Enforcement of Security Rights in Residential Immovable Property and Consumer Protection: An Assessment of Estonian and Norwegian Law

2.1 The Aziz case

Traditionally, enforcement procedure rules, including regulation of the enforcement of security rights, have been the exclusive competence of Member States, reflecting the principle of so-called procedural autonomy.⁴ Recently, however, EU law has begun to assert itself in this area. This was first evident in the CJEU ruling in the Aziz case in early 2013.⁵ In Aziz, the CJEU had to answer questions referred to it by a Spanish court on the unfairness of the terms of a secured credit agreement and the compatibility of Spanish enforcement rules with the purposes of the Unfair Terms Directive. Under Spanish rules, a debtor who defaults on a home loan is not entitled to contest the fairness of a standard term of the credit agreement in the proceedings for enforcement of the security right; he may only do so in subsequent declaratory hearings. However, when the consumer initiates the subsequent declaratory proceedings, the court was – at the time – not entitled to terminate the enforcement proceedings. Therefore, even if a non-negotiated term in an agreement on secured credit is later declared to be unfair, there were no means in Spanish procedural law for the consumer to prevent the forced sale of his or her home. The only remedy for the consumer in this case was a claim for damages.⁶

The CJEU first acknowledged that national enforcement rules are not harmonised at the European level and thus fall within the procedural autonomy of Member States. However, the Court stressed that national enforcement rules must not conflict with the long-established EU law principles of equivalence and effectiveness.⁷ While the Court found no violation of the equivalence principle in the case at hand, the compatibility of the Spanish rules with the principle of effectiveness was denied on the basis that the Spanish rules did not constitute ‘an adequate or effective means of preventing the continued use of that term, contrary to Article 7(1) of Directive 93/13’.⁸ Consequently, the CJEU held Spanish law on the enforcement of security rights to be contrary to EU consumer protection rules and thus once more showed that in the area of the Unfair Terms Directive the procedural autonomy of Member States is subject to considerable restrictions.⁹ The position of the CJEU in Aziz was later confirmed in the joined cases Banco Popular Español SA and Banco de Valencia SA¹⁰ where similar questions about the compatibility of the Spanish enforcement rules with the Unfair Terms Directive were referred to the CJEU.

In Aziz, the Spanish court which referred the case asked the CJEU to clarify the constituent elements of the concept of ‘unfair term’ (such as ‘significant imbalance’ and ‘contrary to the requirement of good faith’) in order to assess the possible unfairness of an acceleration clause in a long-term credit agreement for events of default occurring within a very limited, specific time period.¹¹

In its analysis the Court first recalled that the decision on the unfairness of a term in a given case must be made by the national court, which takes into account ‘the nature of the goods or services for which the contract was concluded and referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of it’.¹²

The Court then listed some more specific circumstances to take into account when carrying out the unfairness assessment. As for the notion of ‘significant imbalance to the detriment of the consumer’, the Court stated that a national court should assess in particular whether the contract places the consumer in a legal situation less favourable than that provided for by national default rules.¹³ Somewhat surprisingly though, the CJEU continued to state that the assessment should also consider which legal means the consumer has under national law to prevent the continued use of such unfair terms.¹⁴ Thus the Court required national judges to pay attention to both material and procedural law when evaluating the possible unfairness of a standard contract term. This reasoning was again emphasised in assessing the possible unfairness of acceleration clauses. The CJEU stated that the Spanish court should assess whether the creditor’s right to invoke an acceleration clause depends on non-performance by the consumer of:

an obligation which is of essential importance in the context of the contractual relationship in question, whether that right is provided for in cases in which such non-compliance is sufficiently serious in the light of the term and amount of the loan, whether that right derogates from the relevant applicable rules and whether national law provides for adequate and effective means enabling the consumer subject to such a term to remedy the effects of the loan being called in.¹⁵

The CJEU’s reasoning seems to suggest that an acceleration clause in a long-term credit contract is subject to a proportionality test under the Directive – a balancing of interests. Additionally, it must be considered whether the right to accelerate payment derogates from national law in situations where no agreement has been reached and whether national law contains adequate measures for the consumer to remedy the acceleration of the loan. Under the proportionality test, it must be borne in mind that a potential consequence of accelerated payment and subsequent enforcement is the loss of the consumer’s home.¹⁶

Proportionality is also referred to in the Court’s discussion of the default interest clause. The stipulated rate of interest should be compared with the statutory interest rate, ‘in order to determine whether it is appropriate for securing the attainment of the objectives pursued by it in the Member State concerned and does not go beyond what is necessary to achieve them’. In addition, the national law which applies in the absence of an agreement should be assessed.¹⁷

