Consumer Law: credit for solar panels

The Law

When a restricted-purpose credit agreement is granted for the purchase of photovoltaic panels, the lending institution may be deemed an accomplice to fraud if, prior to the release of funds, it fails to carry out the necessary checks on the purchase order and neglects to alert the buyers to any irregularities in that document.

In such a case, the bank is jointly liable with the unscrupulous seller and must compensate the consumer for the loss suffered.

I want to present this case, which I find particularly interesting, as it may at face value seem harsh to attribute fault to a bank for a wrongdoing they did not commit directly. However, we were successful in this case due to a deep understanding of complex contractual mechanisms which provide protection for consumers.

The Facts

I represent Mr. and Mrs. PR and DR, aged 55 and 59. My clients own a house in the Aude department. They were visited at home by a door-to-door salesperson representing Company Z, who promoted the benefits of installing a photovoltaic system, promising significant energy savings. The total sale price was €18,000 including taxes. On that basis, Mr. PR signed the contract for the offer presented by Company Z at their home.

The operation was financed through a restricted-purpose loan of €18,000 from Credit Institution Y, repayable in 148 monthly installments of €180.74, at a fixed nominal interest rate of 4.70% per year. The funds were released by the bank directly to Company Z.

My clients contacted my firm complaining that the installation did not perform as had been promised. They informed me that the installation, which was supposed to reduce their energy bills, has in fact proved to be very costly; that it broke down regularly; and that they have had to incur significant additional expenses by calling out a technician to identify the source of the problems.

I quickly commissioned a report on the installation, which showed that the promised self-financing was completely illusory and that, far from generating savings, it would theoretically take 99 years for the system to recoup the cost of the installation and reach the break even point.

After several failed attempts at an amicable resolution, we filed suit against both Company Z and Bank Y. Unfortunately, I discovered that, by order of the Commercial Court, my clients’ seller had been placed into compulsory liquidation. With the seller now defunct, they could no longer fulfill contractual obligations, and any legal action regarding the validity or enforcement of the sales contract was futile due to their insolvency. So, we had to abandon our claims against the seller and focus solely on the bank.

What did we allege against the bank?

That it (the bank) was complicit in the fraud committed by the seller; that the salesperson would not have made the sale had he not had a credit facility to offer at the outset; that it was the bank who, by allowing the seller to offer credit  — under cover of the bank’s letterhead — enabled the sale to go ahead. In such circumstances, the bank must ensure the reliability and proper training of the individuals to whom it entrusts its contractual documents, particularly because the salespeople are arranging credit agreements, which is a regulated activity.

We reminded the court that, as a professional lender, the bank has not only a duty to ensure the validity of its loan agreements, but also an obligation to inform and, if necessary, warn borrowers about the legitimacy of the transactions it finances.

In this case, we demonstrated that Bank Y contributed to the fraud of which my clients were victims. Since the installation is a technical and complex product, the seller was obliged, under Articles L.111-1 et seq. of the Consumer Code, all relevant data regarding the productivity of the installation, in order to allow the consumer to be aware, where applicable, of the lack of profitability of the purchase, and thus make an informed decision.

In this instance, no performance simulation was provided to my clients on the day of purchase, showing that no profitability assessment was carried out by the salesperson; that no further information was given to my clients regarding the expected output of their system.Furthermore, no feasibility study was attached to the order form.

Had they been properly informed, my clients never would have entered into the contract, especially given that the actual performance of the installation was far below that promised: according to the report, the income from resale of the energy produced was three times less than what would be needed to cover the loan repayments to the bank.

We also highlighted the fact that, given the age of my clients (55 and 59) and the length of time required to recoup their investment (over 45 years), and taking into account the average life expectancy for a man and a woman (79 and 85 years respectively), it is highly likely that my clients will never, in their lifetime, be able to recover the cost of their purchase.

Before releasing the funds, the bank should have formally alerted my clients in writing to the extent of their financial commitment, or requested confirmation from them that the photovoltaic installation had indeed been installed and was operational — which it did not do.

For all these reasons, the bank contributed to a fraudulent transaction and thereby incurred liability.

We also reminded the court that a lender who releases funds without ensuring that delivery has been completed under the main contract is committing a fault that should invalidate their right to claim repayment of the loan. To establish this fault, we challenged the order form provided to my clients.
We demonstrated that the essential characteristics of the goods or services were not clearly specified, as required under Article L.111-1 of the Consumer Code, particularly in the case of an order form signed off-premises following a doorstep sale.
The bank ought to have alerted my clients to the serious irregularities in the order form, which it failed to do — a failure that constitutes a fault on its part. Had the bank done so, my clients would not have entered into the agreement, or would have withdrawn from the transaction altogether. Had the bank acted with due care, my clients would not now be in a financially and personally distressing situation, nor would they have been forced to repay a ruinous loan based on a contract that does not comply with the law.

What did we ask for?

We asked that the bank be ordered to pay our clients €25,000 in damages for the wrongdoing and resulting harm or, failing that,it be deprived of its right to contractual interest due to its breach of the duty to advise and the obligation to provide appropriate warnings; and that, in addition, it be ordered to pay them a further €20,000 in damages, as well as €3,000 in unrecoverable legal costs.

