In a rapidly evolving landscape of modern finance, Buy Now, Pay Later (“BNPL”) have been the topic of debate by the legislators and regulators. These services, offering the allure of deferred payments without the encumbrance of interest, have attracted a growing user base. However, their rise has been accompanied by concerns about irresponsible lending practices and a surge in consumer debt. This is especially the case as BNPL is generally not covered by the traditional consumer credit regulations. Accordingly, countries such as the UK and Denmark have already taken steps to regulate BNPL. A revision of the Directive 2008/48/EC in relation to consumer credit (“CCD”) is also expected by the European Commission this month, with the aim (amongst others) of regulating BNPL via the CCD II.
In the Netherlands, the CCD has been implemented in Title 7:2a of the Dutch Civil Code (Burgerlijk Wetboek, “DCC“) and the Dutch Financial Supervision Act (Wet op het financieel toezicht, “FSA“). In short, providers of BNPL products are generally not regulated by the FSA (and thus do not require a license), as the FSA is not applicable to credit that has to be repaid within three months and in respect of which only insignificant costs (i.e. a small fee) (What costs are considered as insignificant is amongst others explained by the AFM in a Q&A) are charged to the consumer (article 1:20 (1) (e) FSA). The civil law provisions in relation to consumer credit are laid down in Title 7:2a DCC, however Title 7:2a of the BW is also not applicable to credit agreements “without interest and other costs” and credit agreements with a term of three months or less with only “insignificant costs” as stipulated in Section 7:58(2)(e) of the BW.
Considering that no additional costs are generally charged for BNPL-products, providers are not subject to the FSA nor Title 2a DCC. Whether this is the correct approach has recently been subject to a preliminary ruling in the Supreme Court, in relation to a dispute involving AfterPay, rebranded as Riverty, which is a prominent player offering BNPL (Dutch Supreme Court 26 May 2023, ECLI:NL:HR:2023:778). The subdistrict court Arnhem asked several preliminary questions in relation to that dispute to the Supreme Court which will be shortly addressed below.
The Supreme Court starts with stating that a deferral of payment should be considered as a credit agreement within the meaning of Title 7:2a DCC if the description of ‘credit agreement’ within the meaning of Section 7:57 (1) (c) DCC is met, unless the provider is able to rely on an exclusion. Whether the consumer had a choice of different payment options and actively opted for BNPL, is not relevant to determine whether a deferral of payments can be considered a credit agreement.
Other aspects that should be taken into account in order to determine whether BNPL qualifies as consumer credit relates to which costs are part of the total costs of the credit. According to Article 7:57(1)(g) DCC, the total cost of credit is defined as “all costs, including interest, commissions, taxes and fees of any kind, which the consumer has to pay in connection with the credit agreement and which are known to the creditor, with the exception of notary fees“. According to the Court, various costs can be included in the total cost of the credit, including charging a payment fee. Whether this is the case will depend on the fact whether the consumer is obliged to pay the fee and is aware of this fee. The Court also mentions that it does not matter whether the costs are actually charged, but only that they can be charged.
The most important queries as addressed by the Supreme Court relate to the qualification of statutory interest and collection fees as part of ‘the total cost of credit’ which are commonly charged if the consumer fails to pay. An affirmative answer to this question will, in most cases, mean that BNPL providers would charge more than just insignificant costs and thus can no longer rely on an exclusion. As the outcome heavily relies on EU regulations, these queries have been referred to the European Court of Justice (“CJEU“).
The Court did however address various aspects that should be taken into account when answering this question. According to the Court, an affirmative answer can be found in the settled case-law of the CJEU, in which a broad interpretation of ‘the total cost of the credit to the consumer’ is adopted (CJEU 3 September 2020, cases C-84/19, C-222/19 and C-252/19, ECLI:EU:C:2020:631, Profi Credit Polska), even in the case of costs that become payable only in certain circumstances (CJEU 16 July 2020, Case C-686/19, ECLI:EU:C:2020:582, Sia Soho Group/Ptac) and regardless of whether the costs are payable to the creditor or to third parties (CJEU 26 February 2015, Case C-143/13, ECLI:EU:C:2015:127, Matei vSC Volksbank Romania SA). As the CJEU case-law shows, the extent to which the terms of the credit agreement include the chargeability of the costs and whether the creditor is aware of the costs are important (CJEU 16 July 2020, Case C-686/19, ECLI:EU:C:2020:582, Sia Soho Group/Ptac). Furthermore, the wording of the CCD itself also provides several starting points for an affirmative answer, such as the inclusion of costs of non-performance under the pre-contractual information obligations, including within the form ‘European Standard Information on Consumer Credit’. According to the Supreme Court, this does not alter the fact that it is unknown at the time the agreement is concluded whether a late payment will occur.
Nevertheless, the Court also recognises, and perhaps also the most important argument against an affirmative answer, is that the exception for ‘credit agreements without interest and other costs’ would be meaningless if the interest and extrajudicial costs due under the law were included in these ‘other costs’. This would only make sense in situations where non-performance costs are part of the revenue model of the provider.
Whether statutory interest and collection fees are part of the costs of consumer credit, will have to be determined by the CJEU. The answer to this question is also still relevant once CCD II has been adopted. This is because in relation to various credit agreements (including credit with no interest with only limited costs for non-performance and credit with a term of three months or less with only insignificant costs), the current CCD II proposal allows for less stringent requirements in the context of advertising and (pre)contractual information requirements. It is also of relevance for merchants, considering that CCD II provides the possibility for Member States to include an authorisation exclusion for certain merchants, to the extent that they intermediate in credit as an ancillary activity or offer credit as an ancillary activity for the sale of their own goods and services in the form of deferred payment, provided the credit is provided interest-free with only limited charges for non-performance. This is proposed under Article 37(2) CCD II.
Based on the analysis of the Dutch Supreme Court, we can conclude that there seems to be room to adopt a broad interpretation of ‘the total cost of the credit’, but such a ruling would have a great impact on credit providers making some provisions in CCD and CCD II meaningless. How the CJEU will interpret this, will of course also depend on the final version of CCD II (although we do not expect many changes) and we are looking forward to the ruling of the CJEU.
For further information, please contact:
Gidget Brugman, Partner, Bird & Bird
gidget.brugman@twobirds.com
