number of objectives. First, its overarching aims include harmonising the legal framework in a number of core areas ‘in order to facilitate the emergence of a well-functioning internal market in consumer credit’; ( 3 ) to ‘offer a sufficient degree of consumer protection to ensure consumer confidence’; ( 4 ) and to ‘ensure that all consumers … enjoy a high and equivalent level of protection of their interests and to create a genuine internal market’. ( 5 ) Second, information should be disclosed to consumers by creditors to guarantee that they are protected against unfair or misleading practices, and to enable consumers to make their decisions in full knowledge of the facts, by ensuring that they receive adequate information, which they may take away and consider, prior to the conclusion of the credit agreement, on the conditions and cost of the credit and on their obligations. ( 6 ) Third, the directive aims to regulate certain obligations of credit intermediaries and to make sure that in general, the pre-contractual information requirements also apply to them. ( 7 ) Fourth, it encourages Member States to ‘take appropriate measures to promote responsible practices during all phases of the credit relationship, taking into account the specific features of their credit market. Those measures may include, for instance, the provision of information to, and the education of, consumers, including warnings about the risks attaching to default on payment and to over-indebtedness.’ ( 8 )

3.

Article 1 states that the purpose of Directive 2008/48 is to harmonise certain aspects of the laws, regulations and administrative provisions of the Member States concerning agreements covering credit for consumers.

4.

Pursuant to Article 2, Directive 2008/48 applies to credit agreements unless they are expressly excluded. Article 2(2) lists 12 types of credit agreement, including those relating to residential and immovable property, ( 9 ) that do not fall within the Directive’s scope. These include:

…

…’

5.

Article 2(6) provides:

‘Member States may determine that only Articles 1 to 4, 6, 7, 9, Article 10(1), points (a) to (i), (l) and (r) of Article 10(2), Article 10(4), Articles 11, 13, 16 and Articles 18 to 32 shall apply to credit agreements which provide for arrangements to be agreed by the creditor and the consumer in respect of deferred payment or repayment methods, where the consumer is already in default on the initial credit agreement and where: ( 10 )

...’

6.

The following definitions in Article 3 are relevant:

…

7.

Article 5(1) sets out the compulsory pre-contractual information to be provided to consumers. ( 11 ) It states: ‘In good time before the consumer is bound by any credit agreement or offer, the creditor and, where applicable, the credit intermediary shall, on the basis of the credit terms and conditions offered by the creditor and, if applicable, the preferences expressed and information supplied by the consumer, provide the consumer with the information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. …

The information in question shall specify:

…

…’

8.

Under Article 5(6), Member States must ensure that creditors and, where applicable, credit intermediaries provide adequate explanations to the consumer, in order to enable him to assess whether the proposed credit agreement is adapted to his needs and to his financial situation, where appropriate by explaining, inter alia, the consequences of his default in payment. ( 12 )

9.

Certain specific obligations are imposed upon credit intermediaries by Article 21. Member States must ensure that a credit intermediary indicates in particular whether he works exclusively with one or more creditors or as an independent broker. ( 13 ) Credit intermediaries must also inform consumers of any fees that are payable for their services and communicate to creditors the details of such fees. ( 14 )

10.

The purpose of Directive 2009/22/EC ( 15 ) is to harmonise national rules relating to actions for an injunction aimed at the protection of the collective interests of consumers with a view to ensuring the smooth functioning of the internal market. Its scope covers infringements of national rules affecting the collective interests of consumers that implement one of the directives listed in Annex I to the directive. ( 16 ) The list includes Directive 87/102/EEC, ( 17 ) which has now been replaced by Directive 2008/48. A ‘qualified entity’ may bring proceedings in the collective interests of consumers. ( 18 ) A ‘qualified entity’ is defined as any body or organisation which, being properly constituted according to the law of a Member State, has a legitimate interest in ensuring that the provisions referred to in Article 1 are complied with. ( 19 )

11.

