On 23 May 2024, the EFTA Court delivered its judgment in Joined Cases E-13/22 and E-1/23 Gylfason and Gröndal v Landsbankinn hf. and Sverrisdóttir and Sigurðsson v Íslandsbanki hf concerning the applicable transparency and the adequacy of information provided to customers on terms and conditions for, inter alia, adjusting the interest rate of a variable interest rate mortgage and credit loan agreements.
The referring courts were both requests for advisory opinions from Icelandic district courts: the Reykjavík District Court (Héraðsdómur Reykjavíkur) and the Reykjanes District Court (Héraðsdómur Reykjaness).
At stake was interpretation of various pieces of secondary law: Directive 2014/17 (Credit agreements for consumers relating to residential immovable property), Directive 2008/48 (Consumer Credit Directive), and Directive 93/13 (Unfair Contract Terms Directive).
In the cases, the first applicants had argued that their non-index supplementary loan (‘a tracker loan’) was adjusted (higher) than the interest rate initially set, and thus, the lender, Landsbankinn, neglected its obligation to define, clearly and accurately, the conditions and procedure for adjusting the interest rate in accordance the two aforementioned Directives. As for the second applicants in this first ruling, they argued that their loan from the lender, Íslandsbanki, did not allow the bank to raise the interest rate applied to their loan, citing that the reference values taken into account by Íslandsbanki when deciding to increase the interest rate were unclear, and not defined in such a manner that the consumer is able to obtain definitive information regarding all the premises on which interest rates are set.
The EFTA Court ruled, in a long judgment, that general references to unforeseen potential increases in the creditor’s costs are, by definition, unverifiable by an average consumer. As such, the inclusion of such elements will render it impossible for an average consumer to determine the economic consequences of the term for his or her financial obligations. In other words, terms such as “interest rates on the market” and “changes in the bank’s financing costs” are prima facie not transparent, even if such formulations are in themselves grammatically plain and intelligible.
However, importantly, the EFTA Court punted the responsibility here onto the national courts, whereby it is they who have to determine whether a term in a variable-rate mortgage loan agreement meets the requirements of good faith, balance and transparency. The assessment of unfairness must be made taking into account the high level of consumer protection warranted in the area of consumer credit specific to mortgage agreements.
The judgment of the EFTA Court in Joined Cases E-13/22 and E-1/23 Gylfason and Gröndal v Landsbankinn hf. and Sverrisdóttir and Sigurðsson v Íslandsbanki hf can be read here.