Duty of care of loan company when calculating borrowing capacity?

A bank or lender has a duty of care towards her clients. They are required to warn clients for the financial consequences of loans. Further the have to assess the borrowing capacity in order to ensure the client does not borrow more than he can bear. Dutch contract lawyer Sander Schouten discusses a recent case law on this matter.

Bank provides couple with second loan

In this particular case the claimants, a couple, had requested a loan at Dutch loan company Afab. Afab approved this request. Shortly before, however, the couple also got a loan at another bank. Initially this loan was favourable due to low interest. But the interest rose sharply after and the couple struggled to fulfil their payments. The Afab loan came on top of this first loan and pushed the couple into further debts they couldn’t pay anymore.

Borrowers sue for damages

Eventually the couple sued Afab for damages, claiming that this company had breached its duty of care. The district court initially dismisses the claim but the Court of Appeal rules in favour of the claimants. Afab had not examined the actual financial situation thoroughly enough. Afab had omitted to take into consideration that the other loan was given under a variable (and thus mounting) interest rate. According to the Court of Appeal the loan company should have advised the couple against taking out another loan or at least warn them for the evident financial risks.

Professional party must protect consumer

In this case the Court of Appeal also takes into consideration the fact that Afab is an experienced professional party whilst the claimants are lower educated people who are less able to oversee their own financial situation. Therefore a professional party as Afab has this duty of care. It is the responsibility of the professional to provide clients protection against their own irresponsibility, especially when it concerns less qualified consumer A natural person who does act in the course of a profession or business.
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Amsterdam Law firm for advice on duty of care

When a professional party, such as a bank, breach their duty of care, they can be held liable for damages. AMS Lawyers has ample experience in assessing possible breaches of duty of care of banks. Should you require more information on this matter, please do not hesitate to contact our office in Amsterdam.