Testing the Unfairness of Interest Rate Amendment Clauses in Revolving Consumer Loans

Abstract

Institutions that provide credit to consumers have usually included a clause in the loan documentation that allows the credit provider to unilaterally amend the applicable interest rate. Over the past years, these clauses and the way they have been used has come under increased scrutiny. This article charts a number of relevant developments and identifies focus points for the future. Under Dutch law, consumers claim that these clauses are unreasonably onerous and should be invalidated. Dutch courts have to take into account the supranational origin of this provision. The Dutch Hoge Raad (Supreme Court) has given some guidance on the assessment of such clauses in consumer mortgage loans, but has given no principled ruling. In the assessment of the unfairness of an interest rate amendment clause, it is key whether the negative consequences for consumers of these clauses are balanced by the consumer’s contractual rights. Setting aside an interest rate amendment clause can have far reaching consequences, especially if the contract cannot survive without this clause. While the Dutch landscape is still evolving, the German Bundesgerichtshof (Federal Court of Justice) solves this through supplementary interpretation of the contract. It is debatable whether this practice is compatible with European Court of Justice (ECJ) case law. In conclusion, it is noted that the discussion about the unfairness of interest rate amendment clauses should take place in the wider context of both interpretation of the clause and the banks’ duty of care when supplying revolving consumer loans.