Typical signs of a possible breach of consumer rights include terms requiring payment for services not requested, such as disbursement or administration of a loan, and terms allowing the cost of credit to change without criteria disclosed in advance. A fee payable in exchange for the lender fixing the interest rate for the duration of the contract, on the terms and at the levels stated in it, directly conflicts with Article 10a(2) of the Bulgarian Consumer Credit Act. That provision prohibits fees and commissions for activities connected with disbursement and administration. Setting the lender\u2019s remuneration is a typical act of loan administration: the cost belongs to the main subject matter of the contract rather than to an additional service.<\/p>\n
The very nature of what the lender undertakes to do rules out treating it as a separate benefit to the borrower that justifies charging the fee. Read together, Articles 10a, 19(3) and 33 of the Act limit a lender\u2019s freedom to impose payments on a consumer beyond the stated contractual interest and compensation for late payment, such as additional fees or fixed charges for collecting or administering the loan.<\/p>\n
The commitment fee clause in question is therefore void because it conflicts with the law.<\/p>\n
Freedom of contract is constrained not only by express legislation but also by accepted standards of morality. Under Interpretative Ruling No. 1 of 15 June 2010 in interpretative case No. 1\/2009 of the General Assembly of the Commercial Division of the Supreme Court of Cassation, public morals are moral standards to which the law gives legal significance as general principles underpinning a democratic legal order.<\/p>\n
An unjustifiably high price for consumer credit violates the principle of fairness, which requires every legally recognised interest to be protected in civil and commercial relations. A clause remunerating a professional lender for making its own funds available to clients does, in principle, protect a real interest. A consumer seeking finance from a specialist business rather than another individual can be expected to pay interest for that service, allowing the lender to cover its costs and earn a profit. Good faith in commerce nevertheless precludes agreeing on revenue manifestly disproportionate to the costs and a fair rate of profit.<\/p>\n
Banks must manage other people\u2019s funds prudently and with the care of a competent banker, in the interests of depositors as well as borrowers. Their market offerings generally put readily accessible finance beyond the reach of consumers who are manifestly insolvent or whose income has no lawful source. Professional high-risk, unsecured lending does involve higher expected losses, and the price routinely charged for that service must cover those losses; higher interest rates naturally follow. It is the excessive level of interest to which fairness as a moral standard must be applied. Lenders who risk their own funds for profit, principally by lending to people with unverified income or poor credit histories, are subject to unwritten standards for a public-interest reason: to prevent them from unfairly shifting the economic burden onto customers who would in good faith pay a distinctly higher price, generating revenue to offset the inability to recover a substantial proportion of loans made to the same provider\u2019s other customers.<\/p>\n
The court must assess the terms of each consumer credit agreement as at the date of conclusion. The practices prevailing when the parties contracted posed such a risk to society that general democratic principles alone did not afford sufficient protection. An express mandatory safeguard was needed to prevent lenders from contracting for returns beyond a justifiable range. The parliamentary debate on 6 March 2014 on Bill No. 454-01-8 of 30 January 2014 amending the Consumer Credit Act, before the 42nd National Assembly, shows that the legislature sought a fair balance between borrowers and professional lenders operating in this risky market, many of whose customers were insolvent. Before that intervention there was no mandatory statutory cap on remuneration for this service. Public morals nevertheless prohibited the economically stronger party, a trader with spare funds to invest for profit, from abusing freedom of contract to impose on a weaker customer seeking urgent finance a price so high as to generate unjustifiable revenue. A business model that budgets in advance for losses on most transactions and aims to offset them with income from just some customers treats market participants unfairly. Such pricing either relieves the trader of the need to lend prudently and in good faith after assessing every customer\u2019s solvency, shifting the majority\u2019s default risk onto the few solvent borrowers, or, if the trader exercises due care and selects mainly solvent customers, generates revenue well above its costs and ordinary profit without providing anything beyond ordinary bank lending. It was this socially unacceptable outcome that prompted the later enactment of Article 19(4) of the Act.<\/p>\n
The courts\u2019 practice before the legislative amendments likewise reflects those social expectations. In Judgment No. 378 of 18 May 2006 in civil case No. 315\/2005, Second Civil Division, the Supreme Court of Cassation accepted an economic justification for higher-cost unsecured lending at a profit, up to three times the rate (30%) in the case discussed. Binding case law more generally accepts that an exceptionally large disparity between reciprocal performances under a bilateral contract may offend public morals, which limit freedom of contract under Article 9 of the Obligations and Contracts Act. Under Article 26(1), third alternative, transactions involving a substantial lack of equivalence, including an unjustifiably high charge for a service, are void on that basis (see Judgment No. 153 of 24 July 2015 in civil case No. 3014\/2014, Third Civil Division of the Supreme Court of Cassation). As interest is an essential term only in bank lending and lending between traders, nullity may be confined to the interest clause and the remainder of the agreement preserved as an interest-free loan. Arguing that consumer credit under the Consumer Credit Act is generally granted for consideration does not justify a different result.<\/p>\n
This article is not a legal opinion or advice concerning a particular situation or person. For assistance with unfair contract terms or abuse of rights, consult a lawyer who practises civil law.<\/em>
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