Book XIX of the Code of Economic Law (« CEL« ) relates to consumers’ debts. It came into force on 1 September 2023. This two-year-old reform remains relatively unknown, and its significant scope and consequences are often underestimated. We examine below the provisions of the CEL, Book XII, Title 1, related to the payment of debts owed by consumers to undertakings.
1. A Broad Scope
Whom does it apply to? Book XIX applies to undertakings, defined as any natural or legal person pursuing a durable economic goal. It includes companies, associations, and even public entities, such as a municipality operating a library or a cultural centre. This Book XIX definition of “undertakings” is notably broader than the general definition of the CEL, which excludes certain public entities.
Book XIX also applies to consumers defined as any natural person not acting in a professional capacity.
What does it apply to? Title 1 of Book XIX applies to any late payment of a consumer’s debt owed to an undertaking, regardless of the origin of the debt – be it a contract or general terms and conditions or terms and conditions of the use of a public service –. For instance, Title 1 of Book XIX will apply to a consumer’s unpaid renovation debts, hotel bills, unpaid public transport fines, or parking tickets.
What are the scope limitations? The scope limitations are twofold.
On one hand, Title 1 of Book XIX only applies to monetary debts (“dettes de somme/schulden van sommen”), i.e., not to debts consisting in an obligation to (not) do, perform or deliver, the value of which must be determined by a judge (“dettes de valeur/waardeschulden”). For instance, Title 1 of Book XIX applies to the late payments of fees by a consumer to a car-leasing company but not to the obligation to return the leased vehicle.
On the other hand, Title 1 of Book XIX does not apply to consumers’ debts arising from enforceable titles (« titres exécutoires/uitvoerbare titel« ), such a judgment or a notarial deed, because the matter is specifically organised by the Judicial Code.
2. Indemnification Clauses
A strict framework. Indemnification clauses may contractually apply if consumers do not pay their debts by the due date. These clauses are strictly limited by Title 1 of Book XIX.
Firstly, late payment interests may not exceed the interest rate of the law of 2 August 2002 on tackling late payments in commercial transactions.
Secondly, lump-sum indemnifications may not exceed:
- 20 euros if the amount still owed is less than or equal to 150 euros;
- 30 euros plus 10% of the amount owed on the portion between 150.01 and 500 euros if the amount still owed is between 150.01 and 500 euros;
- 65 euros plus 5% of the amount owed on the portion higher than 500 euros with a maximum of 2,000 euros if the amount still owed is higher than 500 euros.
For example, if a consumer still owes 215 euros, the lump-sum indemnification may not exceed 36.50 euros, that is 30 euros plus 10% of 65 euros (amount owed minus 150 euros). If a consumer still owes 1,000 euros, the lump-sum indemnification may not exceed 90 euros, that is 65 euros plus 5% of 500 euros (amount owed minus 500 euros).
A strict sanction. The indemnification clause that does not comply with the above limits is deemed entirely null and void and will not be merely reduced.
Exception to the strict sanction. Indemnification clauses entered into before 1 September 2023 that exceed the limits of Title 1 of Book XIX are reduced to these limits.
Exception to the exception. If the contract was made before 1 September 2023 but was amended or renewed after that date, the strict sanction applies to the indemnification clause. It seems that any modification to a contract made before Book XIX, even when the modification is minor and/or unrelated to the indemnification clause, may lead to the annulment of an excessive indemnification clause.
3. Application of the Late Payment Indemnification Clauses
An undertaking may not enforce indemnification clauses immediately upon the consumer’s first payment default.
Before applying such clauses, the undertaking must send the consumer a formal notice in the form of a first free-of-charge payment reminder. Amongst others, this first reminder must mention (i) the standing amount due, (ii) the amount of the indemnification that will be due failing payment, (iii) the name of the creditor, (iv) the product giving rise to the debt, (v) the initial payment term and (vi) a 14-calendar-day waiting period before costs, interests and indemnification may apply.
This 14-calendar-day waiting period begins the day after the first reminder was sent electronically and, if it was sent non-electronically, it begins on the third business following the dispatch of the first reminder.
At the end of the 14-calendar-day waiting period, the undertaking can apply the indemnification clause for the future. As an exception, if the debt remains outstanding after the 14-calendar-day waiting period, small and medium-sized enterprises (SMEs) may elect to have the late payment interest accrue from an earlier date, i.e., the day after the first reminder had been sent.
4. Civil Sanctions
Pursuant to Book XIX, Title 2, Chapter 3, of the CLE, a consumer is exempt from paying the indemnification clause if the undertaking violates the obligations related to the limits of the indemnification clauses or the first reminder requirements. Undertakings that receive any payment in violation of the limits of the indemnification clauses or the first reminder requirements may be ordered to reimburse the consumers.
5. Criminal Penalty
Pursuant to Book XV, Title 3, Chapter 2, Section 11/2/1, of the CLE, the violations of the provisions of Title 1 of Book XIX are subject to a level 2 criminal penalty (fine ranging from a minimum of 26 euros to a maximum of the higher of either 10,000 euros or 4% of the annual turnover of the undertaking for the year preceding the imposition of the fine).
6. Conclusion
Title 1 of Book XIX of the CEL creates a broad, formal, and consumer-oriented framework governing the payment of debts owed by consumers to undertakings. Both consumers and undertakings must pay careful attention to the relevant rules, because non-compliance renders indemnification clauses unenforceable, entails possible reimbursements and exposes undertakings to criminal fines.
If you have any question about this regulation, feel free to contact the authors of this article.
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