(CN) – Lenders – and not consumers – bear the responsibility of proving that they checked a borrower’s creditworthiness before they approved the loan, the EU high court ruled on Thursday.
The case stems from two disputes being heard by French courts, where a lender sought immediate payment from borrowers who were in default. But the bank could not produce either the standard EU credit application or documentation that it had fulfilled its legal duty to inform – only a signature that the borrower acknowledged having received the information.
And in the second case, the borrower did not provide the bank with supplemental evidence of his financial situation. The French court asked the European Court of Justice to weigh in on which party – the lender or the borrower – has the burden to prove the bank provided all the legal notices, as well as whether the lender should have gone beyond information provided by the borrower to check creditworthiness before approving the loan.
In a 7-page opinion, the EU high court noted that a prospective borrower can’t be expected to know what a creditor’s legal obligations are. So the burden lies with the lender to prove that it has fulfilled all precontractual obligations – and a signed receipt does not count as proof, the court ruled.
“Thus, the standard term in question is an indication which the lender is required to substantiate with one or more relevant items of evidence,” the Luxembourg-based court wrote. “Furthermore, the consumer must always be in a position to state that she did not receive that form or that the form did not enable the creditor to fulfill its precontractual obligations to provide information.”
As to whether lenders are required to do a more thorough credit check – rather than just going on a prospective borrower’s word – the court said that EU law gives banks some discretion either way.
“That assessment may be carried out using supporting evidence of the consumer’s financial situation, but it is possible that the creditor may take into account prior knowledge of the loan applicant’s financial situation which it may have. However, mere unsupported declarations made by the consumer may not, in themselves, be sufficient if they are not accompanied by supporting evidence,” the court wrote.
In any case, lenders must give legally required notices and information before any contracts are signed – although the notices may be given orally rather than in writing if national law allows, the court concluded.
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