2.2 Mortgage Credit Directive

In the recently adopted Mortgage Credit Directive (MCD), an EU law instrument for the first time sets specific requirements for national enforcement law. In addition to many other consumer protection measures – such as the information duties of the creditor, the principle of responsible lending and the consumer’s right to withdrawal – Article 28 of the MCD also sets out some aims and standards concerning the national rules on default charges and on the enforcement of security rights. The norms in Article 28 are relatively vague, laying down general principles for default charges and enforcement proceedings while leaving considerable legislative discretion to the Member States. Article 28(1) of the MCD, for example, provides that Member States shall adopt measures to encourage creditors to exercise reasonable forbearance before enforcement proceedings are initiated.

This regulatory vagueness, however, does not necessarily mean that the CJEU will be unable to assess whether Member States’ transposed rules are compatible with the purposes of the Directive. Member States must therefore bear in mind that the compatibility of their enforcement rules with EU law will – at least in some aspects – be subject to the control of the CJEU in the future. This was evident in the recent Crédit Lyonnais case,¹⁸ where the Court of Justice had to decide whether French rules conformed with Articles 8 and 23 of the Consumer Credit Directive (CCD).¹⁹ In Crédit Lyonnais, the referring court questioned whether a French sanction for breaching the duty to assess a consumer’s creditworthiness could be considered an effective penalty in discouraging creditors from concluding loan agreements without carefully examining a borrower’s financial situation. Under Article 23 of the CCD, Member States must ensure that effective, proportionate and dissuasive sanctions exist for breach of its provisions. Although Article 8 of the CCD, which obliges Member States to ensure that the creditor examines the borrower’s creditworthiness, leaves a considerable amount of discretion to the Member States as to how exactly this should be done,²⁰ the CJEU considered the French penalty to be non-compliant with the Directive’s purpose.²¹

Similarly, Article 38(1) of the MCD demands that Member States provide for effective, proportionate and dissuasive sanctions for infringement of national provisions adopted on the basis of the Directive. And while the rules in Article 28 of the MCD also leave considerable discretion to Member States – as does Article 8 of the CCD – it is evident that national Directive-relevant enforcement rules can and will be tested against EU standards.

Probably the most important principle concerning enforcement proceedings is set out in Article 28 paragraph 5 of the MCD. It obliges Member States to adopt procedural rules enabling the best efforts price to be obtained for the property, if the price obtained affects the amount owed by the consumer.²² The existing Estonian and Norwegian rules on best price regulation in enforcement proceedings will therefore analysed with the aim of assessing whether they comply with the purposes and standards of the Mortgage Credit Directive.

2.3 Fundamental rights aspects, including case law of the European Court of Human Rights

The enforcement of security rights in residential immovable property, apartments, etc. will regularly result in the debtor and the debtor’s family losing their home. Protection of the home is regarded as a fundamental right. This is stated in several instruments, for example Article 7 of the Charter of Fundamental Rights of the European Union (‘Everyone has the right to respect for his or her private and family life, home and communications.’) and Article 8 of the European Human Rights Convention (‘Everyone has the right to respect for his private and family life, his home and his correspondence.’).²³ Enforcement may also raise issues concerning the right to a fair trial and the protection of property.²⁴

The European Court of Human Rights found in its 25 July 2013 judgment in the case Rousk v Sweden (Application No. 27183/04) that Sweden had violated Article 8 of the Convention as well as Article 1 of Protocol 1 to the Convention (protection of property). The applicant’s house had been sold by forced sale in relation to a tax debt amounting to EUR 800 at the time of the sale, subsequent to a rather nightmarish bureaucratic procedure, and the applicant was evicted from the house. The Court made the following general remarks on Article 8 and enforcement:

137. In this respect, the Court has held that the loss of one’s home is a most extreme form of interference with the right to respect for the home. Any person at risk of an interference of this magnitude should in principle be able to have the proportionality of the measure determined by an independent tribunal in the light of the relevant principles under Article 8 of the Convention (ibid. [Zehentner v. Austria (no. 20082/02), § 54, 16 July 2009] § 59, and McCann v. the United Kingdom, no. 19009/04, § 50, ECHR 2008). The decision-making process leading to the measures of interference must also have been fair. The Court will therefore attach particular weight to the existence of procedural safeguards.

