As part of implementing the EU Mortgage Credit Directive (WIKr-RL) the Austrian legislature has enacted the new Mortgage and Real Estate Loan Act (HIKrG). The HIKrG entered into force on 21 March 2016. In particular, this obliges the lender to assess the creditworthiness of the consumer-borrower.
The HIKrG has introduced:
- new requirements for an in-depth examination of the borrower’s creditworthiness, and
- an explicit prohibition on lending if the creditworthiness check is negative.
A loan may only be granted if it is ‘probable’ that the obligations relating to the credit agreement will be fulfilled.
The HIKrG requires the following:
- an in-depth examination of the borrower’s financial circumstances, conducted by the lender
- compliance with detailed requirements concerning the conduct of the examination
- lender inspection of independent and verifiable documents; and appropriate lender verification of the same
- record-keeping and a duty to provide information to the borrower on the procedures used and data examined
- provision of pre-contractual information to the borrower concerning the creditworthiness check.
In meeting the required threshold, the lender cannot simply assume that the value of the properties to be built will exceed the amount of the loan; or that the value of the property will increase over time.
Furthermore, in the event of an amendment to the loan agreement granting the borrower a significant further advance, the lender must re-examine the borrower’s creditworthiness on the basis of current circumstances and information, unless the additional advance was anticipated and taken into account during the initial creditworthiness check.
Lending Despite a Negative Creditworthiness Check
Lending in spite of a negative credit check may attract a fine of up to EUR 10,000.
Significantly, the lender loses the right to terminate the loan agreement or amend it to the detriment of the consumer to rectify terms if the credit check was not carried out properly, or if the information received from the consumer was incomplete.
The WIKr-RL merely envisages that Member States must provide sanctions in the event of a breach of the ‘lending-prohibition’. It is up to the Member States to determine the sanctions. However, they must be ‘effective, proportionate and dissuasive’. In any case, a breach of the lending prohibition might trigger other civil law sanctions against the lender.
To evaluate the consequences, the following cases in particular must be distinguished:
- The lender carries out a proper creditworthiness check. Although this check is unsatisfactory, the lender grants a loan to the consumer. Subsequently, the consumer cannot meet his repayment obligations and is in default
- The lender does not carry out the creditworthiness check properly and grants a loan to the consumer. In case of a proper creditworthiness check, the result would have been unsatisfactory. Subsequently, the consumer cannot meet his repayment obligations and is in default.
Under Austrian law, the following civil law remedies should also be considered:
- Nullity of the contract (Nichtigkeit) pursuant to § 879 para 1 (Austrian) General Civil Code (Allgemeines Bürgerliches Gesetzbuch) (ABGB)The consumer can claim that the contract is a nullity, if the lender did not carry out a proper creditworthiness check and if he had done so, the result would have been negative. In other words, if a proper creditworthiness check would have been satisfactory, nullity would not be an option
- Rescission due to an error (Irrtum) pursuant to § 871 ABGBIf the lender violates his obligation to provide pre-contractual information on the creditworthiness check to the borrower, the consumer can rescind the agreement based on the legal principle of ‘error’
- Legal consequencesIf the lender did not carry out the creditworthiness check properly and granted a loan to the consumer, the consumer is entitled to withdraw from the ‘prohibited’ and ‘adverse’ loan agreement.
In a nutshell, regardless which civil law sanction is applicable in Austria, in a worst case scenario, the consumer will usually be entitled to rescind the agreement. In such case, the consumer would have to repay the loan amount and the lender would have to repay any interest payments.
In Comparison with Germany
In Germany the consumer is also entitled to rescind the agreement in a worst case scenario. The consumer would have to repay the loan amount and the lender would have to repay the already received credit instalments. But regarding the repayment of the interest, the German legislator has taken a ‘middle course’. The lender would only have to repay ‘moderate’ interest to the consumer in order to prevent the lender from a more significant financial loss and to cover at least his refinancing costs.