Directive 2014/17/EU ( 20 ) aims to create a Union-wide mortgage credit market with a high level of consumer protection. ( 21 ) A credit intermediary is defined in Article 4(5) in similar terms to those used in Article 3(f) of Directive 2008/48. Articles 29 to 34 in Chapter 11 introduce various requirements for the establishment and supervision of credit intermediaries and appointed representatives. ( 22 )

12.

Directive 2008/48 is implemented in Austria by the Verbraucherkreditgesetz (Law on consumer credit; ‘the VKrG’). Paragraph 6 of the VKrG sets out the obligation to provide pre-contractual information laid down in Article 5 of Directive 2008/48. That obligation also applies to credit agreements where payment is either deferred or made by instalments (Paragraph 25 of the VKrG). That legislation does not provide for more limited application offered by Article 2(6) of Directive 2008/48.

13.

Where a borrower defaults on his loan, the consequences are governed by the Allgemeines Bürgerliches Gesetzbuch (the Austrian Civil Code; ‘the ABGB’). Paragraph 1333 states:

14.

The Verein für Konsumenteninformation (Consumer Information Association, Vienna; ‘the Verein’) is an association which is entitled to seek injunctions to protect the collective interests of consumers for the purposes of Directive 2009/22. It has instituted proceedings for an injunction prohibiting INKO, Inkasso GmbH, Linz (‘Inko’) from entering into agreements for deferred payments (‘the repayment agreement’) for which it charges a fee, without having first provided to consumers the pre-contractual information required by Paragraphs 6 and 25 of the VKrG. ( 24 )

15.

Inko offers to provide a debt recovery service to lenders where a borrower has defaulted under a credit agreement. Inko approaches such borrowers on behalf of the lender proposing a repayment agreement. The borrower is given three days to choose between paying the outstanding debt in full or completing a pre-printed form (an ‘instalment agreement’) which must be returned to Inko. Under such an agreement the borrower: (i) acknowledges that the outstanding debt is due together with the costs arising from his default in payment under the initial agreement; (ii) agrees to a repayment plan; (iii) undertakes to pay the debt by monthly instalments; and (iv) accepts that the payments he makes shall first be applied towards Inko’s fees and then to the lender’s claim and interest. The fees and the interest (‘the recovery costs’) are Inko’s remuneration for its services.

16.

The Verein claims that Inko must provide borrowers with the compulsory pre-contractual information before concluding such agreements. Inko disputes this. It argues that the repayment agreements are entered into between the borrower and the lender. Inko itself is not a party to those agreements and accordingly, it is not obliged to provide any pre-contractual information. In any event, as the arrangements that Inko makes on behalf of its clients do not give rise to a deferral of payment for remuneration, its activities fall outside the scope of Directive 2008/48.

17.

The referring court states that the Verein has failed to demonstrate that Inko charges interest and fees which exceed what would be due to lenders under Austrian law if the lenders themselves, without Inko’s intervention, agreed to accept payment by instalments. The Verein was successful at first instance. Inko was partly successful on appeal. Both parties have appealed to the referring court, which wishes to ascertain whether Inko’s arrangements fall within the scope of Directive 2008/48 and has accordingly referred the following questions to the Court:

18.

Written observations have been submitted by the Verein, Inko, the French, German and Lithuanian Governments and the European Commission. At the hearing on 25 February 2016, the same parties, save for the French and Lithuanian Governments, presented oral argument.

19.

The main proceedings concern a collective action initiated by the Verein on behalf of consumers generally. There is therefore no specific initial agreement to be examined and there is nothing which indicates whether any particular initial agreement would or would not be within the scope of Directive 2008/48. Nor is there any information to indicate whether debt collectors, such as Inko, supply goods or services acting in an ancillary capacity, as set out in Article 7 of Directive 2008/48.

20.

How the legal arrangements between lenders, borrowers in default and debt collection agencies are to be classified and the rules which apply to those arrangements differs across the Member States. The position under Austrian law is not entirely clear. Thus, the Verein states that where a borrower enters into an instalment agreement with a debt collection agency that arrangement cancels his default under the initial agreement because he is no longer late in making payments. Inko has not addressed that specific point. It considers that under Austrian law debt collectors cannot take legal proceedings to recover outstanding debts on behalf of lenders. They are not a party to the initial agreement and they are prohibited from acquiring the outstanding debt under that agreement. According to Inko, entities that recover outstanding debts merely act as agents for lenders.

