Recommendation 2015-R-04 of March 2, 2015, on the marketing to individuals of loans involving exchange rate risk, amended on December 6, 2019

1 Online publication on the ACPR website on 19/12/2019 Recommendation 2015-R-04 of March 2, 2015 on the marketing to individuals of loans involving exchange rate risk, amended on December 6, 2019

1. Context Credit institutions and payment and banking service intermediaries offer individuals loans in foreign currency involving exchange rate risks, highlighting lower interest rates than those applied to euro loans and low exchange rate variation. The targeted clientele may consist of "cross-border" households, residing in France and where at least one member has income in a foreign currency, but also individuals with no income in a foreign currency, for example in the context of a tax-sheltered investment scheme. The analysis of marketing practices for loans involving exchange rate risks has shown that this risk may be poorly understood by borrowers. Consequently, the Prudential Control and Resolution Authority published, on April 6, 2012, a recommendation of best practices regarding the awareness of persons marketing loans involving exchange rate risks and the necessity to ensure borrowers receive clear, sincere, and transparent information on these loans within the framework of:

• public communications;
• the explanation provided to the client prior to the granting of the loan;
• the information provided annually to the borrower. This recommendation concerned consumer credit and mortgage loans, now governed respectively by Articles L. 312-1 et seq. and L. 313-1 et seq. of the Consumer Code, as well as loans governed by the provisions of the Civil Code. Subsequently, Law No. 2013-672 of July 26, 2013, on the separation and regulation of banking activities, introduced a marketing limit applicable to these mortgage loans in the following terms, now appearing in Article L. 313-64 of the Consumer Code: "Borrowers may not take out loans denominated in a currency other than the euro, repayable in euros or in the currency concerned, unless they declare that they primarily receive their income or hold assets in that currency at the time of signing the loan contract, except if the exchange rate risk is not borne by the borrower. At the latest upon issuance of the loan offer, the lender informs the borrower of the risks inherent in such a loan contract and specifies any possible options to convert repayments into euros during the loan."

2 The conditions for the application of this article are set by Articles R. 313-30 et seq. of the Consumer Code. In particular, the inherent risks and conditions for granting are communicated to the borrower in the standardized European information sheet1 provided at the latest upon the issuance of the credit offer. Once the loan is concluded, the lender regularly warns the borrower on paper or another durable medium, at least when the value of the total amount remaining payable by the borrower or of regular payments varies by more than 20% from what it would be if the exchange rate between the currency of the credit contract and the euro at the time of the conclusion of the credit contract were applied. This same warning informs the borrower of any increase in the amount due, where applicable of the right to convert this amount into euros and the conditions for doing so, as well as any other mechanism applicable to limit the exchange rate risk to which they are exposed.

2. Scope of the recommendation This recommendation is addressed to credit institutions, financing companies, and payment and banking service intermediaries, hereinafter collectively referred to as "the entities", including when these entities operate in France under the freedom to provide services or freedom of establishment. This recommendation advocates best practices regarding the marketing, to borrowers acting not for professional needs (hereinafter "the borrower"), of consumer credit governed by Articles L. 312-1 et seq. of the Consumer Code and loans governed by the provisions of the Civil Code involving exchange rate risks (hereinafter "the loans").

3. Recommendation Given the risks inherent in the nature of the loans, specific vigilance must be exercised by the entities to ensure that the information communicated to the borrower allows them to fully understand all risks associated with loans involving exchange rate risks and thus to accept the credit offer in an informed manner. The same applies to information transmitted during the execution of the contract. In this context, and in accordance with the provisions of Articles L. 612-1, point II 3°, and L. 612-29-1, paragraph 2, of the Monetary and Financial Code, the ACPR recommends the following best practices to the entities:

3.1. On the awareness of advisors in contact with customers To ensure that their employees who offer loans involving exchange rate risks understand the risks associated with these loans and possess the elements necessary to explain them to the borrower.

