Euro court rules on credit checks

Lenders, such as banks, must be able to prove they have checked the credit worthiness of borrowers, and have given them information, according to the European Court of Justice.

The EU directive on credit agreements for consumers obliges creditors to provide information and explanations so that the borrower can make an informed choice when taking out a loan.

It also says the creditor must provide consumers with a standard European consumer credit information form, and must check the their creditworthiness.

In France a number of people were unable to pay monthly instalments on their loans, and the bank looked for immediate repayment of the sum borrowed, together with interest. But the bank could not show it had given the borrower the European information form or any document proving it had fulfilled its obligation.

In one case the credit agreement had a similar form of wording, but the French court feared this would transfer the burden of proof to the consumer, and so the cases were referred to the court in Luxembourg.

In another case the borrower did not give the bank evidence of their financial situation and the bank did not check if they would be able to repay the money. The court decided the lender must ask for one or two pieces of evidence of the financial circumstances of the person borrowing, and cannot just depend on the borrowers own word.

But it is up to the lender to decide if they are satisfied with the information provided by the borrower, or if it is necessary to confirm the documentation which must be provided to support the claims being creditworthy.

The court found it is up to each member state to decide how lenders should prove they have provided the correct information.