In following the Advocate General's advisory opinion, the Supreme Court recently reaffirmed several appellate court judgments stemming from cases brought by bank customers in relation to provisions in the banks' general terms and conditions that require customers to compensate banks for the early repayment of their fixed-interest mortgages. The Supreme Court clarified that the transparency of the provisions is a relevant factor, but not a decisive one when assessing the validity of these provisions.

Background

On 7 October 2022, the Supreme Court of the Netherlands dismissed the appeal of a former customer of Rabobank against a by the Amsterdam Court of Appeal (judgment). On the same day, it also dismissed similar complaints against appellate court judgments brought by (former) customers of Volksbank N.V. (judgment) and ABN AMRO N.V. (judgment). The judgments are available in Dutch only.

The cases revolved around the same question: is a provision that allows banks to charge a fee to customers who opt for early repayment of a fixed-interest mortgage valid and binding? In Rabobank's case, this fee was based on the general terms and conditions and amounted to the difference between the contractual rate that would have been due in the absence of early repayment, and an actual rate that the bank would charge for a similar term. The question is especially relevant when the interest rate is lower than the fixed interest rate agreed on in the past.

Rabobank argued that the fee charged to the customer is in line with laws and regulations, including the guidelines set by the Dutch Authority for the Financial Markets (AFM) on financial loss compensation in the event of early mortgage repayment. According to AFM guidelines, charging such a fee is considered reasonable if the compensation for the bank does not exceed the financial loss (as meant in the Mortgage Credit Directive) suffered. Customers, however, asserted that the provision is unfair or unreasonably onerous for several reasons, including because it gives no insight in the exact components of the fee charged (lack of transparency). According to the customers, this lack of transparency should be decisive when assessing whether a provision is unfair or unreasonably onerous.

Supreme Court's reasoning

In none of the three cases put forward did the Supreme Court see any reason to intervene. Only in the case against Volksbank did the Supreme Court hold that a lack of transparency is a circumstance that should be taken into account when assessing the unfairness. This decision shows that a lack of transparency in itself does not make such a provision unfair or unreasonably onerous.

The Supreme Court also held that the Mortgage Credit Directive did not apply because there is no reasonable doubt that the mere change in the interest rate or fixed period of a credit agreement validly concluded before 21 March 2016 cannot be regarded as the granting of credit within the meaning of Article 4 (3) of the Mortgage Credit Directive.

In all three cases the Supreme Court followed its Advocate General's advisory opinions (link, link and link; available in Dutch only), which also concluded that the appeal should fail.

De Brauw's Jan-Willem Meijer, Floris Kaptein and Anton Graafland litigated this case before the Dutch Supreme Court on behalf of Coöperatieve Rabobank U.A.