Pursuant to article L. 313-1 and seq. of the French consumer Code, banks (more generally professional lenders) are required to include an annual percentage rate of charge (Taux Effectif Global or "TEG") in loans offered to their consumers (more generally non-professional borrowers).

The TEG is the total cost of the credit to the borrower expressed as an annual percentage. Calculation of such rate includes the insurance and guarantee costs, the application fees and all other fees related to such credit, in addition to the nominal interest cost of the credit.

French courts have been handing down various– and sometimes inconsistent – decisions concerning the consequences of a breach of article L. 313-1 (lack of TEG or erroneous TEG).  

On July 17, 2019, the State Secretary to the Minister for Economic Affairs and Finance submitted an ordinance on civil penalties for absence or error in the TEG according to article 55 of the 2018 bill for "a State serving a trusted society".

The purpose of the Ordinance was to clarify the current uncertainties in penalties imposed in the event of absence of error in the calculation of the APRC. French courts currently apply alternatively penalties based on the consumer code, which consist in a total forfeiture of the lender's right to interest, and penalties established by case law for all credit agreements, which provide for the substitution of the legal interest rate to the contractual interest rate and the restitution of any excess interest paid.

The Ordinance now provides for a single penalty: the lender will be deprived of the right to interests in a proportion determined by the judge, in particular with regards to the borrower's prejudice. Although this new sanction is more proportionate than existing ones, it is nevertheless dissuasive since the judge's discretion is not limited to the sole damage suffered by the borrower.

The Ordinance is silent regarding the application of this new sanction to ongoing proceedings. It is therefore up to the civil judges to assess, on a case-by-case basis, whether this new sanction is less severe than those existing, and to apply it immediately in such case.

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