Iceland: Indexation of Credit and the Fairness Test in European Consumer Law

Abstract

This study reviews the problem of indexation of consumer/mortgage credit in Iceland on the basis of the European consumer contract law acquis (Directives 93/13/EEC on abusive clauses and 2005/29/EC on unfair commercial practices) and case law from the Court of Justice of the European Union (CJEU). All EU consumer laws are incorporated into the Icelandic legal system via the European Economic Area (EEA) Agreement. A provisional assessment is made of a practice semi-allowed by the new Icelandic Act No. 33/2013 on consumer credit (incorporating Directive 2008/48/EC). The study argues that indexation of credit to inflation (ex-post)—as it has been practised in Iceland—fails to pass the European fairness test. The second claim is that national legislation may not rank above EU/EEA law on consumer/credit law. Indexation of financial obligations based on Act No. 38/2001 on interest—and applied both by private/public financial institutions—cannot escape the requirements of legality and fairness under EU/EEA law in so far as the domestic rules pursue objectives related to consumer protection already harmonized at EU/EEA level and fail to do a fair balancing of the justified interests of all contracting parties. The opposite solution would deprive European law of its effectiveness and consumers of their substantive rights.