138. Thus, while the Court accepts that it will sometimes be necessary for the State to attach and sell property, including an individual’s home, in order to secure the payment of taxes due to the State through enforceable debts, it emphasises that these measures must be enforced in a manner which ensures that the individual’s right to his or her home is properly considered and protected.

The case of Zehentner v Austria (referred to in the quote) dealt with a forced sale of an apartment and the outcome was the same. The case of McCann v the United Kingdom dealt with eviction following termination of a tenancy.²⁵ The essence of these and some similar judgments, as far as Article 8 is concerned, is that eviction from a home ‘must be enforced in a manner which ensures that the individual’s right to his or her home is properly considered and protected’ (see quote above). It is a procedural safeguard. In addition, the disproportionate interference with property in Rousk illustrates that there is a certain protection of substantive rights as well.

The case law of the European Court of Human Rights thus supplements the protection established in Aziz and in subsequent cases of the CJEU. Aziz ensures that review of contract terms falling under the scope of Directive 93/13 must be available in the enforcement proceedings. Provisions of national legislation concerning enforcement, on the other hand, do not fall under the scope of the Directive.²⁶ Member States of the EU are all bound by the European Convention of Human Rights, notwithstanding some loose ends concerning the accession of the EU to the Convention.²⁷ Prior to such accession, the CJEU cannot, in principle, rule on the conformity of national law with the Convention or interpret the Charter unless the implementation of EU law is involved.²⁸ It remains to be seen whether the rather vague provisions of the Mortgage Credit Directive on ‘encouraging’ creditors to exercise reasonable forbearance (Article 28) will be sufficient to bring the Charter into play. In any case, the Court’s approach in Aziz and several other cases may be regarded as a sort of ‘hidden constitutionalisation of private law’, as fundamental rights are involved even if the Charter is not explicitly referred to.²⁹ This ‘constitutionalisation’ becomes understandable when one bears in mind the historical background of the Aziz case that had its roots in a constitutional dispute: in 1981, the Spanish Constitutional Court declared that the Spanish enforcement rules were in conformity with the Spanish Constitution and that no fundamental rights argument could therefore be raised. However, the Spanish courts found a way to overcome the shortcomings of domestic enforcement regulation via European consumer protection rules.³⁰

The fundamental rights aspect of the Aziz case has also been recognised by O. Cherednychenko who states that the case reflects the balancing of the creditor’s right to conduct a business (Article 16 EUCHR) and the consumer’s right to a home (Article 7 EUCHR). She argues that the Unfair Terms Directive could also have the effect of promoting a fundamental right to a home despite this originally being outside the purposes of the Directive.³¹

Thus, this fundamental rights aspect is part and parcel of any discussion of enforcement rules. This reminder aside, we do not discuss in this article the complex subject of the current role of fundamental rights in EU law.

2.4 Estonian law

2.5 Acceleration clauses

In Aziz, the CJEU ruled that when deciding upon the possible unfairness of an acceleration clause, domestic court should assess, inter alia, whether the creditor’s right to invoke such a clause derogates from the applicable non-mandatory rules. In Estonian law, the default rules for accelerating a long-term loan contract for failure to pay are set forth in subsection 399(1) of the LOA.⁵⁴ According to this provision, the creditor is entitled to terminate a loan agreement and demand immediate repayment of the loan if 1) the debtor is in default with more than two payments overdue or with one payment overdue for more than three months, or 2) if the debtor fails to perform the obligation to pay interest. In addition, the creditor must grant the debtor an additional term of reasonable length (subsection 196(2) of LOA) and only if the debtor does not perform within this term is the creditor entitled to accelerate the loan.⁵⁵

