Bank in breach of duty of care in the case of excessive lending?
In the current economic climate, more and more people in the Netherlands have problems repaying consumer credits. To protect consumers, lenders (banks) must comply with strict standards to prevent so-called excessive lending. AMS Advocaten uses a recent case to enlighten you as to how excessive lending is underwritten in the Netherlands. Hidde Reitsma, Dutch lawyer specialised in cases concerning the duty of care of banks, explains this case.
Loan for buying a membership right
The facts were as follows: The claimant had acquired a membership right in a housing association. For this, he had paid a deposit of €90,000. This membership right entitled him to the exclusive use of a studio. When the claimant tried to sell his membership right some years later, he realised that the housing association’s construction for students/starters was very risky and complicated. It turned out that he was stuck with his membership right. Moreover, the value of his membership right had fallen.
Breach of duty of care owing to excessive lending?
He started legal proceedings against (among others) the Rabobank which had granted him a €90,000 loan for the deposit. The claimant alleges that Rabobank acted in breach of its duty of care. According to the claimant it was a case of, among other things, excessive lending. He holds Rabobank liable for the damage, being the ‘improperly’ granted loan.
Does the Code of Conduct for Mortgage Loans apply?
Rabobank would have incorrectly evaluated the finance application against the Code of Conduct for Mortgage Loans 2007 (GHF 2007) instead of the more stringent standards for consumer credit. According to the claimant, GHF 2007 did not apply since it relates to the funding of registered property such as a house. In this case, according to the claimant, the purpose of the loan was to fund a membership right and not a registered property. If Rabobank had applied the more stringent standards, it would not have been allowed to grant the loan to the claimant.
Consumer or mortgage loan?
The judge postulates that the Act on Financial Supervision has defined that a credit provider should not enter into an agreement with a consumer if this is irresponsible in view of excessive lending to consumers. Legislation defines consumer credit as a “loan” (to a consumer) other than a mortgage loan.” Mortgage credit refers to the credit agreement with a consumer in the course of which also a mortgage right is established, seeking to take precedence in the claim for settlement of the payment owed by the consumer.
Dutch Court: loan secured by mortgage right
The Dutch Court considers that the loan to the claimant was intended to finance a membership in a housing association. However, this housing association was, in turn, the owner of the registered property on which a mortgage right was established. Therefore, there is a case of a home loan that is secured by a mortgage right. Therefore, Rabobank had properly tested the loan application against the standards of the GHF 2007, and had not breached its duty of care on this point.
Special duty of care of Dutch bank
The social function of a bank involves a special duty of care. Both in respect of its clients and in respect of (the interests of) third parties. The scope of this duty of care depends on the circumstances of the case. Relevant circumstances are the complexity and risks of the particular financial product, the knowledge and experience of the client, and his financial position.