Juridical Tribune (Oct 2016)
Iceland, the EFTA Court and the indexation of credit to inflation: operating in nature ex-post but need to calculate and disclose ex-ante. A law of contradiction?
Abstract
Indexation of credit to inflation (ex-post) is a unique legal practice in Iceland based on valorism theory on money vs. nominalism. Two rulings issued in 2014 by the EFTA Court try to clarify the legality and fairness of this particular price-variation clause under the European Economic Area consumer credit acquis. The study summarizes the rulings and analyses critically the interpretation provided by the court. It argues that the judgements defy the logic of non-contradiction since indexation of credit proves to be an impossible oxymoron under EU/EEA law. The results are confusing. On one hand, cost of credit and usury practices tend to fall outside the scope of European harmonisation (provided disclosure obligation of cost of credit and transparency ex-ante are respected). A fairness control is thus dependent on national and case circumstances to be assessed by domestic courts. On the other hand, European rules also impose with no derogations that the cost of indexation of credit to inflation is disclosed in a transparent way and calculated ex-ante. The paradox is there. Since indexation of credit operates ex-post on the basis of real inflation, it is impossible to disclose ex-ante in a transparent way. The findings of the study help to understand the situation of impasse in Iceland. Without a clear interpretation from the EFTA Court, the saga has continued at national level and will probably head for a second round of assessment at European level.