It seems that the Estonian security rules against which acceleration clauses are judged already contain, at least in part, the assessment criteria set out in Aziz: the requirement of subsection 399(1) p 1 ensures that an acceleration clause cannot be invoked without payments being significantly overdue (i.e. that the debtor’s ‘non-compliance is sufficiently serious’ as demanded by the CJEU) and the requirement to set an additional term gives the debtor the possibility to ‘remedy the effects of the loan being called in’.⁵⁶ However, Estonian law also allows for a secured loan to be called in ‘if the debtor fails to perform the obligation to pay interest’ (subsection 399(1) p 2 of LOA). While it is true that the creditor is also obliged in this case to grant a reasonable additional term for performance and acceleration of the loan is possible where the debtor fails to pay within this term,⁵⁷ in some cases additional application of the Aziz proportionality test seems necessary as failure to pay interest even after an additional term might not always qualify as a ‘sufficiently serious’ breach.⁵⁸Alternatively, a solution similar to the proportionality test can be achieved by a certain interpretation of Estonian, non-mandatory law against which the clause must be tested. Under Estonian general rules, namely, termination of long-term contracts is possible only for a ‘good reason’, in particular if the party cancelling the contract cannot reasonably be expected to continue performing the contract until the end of the agreed term or until the end of the notice period, taking into account all the circumstances and the mutual interests of the parties (subsection 196(1) of LOA). The content of this norm is very similar to the Aziz proportionality test as it requires that the interests of the parties be balanced. Although the commentary to the Law of Obligations Act states that subsections 399(1) and (2) of LOA constitute as such ‘good reasons’ within the meaning of subsection 196(1) of LOA,⁵⁹ an alternative interpretation is also possible. In our view, these two rules can be applied cumulatively with the result that the balancing of interests (required in subsection 196(1) of LOA) will also come into play.

The need for additional application of either the Aziz proportionality test or the principle of balancing of interests (subsection 196(1) of LOA) should not occur too often as the standard terms of Estonian credit institutions seem even more consumer-friendly than the default rules of the Law of Obligations Act. For example, the standard terms of Swedbank (the biggest credit institution in Estonia) entitle the creditor to acceleration only if the debtor has defaulted on three consecutive payments (including interest payments) and a two-week additional period has elapsed in vain.⁶⁰ The same applies to Nordea bank.⁶¹ However, the need to apply either the proportionality test or the principle of balancing of interests may emerge for such clauses where the creditor’s right to accelerate is triggered by breaches other than the consumer’s failure to pay.

In order to decide upon the fairness of a default interest clause, the CJEU requires that the clause be compared with the national non-mandatory law and with the statutory default interest rate.⁶² Under Estonian law, the creditor is entitled to claim interest for late payment under subsection 113(1) of the LOA from the moment the consumer defaults on payment. The default interest rate is usually stipulated in the credit contract. However, according to subsection 415(1) of LOA, the contractual default interest rate may not exceed the statutory default interest rate provided for in subsection 113(1) of LOA. The statutory default interest rate is calculated on a half-year basis by adding 8 percentage points to the statutory interest rate specified in section 94 of the LOA. For credit agreements, an alternative calculation method is provided for in the third sentence of subsection 113(1) of the LOA: if a contractual interest rate exceeds the statutory default interest rate, then the contractual interest rate can be claimed in the case of late payment. These rules are mandatory (and thus not subject to unfairness control) and the parties cannot validly agree to additional penalties for late payment (subsection 415(1) of LOA).

As far as the consumer’s interest in saving his or her dwelling is concerned, the legal conditions for acceleration and default interest do not weigh heavily under Estonian law. If the debtor defaults, the creditor can start enforcement proceedings even if the loan has not been accelerated.⁶³ It is therefore critical that the debtor has efficient legal means to suspend the enforcement proceedings in cases where he has objections to the underlying claim (such as the unfairness of a credit contract term).

2.6 Enforcement proceedings

3.1 Statistics concerning non-performing loans and forced sales

Norway has so far been spared the serious effects of the financial crisis that developed from 2007. The rate of non-performing personal loans (those overdue by more than 30 days) was 0.9% at the end of 2013, a rate largely unchanged since 2006.⁷³ There was a certain rise in the number of forced sales of immovable property (and shares in housing co-operatives) around 2009, but the total number of completed forced sales is still quite low (for Oslo, 193 in 2012 and 161 in 2013).⁷⁴

3.2 Global securing agreements and security rights for third party debt

Global securing agreements (‘all money’ clauses) seem to be common in Norway for business-related debts secured by a security right in an owner’s or a shareholder’s home.⁷⁵ Today, the predominant model for security rights in immovable property is the ‘abstract’ security right, similar to the German Grundschuld: no claim is specified in the security document, nor is it specified in the Land Registry; the claims covered by the security right are listed in a separate agreement between the security grantor and the creditor, and this agreement often states that all outstanding claims, present and future, are secured under the right. Global securing agreements are probably less common when the security right is granted for a home loan (i.e. a loan for the purpose of acquiring the residential immovable property).

There is no legislation concerning securing agreements in connection with security rights. Limitations of the scope of such agreements may follow from interpretation of the agreement or from general rules on unfair terms. Assessment of unfair terms is mainly done under the so-called general clause in section 36 of the Formation of Contracts Act, with some additional rules in section 37 regarding non-negotiated terms in consumer contracts.⁷⁶ These two provisions also represent the transposition of Directive 93/13 EEC on unfair terms in consumer contracts.⁷⁷

The unfairness is relevant mainly in cases where the security right secures a third party’s debt – and not the grantor’s debt – as when a shareholder grants a security right in his home in order to secure the company’s debt to the bank. If the agreement covers only the grantor’s debt, the inclusion of new credit under the agreement will often be less detrimental to the grantor, as the grantor already owes the money. However, if the consequence of securing a new claim under the security right is a potential acceleration of the total debt, leading to a forced sale of the grantor’s home, the grantor may be worse off than if the new credit had not been secured.

In a judgment from 1994, the Supreme Court discussed the interpretation of a general securing agreement⁷⁸ in which a person was granted a security right in his apartment in a housing cooperative. The occasion was a bank loan connected to the grantor’s business activities and, according to the securing agreement, the security right covered ‘all present and future outstanding claims’ which the bank had against the grantor. About one year later, the same bank provided two additional loans, without a new securing agreement. In a conflict with another bank which had obtained a security right in the apartment in the meantime, it was disputed whether the two additional loans provided by the first bank were covered by the original security right. The Supreme Court made the remark that a securing agreement with such general and broad wording could be interpreted restrictively if there was no ‘reasonable and natural connection’ between the credit giving rise to the security right and the new credit. In the present case, the Supreme Court found there was no such lack of connection and deemed that the additional loans were covered by the securing agreement.

This case dealt with a conflict between two creditors, not with the protection of the grantor’s interests. The Court’s remarks on a ‘reasonable and natural connection’ with the original credit have general relevance, though they are particularly pertinent in conflicts between parties to the securing agreement.

There are no Supreme Court cases assessing the fairness – under section 36 of the Formation of Contracts Act – of a general securing agreement. Cases from other courts and instances are few and far between and do not provide clear instruction.⁷⁹

The conclusion is that the unfair results of a global securing agreement may be adjusted, either by restrictive interpretation of the agreement or on the basis of the general clause on unfair contract terms (section 36 of the Formation of Contracts Act). The general clause must be applied in conformity with the EU case law concerning Directive 93/13. There are few cases on global securing agreements, and the interpretation and fairness of such agreements have not been tried by the Supreme Court for the last twenty years. On this point there is a notable difference when compared with the developments in Estonia.

Personal security contracts under which the creditor is a bank or other financial institution are regulated by the Financial Contracts Act Chapter 4. The Chapter includes special rules on contracts under which a consumer acts as personal security provider.⁸⁰ Under these rules, a security right in an asset for a third party’s debt is comparable to a contract for personal security.⁸¹ If a security right is granted in assets which are not mainly connected with the grantor’s business activities, the rules on consumer personal security contracts apply.⁸² In descriptive terms, the lumping together of a security right in an asset for third parties’ debt and a contract for personal security may seem confusing. The explanation is that both have a security function.⁸³ The need for consumer protection is clearly the same for both contracts.

For personal security contracts, the creditor has pre-contractual information duties and must even warn a consumer against concluding a personal security contract if the consumer’s financial situation or other circumstances would recommend abstaintion. Breach of this duty to warn may lead to adjustment of the consumer’s obligations under the contract.⁸⁴ This means, for example, that the bank may be obligated to warn a shareholder against granting a security right in the grantor’s home if the purpose is to secure the company’s debt. The same applies if a spouse grants a security right in his or her assets in order to secure debts connected to the other spouse’s business activities.

These rules on pre-contractual information and on the duty to warn apply in addition to the general clause in section 36 of the Formation of Contracts Act. In one Supreme Court case, a security right granted by a mother in her apartment in a housing cooperative for her son’s debt was set aside as unfair under the general clause, but the circumstances of the case were rather peculiar, e.g. concerns about the mother’s state of mind.⁸⁵ Examples can also be found in cases from lower courts and complaint panels.⁸⁶ In most cases, however, the personal security provider’s claim for contract revision was not successful. The personal security contract is, after all, binding as a rule.

3.3 Acceleration clauses and default interest clauses

Acceleration clauses typically entitle the creditor to immediate reimbursement of the entire loan upon certain events, such as delayed payment of one or more instalments. This means termination of the credit contract. The debtor will often have problems refinancing the debt on short notice and termination will regularly entail a higher interest rate than the original one – an interest rate fixed by the contract or in legislation on late payment. If the debt is secured by a security right, termination may lead to enforcement of this right. In particular, when the credit is secured by a security right in the debtor’s home, enforcement will lead to further detrimental consequences for the debtor. Acceleration clauses thus call for an assessment of their fairness, especially if the clauses are inserted in consumer contracts.

Under the Finance Contracts Act, the creditor may terminate the credit contract and claim immediate reimbursement of the loan in specified situations, the most important of which is fundamental non-performance of the debtor’s obligations. Additional grounds for termination are the death of the debtor and the opening of insolvency proceedings. The loss of an asset securing the debt, the forced sale of such an asset or non-performance of the debtor’s obligation to take care of the asset, may also lead to termination of the credit contract.⁸⁷ If the debtor is a consumer, these rules may not be derogated from by the parties to the detriment of the consumer.⁸⁸ Open-ended credit agreements may be terminated by giving two months’ notice if this has been agreed in the contract, regardless of non-performance.⁸⁹

Whether or not the non-performance of the debtor’s obligations is fundamental must be decided in light of the circumstances of the case. The parties may not set out in their contract that, for example, delayed payment of one or two instalments automatically gives sufficient reason for immediate reimbursement of the loan. This legislation seems to provide clearer and more efficient protection of the consumer’s interest in comparison to a more general assessment of unfair terms.

As the creditor’s right to terminate the credit contract in cases of fundamental non-performance is the background rule under national law, a contract term corresponding to this rule will probably not be deemed unfair under the Unfair Terms Directive.⁹⁰ Derogating to the detriment of the consumer is not allowed however; thus, an assessment of the term’s compliance with the Directive is not necessary. From a fundamental rights perspective, the national rule is not necessarily acceptable, and some comments must be added concerning the proportionality test.

Arguably, the CJEU relies on a proportionality test when it requires that non-performance be ‘sufficiently serious’ for an acceleration clause to be applied, an implicit premise being that the consequences may be very grave for the consumer.⁹¹ Correspondingly, a proportionality test is crucial in the determination of possible infringements of fundamental rights. Fundamental non-performance as a ground for termination is based primarily on an assessment of the effects of non-performance on the creditor rather than a balancing of interests. For example, in the definition of ‘fundamental’ in DCFR III.–3:502(2), the essence is that the non-performance ‘substantially deprives the creditor of what the creditor was entitled to expect under the contract’. It is required that the debtor foresees or could be expected to have foreseen the result, but the effects of termination on the debtor’s interests are not considered. On the other hand, it is commonly held under Norwegian law that the consequences of termination for the debtor are also relevant in determining whether there is sufficient ground for termination. As such, the difference with a proportionality test may not be so important in practice.⁹²

A proportionality test in the assessment of a contract term is different from a proportionality test in a conflict between a State and an individual.⁹³ Private interests are involved on both sides: here, the creditor’s interest in collecting his money is balanced against the debtor’s interest in avoiding the potentially harsh consequences of debt collection. The difference should however not be overestimated. Issues of fundamental rights and proportionality often come up in connection with the State’s efforts to protect the interests of one group of citizens over the interests of another group. What is formally a conflict between the State and the individual may in real terms be a conflict between private parties.

Under the Mortgage Credit Directive, Member States must ‘adopt measures to encourage creditors to exercise reasonable forbearance before foreclosure proceedings are initiated’ (Article 28(1), see section 2.2 above). This is a rather vague guideline, but it seems to correspond well with the rule on fundamental non-performance as a requirement for termination of the credit contract, given one accepts an element of balancing of interests in the application of the fundamental non-performance criterion.

The Norwegian Late Payment Act fixes the interest rate in the case of late payment to eight percentage points above the Norwegian Central Bank’s key policy rate, which is set every six months. Currently (May 2014), the late payment interest rate stands at 9.50% per year (no compound interest).⁹⁴ The rules are mandatory where the debtor is a consumer and the parties cannot validly agree to additional penalties etc.⁹⁵ However, the ordinary contractual interest rate may still be claimed by the creditor.⁹⁶ The Mortgage Credit Directive allows Member States to regulate charges on the consumer arising from a default, ensuring that the charges are ‘no greater than is necessary to compensate the creditor for costs it has incurred as a result of the default’ (Article 28(2)). The statutory late payment interest rate should arguably be regarded as acceptable under this guideline.

The Consumer Ombudsman has reached an agreement with the organisation of banks and other financial institutions on the standard terms of loans to consumers. In particular, it has stressed that the consumer should receive a concise and simple explanation of the terms of the loan agreement.⁹⁷

3.4 Enforcement proceedings