If granted, my clients would only be liable for repayment of the capital, according to the agreed repayment schedule.

The bank’s response

The bank asked the court to declare our request for the forfeiture of contractual interest  time-barred, arguing it was made more than 5 years after the credit agreement was signed. It requested that all our claims and arguments be dismissed, and that we be ordered to pay €2,000 in legal fees.

They denied that profitability was a concern or that there was any fraud. They argued the contract was properly executed, that it was never informed of any difficulties in the execution of the contract, that the equipment is fully operational with no reported defects, and that the only dispute concerns the lack of profitability or self-financing, not performance of the installation.

They also contended that there is a difference between “self-consumption” and “self-financing,” and that the order form referred only to simple self-consumption, not self-financing, and furthermore, that Mrs. DR wasn’t a signatory, making her claims inadmissible.

The Judgement

In response, the judge upheld our claims, accepting our arguments and ordering the bank to pay my clients the sum of €12,529.52 by way of damages for the harm suffered, as well as €1,000 pursuant to Article 700 of the Code of Civil Procedure, in addition to all legal costs and expenses of the proceedings, having also recognised Madame’s eligibility to bring the action in her capacity as property owner.

The judge’s reasoning is very interesting:

1. On Mrs. DR’s ability to sue

Relying on Article 31 of the Code of Civil Procedure, the judge rightly ruled that:

“Madame is, at the very least, deemed to have the standing and interest to take legal action by virtue of her status as the owner of the property on which the photovoltaic panels were installed.”

On the bank’s contractural liability

The judge examined whether the bank committed a fault, whether there was harm suffered, and whether a causal link existed.

2. On the issue of the Bank’s Fault

Citing Articles 1231-1, 1137, and 1130 of the Civil Code, and Article L.111-1 of the Consumer Code, the judge stated:

“This court notes that no definition of what constitutes “self-consumption” appears on the order form. Indeed, the single-page order form submitted in evidence is particularly brief and includes only a handwritten note stating “photovoltaic panel kit for self-consumption”, without any definition or clarification of what a “self-consumption” installation entails — a technical detail that is essential to the product and one which may easily cause confusion for a layperson. This failure to provide information amounts to a fault on the part of the seller, which can only be regarded as intentional, given that it concerns a fundamental and decisive aspect of the transaction.

The absence of this information from the order form is not a mere formal irregularity within the meaning of case law, but a failure to specify the essential characteristics of the goods or services sold.

While the judge cannot, ipso facto, presume that profitability was a decisive factor in the commercial transaction — since the installation of photovoltaic panels may also stem from a desire for energy independence — it is nevertheless incumbent upon the court to verify whether the order form sufficiently sets out the essential characteristics of the product or service, so that no legitimate error, or indeed fraud, taints the sales contract — which is the case here.

Without even needing to consider whether the notion of profitability falls within the contractual scope, the judge sitting in the court for the protection of vulnerable parties can only observe that the very nature of the service provided — ‘photovoltaic kit for self-consumption’ — is neither defined nor explained on the single-page order form submitted in evidence.

The judge further notes that the issue of irregularities in the execution of the order form adds an additional layer to the matter.

Indeed, the order form issued by the seller — through which the bank presented its credit offer — contains undeniable irregularities, in addition to the absence of essential characteristics of the product, namely the lack of any information regarding delivery times and terms.

Secondly, it should also be noted that this is a linked credit agreement, whereby the seller of the installation also assumes the role of proposing, informing, providing the banking documents, and facilitating the signing of the credit agreement that enables the sale. The seller, upon signing the order form, is entrusted with the task of offering the credit, thereby allowing the bank, in its capacity as a credit professional, to delegate its duty of information. Given the interconnection of the two contracts, the credit agreement becomes void if the goods or services are not supplied. By providing finance for the order and releasing the funds without conducting basic checks on the aforementioned order form, and without alerting the buyers to the significant irregularities present, the bank has indeed committed a fault that has consequently and inevitably led to the improper, and at best, precarious execution of a contract that was vague and uncertain in its intended effects. The bank has failed in its obligations, notably those of information, oversight and warning.”

3. On Damage, Causality, and Compensation

“The judge holds that the loss cannot be assessed based on the full financial extent of the transaction, as Mr and Mrs PR and DR have benefited from and continue to benefit from the installation acquired, even though it does not meet the expectations that the particularly vague order form might have suggested.

Regarding the linked credit agreement, a causal connection is clearly established, so the judge assesses the loss in this case at the amount of the interest, totalling €8,529.52, and part of the principal, amounting to €4,000, bringing the total to €12,529.52. Company Y is therefore ordered to pay this sum as damages for the aforementioned loss, in addition to €1,000 under Article 700 of the Code of Civil Procedure.”

The Outcome

Not only do my clients get to keep their sun-soaked solar panels, but they also walk away with a cheque for €12,529.50 along with an extra €1,000 to cover their humble counsel’s fees.

You could say the solar panels are now generating both electricity and wealth… one might say that they combine business with pleasure!