The Consumer Debt Act aims to provide a high level of protection to consumers facing payment difficulties. It supersedes and replaces its predecessor, the Act of 20 December 2002, regulating the amicable recovery of consumer debts by creditors or third parties in a business-to-consumer (B2C) context. Key novelties include a statutory cap on contractual damages clauses and interest rates, the obligation to provide consumers with a first reminder at no charge, and a waiting period of 14 days prior to claiming contractual damages. In a business-to-business (B2B) context, the Act of 2 August 2002 on combating late payment in commercial transactions (the “Late Payment Act”) remains applicable.
1. First reminder and waiting period before claiming contractual damages
The Consumer Debt Act introduces two new requirements to be met by creditors before allowing them to enforce a damages clause on consumers failing to pay their debts on or before the due date:
The creditor should provide the consumer with a “first reminder”, which can be considered a formal notice of default. The notice must in principle be free of charge for the consumer and is to be provided on a durable medium (e.g., a letter or an e-mail). It should, amongst others, specify the amount due and the amount of damages that will be applied if no payment is received within the waiting period
- The creditor should take into account a “waiting period” of 14 days, during which the creditor must hold off from taking any further actions of debt recovery. The waiting period commences on the third working day following the day on which the first reminder is sent to the consumer or, if the notice is sent by e-mail, on the first calendar day following the day on which the e-mail is sent. During the waiting period, the consumer can either request a repayment plan, collective debt settlement or debt mediation, or dispute the debt upon providing reasonable substantiation. If the consumer makes any of the abovementioned requests or disputes the debt during the waiting period, no further action can be taken by the creditor until a decision has been made in this respect
2. Caps on damages clauses and interest rates
Damages clauses are contractual provisions that require the violating party to pay a pre-determined lump-sum amount to the non-violating party as compensation for failing to comply with a specific obligation (e.g., a payment obligation). Pursuant to the Consumer Debt Act, damages clauses relating to late payment in a B2C-context are only enforceable by the creditor if, despite having received a first reminder, the consumer has not paid the amounts due upon the expiry of the waiting period. Moreover, the pre-determined damages for late payment provided in such damages clauses cannot exceed the following limits:
- EUR 20 if the amount due is less than or equal to EUR 150
- EUR 30, to be increased with 10% of the amount due for the part thereof that is between EUR 150.01 and EUR 500, if the amount due is higher than EUR 150.01 and lower than EUR 500
- EUR 65, to be increased with 5% of the amount due for the part thereof that exceeds EUR 500, with a maximum of EUR 2,000, if the amount due exceeds EUR 500.
In addition, consumer contracts can provide for default interests in case of late payment by the consumer. However, the stipulated rate cannot exceed the reference interest rate determined by the Late Payment Act (which, at the time of publication of this alert, stands at 12%).
Other than the (capped) default interests and/or lump-sum compensation described above, no costs or fees can be claimed from the consumer in relation to their late payment.
Contractual provisions that provide for damages and/or interest rates which exceed the caps set out above will be “deemed to be unwritten”. In such case, unlawful damages clauses become ineffective, and unlawful interest rates are automatically reduced to match the statutory interest rate (which, at the time of publication of this alert, stands at 5.25%).
3. Debt collection agencies
If a consumer has not paid or disputed his or her outstanding debt or requested any payment facilities within the 14-day waiting period, the creditor can either choose to collect the consumer debt himself, or entrust this task to a third party (i.e. a debt collection agency).
The Consumer Debt Act subjects consumer debt collection agencies to several requirements. These requirements, which to a large extent replicate the existing rules on this subject as provided in the superseded Act of 20 December 2002, oblige debt collection agencies to obtain a prior registration with the Federal Public Service (FPS) Economy and verify whether the amounts claimed from the consumer comply with the abovementioned rules on damages clauses and interest rates. If not yet done by the creditor, the agency should provide a first reminder to the consumer. In addition, before proceeding with the amicable debt collection, the debt collection agency must provide the consumer with another formal notice of default, followed by a new 14-day waiting period during which it must hold off from taking any actions of debt recovery.
Given that the Consumer Debt Act provides that consumers cannot be charged with any other costs than (capped) contractual damages and interest rates, debt collection agencies are prohibited from claiming any compensation for their intervention from the consumer.
Monitoring and enforcement
Compliance with the Consumer Debt Act will be monitored by the Economic Inspection.
Non-compliance by the creditor or the debt collection agency with any of the obligations relating to the enforceability of damages clauses (except for the mandatory mentions to be included in the first reminder) will automatically lead to the consumer being exempted from paying the amounts set out in such damages clause. More generally, courts can rule that a payment obtained from a consumer in violation of one or more specific provisions of the Consumer Debt Act can be considered a valid payment to the creditor, but must nonetheless be reimbursed to the consumer.
Violations of the Consumer Debt Act can furthermore result in criminal fines, which can go up to:
- EUR 80,000 (or 4% of the total annual turnover in the previous financial year, if this represents a higher amount) for regular companies; and
- EUR 400,000 (or 6% of the annual turnover in the previous financial year, if this represents a higher amount) for debt collection agencies.
How to Prepare?
Companies are advised to rethink their contracting practices and general consumer debt collection strategy to comply with the requirements laid down in the Consumer Debt Act before its entry into force (on either 1 September 2023 or 1 December 2023, as the case may be). This can consist of updating general terms and conditions applicable to consumer contracts and/or devising an operational debt collection policy to facilitate compliance with the new legal requirements (such as the first reminder and waiting period).