On 11 September 2019, the CJEU issued a judgment in which it was stated that Article 16 paragraph 1 of the Directive No. 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on consumer loan agreements which repealed Council Directive No. 87/102/EEC should be interpreted in the following way: the consumer’s right to reduce the total cost of a loan in the event of earlier repayment includes all costs that have been imposed on the consumer. The CJEU pointed out that a comparative analysis of the different language versions of Article 16 clause 1 of the Directive does not allow to clearly determine the exact scope of the reduction of the total cost of a loan envisaged by this provision, because some language versions of this provision suggest reducing the costs related to the remaining period of the contract, others suggest that the costs associated with this period constitute an indication for calculating the reduction, others still only refer to interest and costs due for the remaining period of the contract.
The judgment was issued following a question referred for a preliminary ruling by the Lublin-Wschód District Court based in Świdnik, which examined three disputes between the company Lexitor, which acquired the claims of three clients, and SKOK Stefczyka, Santander Consumer Bank and mBank, regarding the reduction of the total cost of consumer loans due to their earlier repayment. The Polish court had doubts about the interpretation of Article 16 paragraph 1 of Directive No. 2008/48/EC of the European Parliament and of the Council of 23 April 2008, and therefore asked the CJEU whether this provision concerns all costs or only those related to the duration of the contract.
As a result of the analysis concerning the impact of the judgment on the Group’s revenues, in particular on relations expired before the judgment was issued, in 2019 the Group decided to create a provision for a proportional refund of commission in the event of early repayment of the loan in the amount of PLN 48,750 thousand as at 31 December 2020 the provision amounted to PLN 26,116 thousand (as at 31 December 2019 the provision amounted to PLN 48,466 thousand).
The provision was estimated based on the estimation of the total amount of the provision for the early repaid loans and the expected percentage of customers who will claim for a refund of the due part of the commission. Assuming that the percentage of customers would be 5 p.p. higher than the assumed level, the amount of the provision would be higher by PLN 12.5 million.
Additionally, the Group created in 2019 a provision of PLN 20,800 thousand to cover the partial reimbursements of loan commissions in the event of their early repayment, for loans repaid after 31 December 2019. The estimate of the provision is based on the difference between the value of commissions to be reimbursed and the balance of unsettled commissions as at the expected date of early loan repayment, as at 31 December 2020 the provision amounted to PLN 6,161 thousand.
In the third quarter of 2020, the Group decided to create an additional provision in the amount of PLN 1,500 thousand for loans granted and repaid from 2020 on account of the return of part of the commission charged in connection with granting the loan in the case of its early repayment and the estimation of the part of the commission being the difference between the amounts of commission to be returned to customers and the balance of unsettled commissions as of the expected date of early repayment. In the case of early repayment of the loan the provision will be released and for newly sold loans will be created on an ongoing basis.
For the newly launched loans, the provision is created as a percentage of the commission charged, which reflects the expected average difference between the above mentioned amounts. This percentage is calculated on the basis of the estimated level of early repayment and the expected moment of repayment. 5 p.p. increase in prepayments would result in an increase of the provision by 8%, to the level of 13% depending on the product.
The created provision level may be changed due to the fact that analyses are still ongoing in the banking sector as to the impact of this judgment on the financial situation and business activities of banks in Poland.
Simultaneously, the Group recognises its liability due to the proportional reimbursement of commissions in the event of their early repayment in the period from the date of the judgment of the CJEU on 11 September 2019 to 31 December 2019. As at 31 December 2020, this liability amounted to PLN 2,434 thousand (as at 31 December 2019 PLN 12,797 thousand).