3.2. On public communications So that public communication directed at the borrower does not prioritize the most advantageous characteristics to the detriment of the risks inherent in the operation:

• to present, in a balanced manner, the advantages and disadvantages of the loan operation;
• to mention, in the main body of the communication, in a clear, apparent, and understandable manner for the borrower, the exchange rate risk associated with the operation and its consequences, particularly on the cost of the loan and/or its duration. This information cannot be communicated by simple reference to the loan offer;
• to ensure that the presentation of the exchange rate risk does not minimize its likelihood of occurrence, nor the potential magnitude of exchange rate movements;

1 Mentioned in Article L. 313-7 of the Consumer Code.

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• to ensure that the presentation does not use as a commercial argument the stability or low variation of the exchange rate of a currency relative to another;
• to ensure not to imply that the loan involving exchange rate risk improves the borrower's financial situation or budget or allows for a financial gain compared to a loan not presenting such a risk.

3.3. On explanations provided to the client before the conclusion of the loan Since the exchange rate risk is an essential characteristic of the loan contract and given its particular effects on the borrower,

• to explain to the borrower, during the proposal, the exchange rate risk associated with the loan by providing a document2 distinct from any other. This document:
• clearly warns the borrower that the exchange rate may evolve, at any time, upwards or downwards and have significant financial consequences on the total cost of the loan;
• describes the exchange rate risk that the borrower bears, directly or indirectly, at each stage of the contract execution, particularly between the date of signing the offer and the date of full disbursement of funds;
• indicates the methods of access to the applicable exchange rate (including the electronic link) as well as the reference date taken into account to perform this conversion;
• specifies the nature of any fees charged during exchange operations as well as their amount or the calculation methods to determine them;
• specifies whether the offer provides or does not provide the possibility to convert the loan involving exchange rate risk into a euro loan and, in the event that this option is provided, mentions its precise conditions;
• presents simulations, established based on the operating characteristics of the loan, aimed at illustrating the impacts of an evolution of the exchange rate as soon as it can occur. These simulations describe, in a pedagogical manner, the impacts on monthly payments, the duration of the loan, the interest charged to the borrower, and the remaining capital to be repaid by applying:
• an unfavorable variation of the exchange rate of 10% compared to that observed on the day of the proposal,
• an unfavorable variation of the exchange rate of 20% compared to that observed on the day of the proposal. These simulations do not constitute an commitment by the lender, towards the borrower, regarding the actual evolution of the exchange rate during the loan and its impact on monthly payments, the duration of the loan, and the financial consequences borne by the borrower. These simulations do not commit the lender to make a loan offer.
• in the case where borrower insurance is required or requested, to alert the borrower to the necessity of verifying if the subscription of borrower insurance or the potential implementation of guarantees exposes them to an exchange rate risk.
• to provide the borrower with the elements allowing them to determine if the loan involving exchange rate risk is adapted to their needs and financial situation.

2 These explanations are given, where applicable, based on the preferences expressed by the borrower for consumer credit governed by Articles L. 312-1 et seq. of the Consumer Code.

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3.4. On the annual information of the borrower To send once a year and before the date of exercise of the conversion option when provided for in the contract, annual information to the borrower3 which:

• summarizes the remaining capital to be repaid, the residual duration of the loan as well as the exchange rate on the day of sending;
• compares the remaining capital to be repaid and the residual duration of the loan on the day of sending to what they were on the day of signing the offer. This annual information does not exempt the lender from informing the borrower of any event significantly affecting the operation of their loan between the sending of each letter.

The entities must be in a position to justify to the Prudential Control and Resolution Authority the measures implemented to ensure that the quality of the information communicated to the borrower allows the latter to understand the exchange rate risk associated with these loans. This recommendation, as amended, is effective from its date of publication and applies to marketing acts subsequent to this date.

3 This information complements that which is sent, where applicable, in application of Article L. 312-32 of the Consumer Code.