21.

Those issues are matters of national law within the purview of the domestic courts. They do not need to be resolved in order for the Court to rule on the present matter, which concerns whether instalment agreements such as those arranged by Inko are credit agreements for the purposes of Directive 2008/48. It seems to me that such arrangements do fall within the definition of a ‘credit agreement’ in Article 3(c) of that directive. The instalment agreement constitutes a ‘deferred payment’ or ‘other similar financial accommodation’ for the purposes of that provision, as the lender (under the initial agreement) grants the borrower additional or new credit in that form by means of such repayment arrangements.

22.

Article 6 lists the detailed requirements for pre-contractual information for credit agreements in the form of an overdraft facility and for certain specific credit agreements. There is no information in the order for reference as to whether the credit agreements at issue are within the scope of that provision and the referring court has not sought guidance on that point. Nonetheless the provisions of Article 5 are mirrored in Article 6 and my views regarding the former apply by analogy to the latter. ( 25 )

23.

By this question the referring court seeks to ascertain whether a debt collection agency which presents instalment arrangements to borrowers in default on behalf of lenders in order to recover outstanding debts for a fee falls within the definition of a credit intermediary for the purposes of Article 3(f) of Directive 2008/48.

24.

In my opinion a debt collection agency which provides such a service is within that provision.

25.

First, the wording of Article 3(f) supports that interpretation. ( 26 ) It provides that four conditions must be met in order for a person to be considered to be a credit intermediary for the purposes of Directive 2008/48. The entity concerned must: (i) be a natural or legal person; (ii) not be acting as a creditor; (iii) be operating in the course of his trade, business or profession (and providing the services listed in subparagraphs (i) to (iii) of Article 3(f)); and (iv) charge a fee for his services. ( 27 )

26.

Subject to the referring court’s verification of the facts, it appears from the order for reference and the example of Inko’s specimen repayment agreement on the national court file that Inko’s activities involve presenting instalment agreements to borrowers in default under the initial agreement. Article 3(f) covers the following activities of credit intermediaries: ‘(i) presents or offers credit agreements to consumers; (ii) assists consumers by undertaking preparatory work in respect of credit agreements other than as referred to in (i); or (iii) concludes credit agreements with consumers on behalf of the creditor’. That wording is sufficiently broad to cover Inko’s activities. ( 28 )

27.

Second, in my view such an interpretation is consistent with the twin aims of consumer protection and creating a genuine internal market set out in Directive 2008/48. ( 29 )

28.

Lenders and where applicable credit intermediaries are required to provide the 19 items of compulsory pre-contractual information listed in Article 5(1) in good time before a borrower is bound by the credit agreement or offer. That list includes information concerning the borrower’s position if he is late or defaults in repaying the debt. ( 30 ) Most borrowers do not expect to default when they enter into a credit agreement; and it is known that not all borrowers scrutinise or perhaps fully appreciate the consequences of default set out in the pre-contractual information. The three days indicated in Inko’s specimen agreement is inadequate to enable a borrower to assess his position. Where a borrower is confronted with the option of repaying the outstanding debt in full or completing the instalment agreement, it is unlikely that he has a genuine choice. If he could readily repay the outstanding amount (the less expensive option as his liability for further costs would be reduced), he would probably not be in default. Three days is also insufficient time for the borrower to compare the costs of agreeing to the instalment arrangement with alternative solutions offered by other lenders.

29.

It therefore seems to me that it is more consonant with the objective of providing a high level of consumer protection that the credit intermediary is required to provide the information listed in Article 5(1), in particular if that information is not supplied by the lender. Otherwise, the borrower is denied the very protection that Directive 2008/48 is designed to provide. ( 31 ) The information should be provided to the borrower in good time before the instalment agreement becomes binding, in order to comply with the obligation in Article 5(1). ( 32 ) That is because the debt collector is the person: (i) presenting or offering the instalment agreement to the borrower; or (ii) undertaking preparatory work in relation to such an agreement; or (iii) concluding an instalment agreement on behalf of lenders within the meaning of Article 3(f). A period longer than the three days offered by Inko is clearly necessary in order to comply with that obligation. Under Article 5(1), the obligation to provide pre-contractual information is on ‘the creditor and, where applicable, the credit intermediary’. Thus, the information might in theory be provided by the lender before the borrower accepts the instalment agreement. However, there is nothing to indicate that lenders do in fact provide such pre-contractual information. (Even if they did, it would not alter the point of principle that credit intermediaries are subject to the same obligation.)

