The law of December 23rd 2016 transposing Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (the “MCD”) and amending the Consumer Code (code de la consommation) (the “MCL”) was published in Luxembourg’s Official Gazette on December 28th 2016. The MCL has a retroactive effect insofar as it applies to credit agreements signed after March 21st 2016.
One of the main goals of the MCD, and in turn of the MCL, is to ensure a “high level of consumer protection in the area of credit agreements relating to immovable property and in order to ensure that consumers looking for such agreements are able to do so confident in the knowledge that the institutions they interact with act in a professional and responsible manner”.
The MCL applies to:
- credit agreements with consumers (natural persons acting for purposes other than his or her commercial, industrial, artisanal or liberal activities) which are secured either by a mortgage or by another comparable security commonly used on residential immovable property or secured by a right related to residential immovable property; and
- credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building, provided that the credit agreement has a value of at least EUR 75,000.
The MCL sets out conditions which must be satisfied prior to the conclusion of a residential immovable property contract. For example, publicity or marketing communications with respect to the agreements must be fair, clear and not misleading. Also, the lender (or the credit intermediary) must provide personalised information regarding the offer using a European Standardised Information Sheet (ESIS) (which is set out in the Grand Ducal Regulation of December 23rd 2016), allowing the consumer to compare with other alternatives. Another key precondition is that the lender (or credit intermediary) is required to evaluate the solvability of the consumer in a rigorous manner, using information which is necessary, sufficient and proportionate.
The MCL also introduces rights and obligations of the parties after conclusion of the contract with respect to early repayment and foreclosure. The consumer has a right to early repayment of the loan, in which case the total cost of the credit must be reduced by the interest and charges applicable to the remainder of the credit period. The lender has the right to receive fair and objective compensation but the compensation shall not exceed the financial loss to the lender. The lender’s right to initiate foreclosure proceedings is limited, as lenders must exercise reasonable forbearance before foreclosure proceedings are initiated. Moreover, the costs charged to the consumer for the default cannot exceed what is necessary to indemnify the lender for the costs incurred after the default.
The MCL also sets out the requirements for establishment and supervision of credit intermediaries and appointed representatives and the rules of conduct which they must abide by.
