Under the Austrian Consumer Loan Act (Verbraucherkreditgesetz, VKrG), businesses granting loans to consumers are required to comply with extensive

(i) duties to provide pre-contractual information (e.g. on term, borrowing rate and annual percentage rate of charge),

(ii) assessment duties (assessment of the consumer’s creditworthiness) and

(iii) documentation duties (the term of the loan agreement, the borrowing rate and the APRC have to be stated in the loan agreement).

But despite the impression given by the name of this law (“Consumer Loan Act”), the aforementioned duties apply not only where loan agreements as such are entered into. They also apply where agreements are entered into “by which a business grants deferred payment to a consumer for remuneration […]” (section 25 VKrG).

Such a wide scope of application of the Consumer Loan Act is also of relevance for debt recovery agencies as these very often enter into instalment agreements with defaulting consumers in the context of their collection efforts. Such agreements – by their nature – give rise to a deferral of payment for the debtors. As a general rule, payment of specific consideration (interest) is not a prerequisite for being granted such respite. Nevertheless, according to a rather recent judgment handed down by the Austrian Supreme Court (OGH 15.7.2014, 10 Ob 28/14m), deferred payment must always be assumed to involve remuneration within the meaning of section 25 VKrG if the debtor undertakes in the instalment agreement to pay (even only a little) “more” than the amounts owed under the original agreement with the creditor or by law:

“[In the instalment agreement complained about by the Austrian Verein für Konsumenteninformation (Consumer Information Association),] the “total amount outstanding”, which comprises collection fees and interest and is intended to bear interest as a whole, is taken as a basis for the term “agreed interest”. But interest on interest may be claimed only if this has been expressly agreed by the parties, or else not until the day of litigation becoming pending (section 1000 (1) Austrian General Civil Code (ABGB)).

In the case on hand, interest is claimed already as from a prior date without there being any plea of an agreement on compound interest having been made between the relevant creditor and debtor. […] At any rate, the resulting difference can no longer be included in the deferred debt proper. If the accrued interest constitutes an element of remuneration, such difference is to be regarded as consideration for granting the deferral of payment within the meaning of section 25 VKrG.“

Even instalment agreements in which the debtor undertakes to pay, for the duration of the deferral of payment, only such interest and costs as he would have incurred under the original agreement or by law in any case as a result of his default might have to be qualified as deferral of payment for remuneration (Opinion of the Advocate General delivered on 21 July 2016 in case C-127/15 VKI/INKO concerning a request for a preliminary ruling on the Consumer Credit Directive 2008/48/EC).

Thus, instalment agreements made by debt recovery agencies may very easily give rise to – complex – obligations in terms of information, assessment and documentation. Violations of these duties are related, in particular, to a risk of action being brought by associations (e.g. the VKI, the Federal Chamber of Labour (Bundesarbeiterkammer) or by competitors. But it is possible to avoid the application of the VKrG on instalment agreements by designing the contract wording specifically.