30.

That reading is reinforced by Article 5(6) which requires Member States to ensure that lenders and credit intermediaries provide borrowers with adequate explanations enabling them to assess factors, such as the consequences of a default in payment, at the pre-contractual stage. It is also consistent with the aim of encouraging responsible practices during all phases of the credit relationship. ( 33 )

31.

It is likewise compatible with the aim of creating a genuine internal market, as the concept of a credit intermediary should have the same meaning throughout the Member States. Thus, the obligation to provide pre-contractual information should apply to all those providing debt recovery services such as those offered by Inko.

32.

Inko submits that a credit intermediary brings lenders and borrowers together. Debt collectors cannot — it argues — be credit intermediaries, their activities are linked to a credit agreement that exists before the debt collector presents an arrangement to the borrower. The obligations in Article 21 of Directive 2008/48 (entitled ‘Certain obligations of credit intermediaries vis-à-vis consumers’) cannot therefore apply to a debt collection agency. Inko adds that the definition of a credit intermediary in Article 4(5) of Directive 2014/17 is similar to that set out in Directive 2008/48 and the two provisions should be interpreted consistently. It is clear from the context of Directive 2014/17 that the activities of debt collection agencies are not covered by the provisions governing the activities of credit intermediaries in that directive. Finally, Inko argues that the scope of Article 3(f) would be too wide if it is interpreted as applying to debt collectors. It would then cover professional activities that were never envisaged as being regulated by Directive 2008/48, in particular those of lawyers who are permitted to act as debt recovery agents in Austria.

33.

It seems to me that ‘credit intermediary’ is a general term that covers several types of activity. ( 34 ) Different Member States define that term in various ways and apply it to different types of business. ( 35 ) It is true that debt collection is not an activity associated with a more conventional type of credit intermediary (for example, a consumer credit broker). However, such brokers are just one type of credit intermediary mentioned in Article 21 of Directive 2008/48. Under that provision, the credit intermediary is required to indicate whether he works exclusively with one or more lenders or whether he is independent; to disclose the fee (if any) payable for his services; and to inform the lender of that fee for the purposes of calculating the annual percentage rate of charge (‘the APR’). As a matter of logic, those obligations are equally applicable to debt collectors when they propose instalment agreements, as they work for clients and they charge fees for their services. ( 36 )

34.

Directive 2014/17 introduces a common framework for agreements covering credit for consumers secured by mortgage or otherwise relating to residential property. It includes a specific regime for credit intermediaries in that context. ( 37 ) Notwithstanding the similarity of the definitions of ‘credit intermediary’ in Article 4(5) of Directive 2014/17 and in Article 3(f) of Directive 2008/48, it does not follow that the former restricts the scope of the latter. Directive 2008/48 does not apply to credit agreements secured by a mortgage or the purpose of which is to acquire or retain property rights (Article 2(2)(a) and (b)). In my view, whether a debt collection agency is capable of meeting the obligations in, for example, Chapter 11 of Directive 2014/17, cannot be relevant for the purposes of determining the meaning of Article 3(f) of Directive 2008/48. Inko suggested that a wide interpretation would mean that lawyers who are not providing debt collection services would nevertheless be covered by Directive 2008/48. However, the simple answer is that when lawyers are offering legal advice, they are not performing the functions listed in Article 3(f)(i) to (iii). ( 38 )

35.

Finally, the Lithuanian Government (which proposes a reply only to Question 1) considers that, for the purposes of Article 3(f), a credit intermediary’s activities must take place before the credit agreement is concluded. The management of outstanding debts is not linked to the proposal or preparation of the initial agreement.

