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Judgment on nullity of payday loan agreements in the Netherlands

  • Netherlands

    10-09-2018

    Introduction

    This briefing discusses the judgment of the court of Rotterdam dated 13 July 2018 (published on 20 July 2018) regarding the nullity of credit agreements for payday loans (flitskredieten) in the Netherlands that effectively exceed the maximum allowed annual percentage rate (kredietvergoeding, “APR”).

    Summary of judgment

    The court of Rotterdam ruled that providers of payday loans may no longer offer consumer credit (payday) loans with additional costs disguised as a 'guarantee'.

    The judgment states that a borrower obtained a loan of EUR 350 for one month from a payday provider, which operates from Lithuania. In addition to the APR of 13.99%, the borrower was obliged to obtain a third party guarantee in order to be eligible for the payday loan. The borrower could choose between (i) a (free) personal guarantee from, for example, a friend or family member or (ii) an (expensive) commercial guarantee from a third party which was affiliated with the payday provider. The costs for the commercial guarantee were in this case EUR 87.50.

    The payday provider argued in the process that the commercial guarantee falls outside the APR because the borrower is not obliged to opt for the expensive commercial guarantee, but can also choose for the free personal guarantee. The judge disagreed and stated that the personal guarantee is just for the show. If a borrower has someone in his personal environment who wants to provide a guarantee for a short term loan of that amount, he can also borrow that amount from that relevant person.

    According to the judge, the costs for the commercial guarantee must therefore be considered to be part of the APR. Because the maximum APR was therefore effectively exceeded, the credit agreement is considered to be in conflict with the law, so that the agreement is null and void (nietig). The fact that the commercial guarantee effectively needs to be paid to a third party is irrelevant because the relationship with that third party must be qualified as a compulsory ancillary service (verplichte nevendienst) within the meaning of Section 7:57 (2) Dutch Civil Code.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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