The borrower who takes out a smoothed loan or loan in stages is entitled to special warnings, because if this loan gives him cash flow advantages, it can be dangerous, indicated the Court of Cassation (Cass. Civ 1, 25.5 .2022, U 21-10.635). The borrower has the right to a compulsory warning from the credit intermediary and to information from the lender, the Court has just judged, failing which these two professionals engage their responsibility vis-à-vis this customer.
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This system is intended in particular for borrowers who wish to maintain cash flow or for borrowers already in debt, because it initially reduces the monthly repayments. The actual repayment is postponed to a later period, during which better financial capacities are expected by the borrowers, for example because they will have finished repaying a previous loan in progress.
Committed responsibility
A couple had therefore in this case taken out a mortgage repayable in twenty years to buy their main residence. But it was agreed that the repayment terms would be reduced during a first level of about 4 years, before increasing thereafter. At the end of these four years, the capital to be repaid had increased since the maturities paid did not cover all of the interest alone. The remaining interest had been capitalized, that is, added to the capital to form new interest over time.
The couple, who had paid a total of around 25,000 euros in installments, were faced with a capital to be repaid which had increased by 5% since the start. This negative amortization, in which the maturities are lower than the interest to be repaid, is a dangerous product since it can increase the debt, argued these customers, and it engages the responsibility of the lender as of the credit intermediary for not having launched warning when subscribing. In the case of individuals, unsophisticated in terms of credit, the judges considered that they were right and that the professionals had engaged their responsibility by not underlining the risk.