36.

I disagree with that view. First, Article 3(f) does not state that credit intermediaries’ activities must occur before the credit agreement is concluded. It is more consistent with the text and the aims of Directive 2008/48 not to restrict the notion of ‘credit intermediary’ in that way. Rather, the obligation to provide information applies throughout the duration of the agreement, in particular where the borrower is offered a financial arrangement that falls within the definition of a credit agreement in Article 3(c) of Directive 2008/48. ( 39 ) Second, the relevant agreement here is not the initial agreement between the lender and the borrower. It is the instalment agreement arranged by the debt collector that is the focal point. ( 40 ) As there is nothing which indicates whether the initial agreements are within the scope of Directive 2008/48, it cannot be assumed that borrowers receive pre-contractual information before those agreements become binding. If entities such as Inko are not credit intermediaries within Article 3(f), there is also no obligation to provide the information at the point before the instalment agreement becomes binding. Thus, borrowers would not have the benefit of the protection afforded by Directive 2008/48, as they would not be supplied with pre-contractual information at any phase of the process, in particular when concluding a credit agreement for deferred repayments. In any event it seems from the referring court’s explanation in the order for reference that Inko’s activities start before the borrower enters into those agreements. ( 41 )

37.

I therefore conclude that a debt collection agency which presents instalment agreements to consumers on behalf of creditors in order to recover their outstanding debts for a fee is a credit intermediary for the purposes of Article 3(f) of Directive 2008/48.

38.

Where a borrower enters into an instalment agreement and undertakes to pay the outstanding debt, together with any costs and default interest arising from his failure to repay under the initial agreement (or the relevant national rules), is such an arrangement outwith the scope of Directive 2008/48, because it is a credit agreement which relates to the ‘deferred payment, free of charge, of an existing debt’ for the purposes of Article 2(2)(j)?

39.

The German Government submits that an arrangement whereby the borrower pays a fee cannot be regarded as being free of charge within the meaning of Article 2(2)(j) of Directive 2008/48, even where the recovery costs under the instalment agreement are not greater than those in the initial agreement. The costs set out in the initial agreement constitute charges for the purposes of Article 2(2)(j). In the view of the French Government (which replies only to Question 2), instalment agreements give rise to extra costs for borrowers where: (i) under such an agreement the borrower pays more than he would have paid if repayment had been organised by another means; and (ii) the debt collector’s costs are borne directly or indirectly by the borrower. The Commission submits that it is necessary to determine whether the borrower must pay greater charges under the instalment agreement than he would have paid in the absence of such an agreement.

40.

What is meant by the words ‘free of charge’ in Article 2(2)(j) of Directive 2008/48? Do Inko’s arrangements fall within that provision?

41.

The expression ‘free of charge’ in Article 2(2)(j) of Directive 2008/48 is not defined. It seems to be coherent with the legislative scheme that it should be interpreted consistently with the expression ‘free of interest and without any other charges …’ in Article 2(2)(f). ( 42 ) The word ‘charge’ must also be construed consistently with the definition of the ‘total cost of the credit to the consumer’ in Article 3(g). That definition is drawn in wide terms, as it covers ‘all the costs, including interest, commissions, taxes and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor’. That is sufficiently broad to incorporate the recovery costs incurred where a borrower is in default under the initial agreement, whether those costs are charged by the lender himself or by a debt collector acting on his behalf.

42.

The aim of Article 2(2)(j) is to remove from the scope of Directive 2008/48 credit agreements where the borrower is not subject to extra costs for the credit facility provided. The words ‘free of charge’ must be interpreted by reference to their ordinary meaning and within their statutory context and the purposes of the rules of which they are part. ( 43 ) Thus, in my view, the question is whether the instalment arrangements at issue are without cost to the borrower. In very simple terms: are such arrangements free?

43.

