The Tribunal correctionnel de Paris has judged that a Banque Nationale de Paris subsidiary was guilty of misleading marketing practices for loans denominated in Swiss currency. Some 2,235 cheated borrowers are due for compensation of more than €100 million.
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Translated by Evan Jones
For French justice, a BNP wholly owned subsidiary has knowingly deceived its borrowers in selling them toxic housing loans, denominated in Swiss francs. Wednesday 26 February, BNP Paribas Personal Finance (BNP PF), known in France as Cetelem, has been condemned by the Tribunal correctionnel de Paris for misleading and deceptive marketing practices and profiting from this deceit.
The Tribunal decreed: “By this unfair and misleading practice, concealing the principal and substantial characteristic of the Helvet Immo loan, namely the existence of an unlimited exchange rate variation to the sole charge of the borrower, BNP Paribas Personal Finance has impaired the economic status of the plaintiffs who, without this deception, would never have accepted to take up a Helvet Immo loan”. Its judgment has been received with applause in a crowded court room.
The financial penalty is astronomical: the bank must pay [to the state] €187,500 – the maximum fine – and widely compensate the 2,235 plaintiff borrowers. Each borrower will receive between €10,000 and €20,000 for ‘pain and suffering’, and between €40,000 and €60,000 for financial loss, as well as €3,500 for legal expenses. The two consumer associations UFC-Que Choisir and CLCV, joined as plaintiffs, will each receive more than €1 million by virtue of their active representation of the collective interest of consumers.
In all, the bank must shell out between €100-150 million. The Tribunal has issued an interim order of its condemnation, and BNP must pay out these sums even if it decides to appeal against the judgment.
In July 2014, then in March 2015, Mediapart had recounted at length how the bank had carefully organised to minimise the warnings on the risk faced by its clients. The Helvet Immo loans [Immo, short for immobilier, or property] were pushed as tax minimisation vehicles for wealthy investors but also heralded as a vehicle to finance the building of rental accommodation [a so-called ‘social good’]. The claimed benefit of the denomination in Swiss francs was the associated low interest rate. The clients seduced by this ‘good deal’ made a monthly payment in euros, which served formally to reduce the principal debt and pay the interest due.
The problem. BNP PF had closed its eyes to the possibility that the parity between the euro and the Swiss franc could collapse. This did not fail to eventuate: since 2007, the euro has lost a third of its value vis-à-vis the Swiss currency. The outcome for these clients having contracted a loan in Swiss francs but reimbursing it in euros: the sum that they pay in euros each month reimburses a third less interest but, above all, the principal that they owe has augmented in like proportion!
According to Charles Constantin-Vallet, lawyer for 1,300 plaintiffs and for the consumer association CLCV and principal architect of this legal victory, a borrower having signed up for a €130,000 loan in 2008 still owes €160,000 to the bank, even though s/he has been paying off €700 per month.
“The Tribunal’s judgment is of a rare force”, notes the gratified lawyer. We won on all the issues that we have raised, and the compensation granted to the borrowers is extremely significant. The interim order indicates also that the borrowers, if they want, are able to use the sums granted, as well as those arising from the sale of the property, to exit their loan after up to ten years in limbo.
During the three weeks of hearings in November, the notable witness has been that of Nathalie Chevallier. Mediapart had reported in 2015 the testimony of this former executive of BNP PF. In 2008, she was the Paris regional director. Directed to form a work group “to produce a commercial proposition”, Nathalie Chevallier had very quickly understood that something was amiss. With the prospect of a rise in the Swiss franc, the owed principal could blow out astronomically. She also testified that the bank had gone out of its way so that no-one understood the trap. Comes the farce: “At the moment of launching, the marketing branch had tested the product on my team members … the offer was made to one of my colleagues who has read it and has said that she couldn’t understand a word of it. The marketing person in charge then said: ‘That’s good, let’s move on it’.”
In its judgment, the Tribunal has taken care to emphasise that consequences of the deceit engineered by BNP PF: “After up to 11 years of reimbursement the borrowers have still not begun to reduce the principal borrowed or have done so to only a minor degree”, notes the Tribunal’s president, Cécile Ramonatxo. She emphasises that some ‘insolvent borrowers have been forced to sell their family residence to pay back the loan’ or ‘have to continue to work beyond normal retirement age’.
Officially, BNP Paribas has not yet decided if it will appeal. For the moment it insists on the disparity between this very strong condemnation in the criminal court and the positive judgments that it has obtained in civil litigation. Since 2017, around 80 decisions in civil jurisdiction, some legitimised by the Cour de cassation [France’s highest court for matters of private law], have been favourable to it.
“In around 95 per cent of the cases where the clients have litigated in civil jurisdiction, adjournments have been made by the courts in waiting for the outcome of the proceedings in criminal jurisdiction, but several dozen cases have been definitively judged and mostly in favour of the bank, notes Constantin-Vallet. From February 2019, the Cour de cassation has rendered a number of decisions dismissing the borrowers’ suits and given cause to BNP PF, on the grounds that the loan contract clauses were not unfair, and that they were on the contrary written in terms clear and comprehensible’.
This apparent contradiction has not been dodged by the Tribunal correctionnel which estimates besides that more than 1,500 cases are still in litigation before various French courts – of which 1,000 are concentrated at the Tribunal de grande instance de Paris. The Tribunal correctionnel judgment specifies that its decision has been taken on grounds different to those of the Cour de cassation. The orientation is different: in the criminal jurisdiction, the Tribunal has judged the misleading and deceptive marketing practices, whereas in the civil jurisdiction, the potentially unfair contract clauses are the object of examination.
The elements on which the judgments are supported are not the same. “The Cour de cassation has not based its decisions on the nature of the marketing material, on the trajectory of the euro/franc parity, on monetary conditions”, notes the Tribunal correctionnel. The Tribunal recalls that the Cour de cassation had refused to examine the testimony of Nathalie Chevallier, and related documents issued from the dossier in criminal jurisdiction. The Tribunal assesses that the Cour de cassation has not pronounced “on the adequacy or not of the information given by the bank concerning the increase in the principal remaining owing”.
Whether BNP PF should appeal or not, the Helvet Immo dossier will in any case endure for several months. Indeed, the Cour de cassation bases its decisions on the interpretation of a European directive. “Now, since 2014, the European Court of Justice has interpreted on several occasions this directive on terms favourable to consumers, to the inverse of that of the French Cour de cassation”, notes Constantin-Vallet.
The lawyer specifies that “The ECJ has notably condemned some Hungarian and Romanian contracts, those also written in Swiss francs. We have then ensured that several judges, including those of the Tribunal de grande instance de Paris, demand a preliminary ruling from the ECJ on the unfair character of the contract clauses of the Helvet Immo loans”.
The judicial controversy remains open, and the French investors still uncertain of whether they can rid themselves of these toxic loans.This article appeared in the original French on online journal Mediapart (subscriber only), 28 February 2020.