This article explores a fundamental concept at the heart of consumer protection: the consumer status in the face of unfair terms. It analyzes the case law of the Court of Justice of the European Union (CJEU) to clarify the distinction between a ‘consumer’ and a ‘professional,’ particularly in the context of a mortgage loan for a buy-to-let investment or mixed-use contracts. Understanding this distinction is essential for the defense of rights and the challenge of potentially unlawful terms in banking law.
What Is a Consumer? A Functional and Objective Criterion
The concept of consumer is crucial in consumer law, but it can give rise to uncertainties and vary across different areas. Under Article 2(b) of Directive 93/13/EEC of 5 April 1993 on unfair terms, a ‘consumer’ is any natural person who, in contracts covered by that directive, acts for purposes outside his trade, business, or profession.
Conversely, a ‘professional’ (seller or supplier) is any natural or legal person acting in the course of their trade, business, or profession. French law, through Article L. 212-1 of the Consumer Code, aligns with this distinction by applying the unfair terms regulations to ‘contracts concluded between professionals and consumers,’ even extending this protection to ‘non-professionals’ via Article L. 212-2.
The CJEU has clearly established that the status of ‘consumer’ must be determined on the basis of a functional criterion, that is, by assessing whether the contractual relationship falls outside the scope of a professional activity (CJEU, 8 June 2023, No. C-570/21). This objective approach is justified by the consumer’s position of inferiority vis-a-vis the professional, requiring particular protection.
Recent Clarifications from the CJEU
Several recent cases have enabled the CJEU to refine this definition, particularly in the banking and real estate sectors.
1. Acquisition of Real Property for Rental Purposes (Buy-to-Let)
A frequently asked question is whether a natural person who purchases real property for the purpose of renting it out, rather than for personal residential use, may be considered a consumer.
- The case: A married couple had purchased real property in Warsaw with the aim of letting it, and had taken out a mortgage loan indexed to the Swiss franc from a Polish bank. Having fully repaid the loan, they brought proceedings before a Polish court to challenge terms they considered unfair. The preliminary question referred to the CJEU was whether a natural person taking out a loan for the acquisition of a single property intended for commercial letting (buy-to-let) should be considered a ‘consumer.’
- The CJEU’s ruling (CJEU, 24 Oct. 2024, No. C-347/23): The Court held that a natural person who enters into a mortgage credit agreement to finance the purchase of a single residential property for the purpose of letting it for profit falls within the concept of ‘consumer’ under the directive. The mere fact that this person seeks to derive income from the management of the property does not in itself exclude them from that classification.
- Implication: It is for the national court to establish whether the person acted in the course of their professional activity or for purposes outside it, taking into account the nature of the property. Considering that an individual loses consumer status merely because they seek a profit on a single acquisition would be illogical and contrary to the rationale of the unfair terms regulations, as this falls far short of the concept of commercial activity, which presupposes a plurality of acquisitions and a regular pattern.
2. Mixed-Use Contracts: Professional and Non-Professional Purposes
What is the position when a credit agreement is intended for a use that is partly linked to professional activity and partly unrelated to it?
- The case: A CJEU decision of 8 June 2023 concerned two borrowers (one managing a civil company, the other a locksmith) who had taken out a mortgage loan indexed to the Swiss franc. The loan capital was allocated partly to a professional purpose of one of the borrowers and partly to a non-professional purpose.
- The CJEU’s ruling (CJEU, 8 June 2023, No. C-570/21): The Court clarified that a natural person who enters into a contract relating to a good or service intended for use partly connected with their professional activity, and thus only partly unrelated to that activity, may be classified as a ‘consumer’ and benefit from the protection of the directive, if the professional purpose is so limited as not to be predominant in the overall context of that contract.
- Assessment criteria for the national court: In determining whether the professional use is not predominant, the referring court must take into account all relevant circumstances, both quantitative and qualitative. This includes the allocation of the borrowed capital between the respective uses, the plurality of borrowers (where only one has a professional purpose), or whether the lender made the grant of a consumer credit conditional upon partial allocation to the repayment of professional debts. The CJEU emphasized that a broad interpretation of the concept of consumer is necessary to ensure the protection of persons in a position of inferiority. It also clarified that its earlier case law (CJCE, 20 Jan. 2005, No. C-464/01), which required professional use to be “marginal to the point of being negligible” for the application of jurisdictional rules, cannot be extended to Directive 93/13/EEC on unfair terms, given the protective objective of the latter.
- Observation: The practical assessments of the predominance of professional use will undoubtedly prove difficult for national courts to carry out.
3. Exclusion of Consumer Status for a Professional Acting as Surety
It is important to recall the situations where consumer status is excluded, even when the person concerned is a natural person.
- The case: A company manager had stood as personal surety to guarantee a loan taken out by his company for the acquisition of equipment and had subscribed to a group insurance contract linked to that loan. Having been placed on sick leave, he subsequently challenged terms of the insurance contract, arguing that he held the status of non-professional at the time of subscription.
- The ruling of the Cour de cassation (Cass. 1st Civ., 7 Dec. 2022, No. 20-21968, Mr. [P] and Company B. v. Axa France Vie, Credit Lyonnais, Intrum Justitia, Debt Finance AG, F-D (dismissal of appeal against CA Versailles, 17 Sept. 2020)): The Court dismissed the appeal, confirming that the subscriber did not hold consumer status because the insurance contract had a direct link with his professional activity, due to the suretyship undertaken to guarantee his company’s loan. The principal act (the suretyship given by the director) is of a commercial nature by reason of a personal financial interest in the guaranteed transaction, making it illogical to classify the ancillary act (the insurance) as a consumer contract.
- General principle: A professional cannot, under any circumstances, benefit from the consumer protection legislation against unfair terms. If a contract is concluded for professional purposes, the provisions relating to unfair terms are not applicable. This applies even if the contracting party is the director of a company who uses the rented premises to store goods necessary for their professional activity.
Conclusion
The concept of consumer remains a central pillar of consumer law, the scope of which continues to be clarified by case law. The CJEU favors a broad and functional interpretation, aimed at protecting individuals when they find themselves in a position of inferiority vis-a-vis professionals, even if an element of profit (for a single rental property) or partial professional use (if not predominant) is present.
However, it is imperative that the link with the professional activity not be direct and predominant, as illustrated by the case of a surety for a corporate loan. For national courts, the key lies in a thorough analysis of all the concrete circumstances of the contract, in order to determine the true purpose of the commitment.
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Frequently Asked Questions (FAQ) on Consumer Status and Unfair Terms
Here are answers to frequently asked questions regarding consumer status in the face of unfair terms, particularly in banking law:
1. Who is considered a consumer in the context of unfair terms?
A consumer is any natural person who acts for purposes outside the scope of their professional activity. This concept is determined by a functional and objective criterion, taking into account the consumer’s position of inferiority vis-a-vis the professional. In France, the unfair terms regulations apply to contracts between professionals and consumers, and are even extended to non-professionals.
2. Is an individual who takes out a loan for a buy-to-let investment a consumer?
Yes, according to the Court of Justice of the European Union (CJEU), a natural person who enters into a mortgage credit agreement to finance the purchase of a single residential property intended to be let for profit (a “buy-to-let”) falls within the concept of consumer. The mere fact of seeking to derive income from the management of that property does not, in itself, lead to the exclusion of that person from consumer status. It is for the national court to establish whether the person acted for purposes outside their professional activity.
3. Can one be a consumer under a mixed-use loan agreement (professional and personal)?
Yes, a natural person may be classified as a consumer under a contract relating to a good or service for mixed use, if the professional purpose is so limited as not to be predominant in the overall context of the contract. The CJEU has specified that the national court must take into account all relevant circumstances, both quantitative (e.g., allocation of the borrowed capital) and qualitative (e.g., plurality of borrowers), in assessing this predominance. This broad interpretation is intended to ensure the protection of persons in a position of inferiority.
4. Does a professional acting as surety for their company benefit from unfair terms protection?
No, a professional cannot under any circumstances benefit from the consumer protection legislation against unfair terms. If a contract is concluded for professional purposes, the provisions relating to unfair terms are not applicable. For example, if a company manager stands as personal surety to guarantee a loan of their company, the act (including a group insurance contract linked to that loan) is considered to have a direct link with their professional activity, thereby depriving them of consumer status, even if the company had not yet been incorporated at the time of subscription.