Recovery costs for default should be set out in the initial credit agreement. ( 44 ) It is not unusual for lenders to delegate the recovery process to a third party because it is more efficient for them to do so than to pursue outstanding debts themselves. As there is a cost for recovery for which the borrower in default is responsible under the initial agreement, that process cannot be described as being free to borrowers. Inko does not deny that it charges a fee for its services. Those services also cannot therefore be described as being available free of charge. The first question is whether the arrangements that Inko makes with borrowers on behalf of lenders lead to a cost for the borrower for the purposes of Article 3(g) of Directive 2008/48. It appears from the specimen repayment agreement on the national court file that the borrower does indeed bear the costs of recovery. ( 45 )

44.

It can be seen that the specimen form sets out information including: (i) the lender’s claim and costs (EUR 98.75); (ii) the fees that Inko charges when it agrees to act for a lender, comprising: EUR 15.65 (processing fee); EUR 14.28 (for the first reminder); EUR 9.36 (documentation fee) — subtotal: EUR 39.29; and (iii) the amount of the new debt EUR 138.04 (generated by adding EUR 39.29 to EUR 98.75). In addition, there are further fees: interest: EUR 0 ( 46 ); the monthly costs of maintaining a file (EUR 3.12 per month); EUR 15.96 per reminder; and EUR 45 collection costs — in total, EUR 64.08. ( 47 )

45.

Inko is not offering an arrangement that is free of charge. There are financial implications, in relation to which borrowers should be in a position to make an informed choice.

46.

Does it matter for the purposes of Article 2(2)(j) whether the borrower pays the costs of the instalment arrangement to the lender who then pays the recovery agent, or whether he pays the recovery agent directly?

47.

In my view it does not.

48.

It seems clear from the order for reference and from the information on the national file that in the main proceedings the borrower is in fact responsible under the initial credit agreement (at least indirectly) for that payment. ( 48 )

49.

Must the costs at issue be greater than those payable under the initial credit agreement where the borrower is in default in order for the arrangement to be outwith Article 2(2)(j)? ( 49 )

50.

In my view, the answer to that question is ‘no’.

51.

Such a condition, which forms no part of the actual wording of Article 2(2)(j), seems to me to be incompatible with the consumer protection aim of Directive 2008/48. The regulatory technique employed throughout that directive is that a consumer who is properly and fully informed is one who is better placed to take responsibility for his borrowing arrangements. ( 50 )

52.

The referring court asks whether the interpretation of Article 2(2)(j) has a bearing on the operation of Article 2(6) of Directive 2008/48.

53.

In my view it does not. The two provisions establish distinct regimes. Article 2(2)(j) is not discretionary, it excludes from the scope of Directive 2008/48 agreements where borrowers obtain credit free of charge.

54.

In contrast, Member States may choose whether or not to apply the lighter regulatory regime introduced by Article 2(6). ( 51 ) Under that provision they may decide that only certain Articles of Directive 2008/48 apply to credit agreements which provide for arrangements to be agreed by lenders and borrowers in respect of deferred payment or repayment methods, ( 52 ) where a borrower is already in default on the initial credit agreement and where such arrangements are likely to avert legal proceedings concerning the default and the borrower is not thereby subject to less favourable terms than those in the initial credit agreement. Article 6 (which applies to, inter alia, ‘any credit agreement or offer concerning a credit agreement’ as referred to, in particular, in Article 2(6)) lays down a list of mandatory items which the creditor and where applicable the credit intermediary must provide in good time to the consumer before he or she becomes bound. However, as Austria has chosen not to take advantage of the option afforded by Article 2(6), it is Article 5 that remains relevant to the dispute in the main proceedings. ( 53 )

55.

I therefore conclude that, where the initial credit agreement stipulates that the borrower is responsible for meeting the recovery costs in cases of default and the borrower subsequently enters into an instalment agreement with the lender pursuant to an arrangement organised by a debt collector, such an arrangement does not constitute a credit agreement which relates to deferred payment, free of charge, of an existing debt for the purposes of Article 2(2)(j) of Directive 2008/48, even where the borrower is already responsible for paying the costs of recovery set out in the initial credit agreement or is otherwise required to pay those costs under national rules.

56.

In the light of all the foregoing considerations, I am of the opinion that the Court should answer the questions raised by the Oberster Gerichtshof (Supreme Court, Austria) as follows: