The new development: In order to assess its lender’s duty to notify, a bank using an intermediary in banking transactions may rely on information collected by the intermediary without having to verify it, even if the bank has never met the borrower.
A bank provided a mortgage to a borrower which was to be used for purchasing a buy-to-let flat as part of a tax-optimisation scheme put forward by an investment advisory firm. After having stopped paying back their debts and having been summonsed before the courts in order to pay them, the borrower argued that the bank had failed in its duty to notify.
In the view of the Court of Appeal, in order to assess its duty to notify as a lender, a bank using an intermediary in banking transactions may, unless there is an apparent irregularity, rely on information collected by intermediaries from borrowers about their financial capacity, without being required to verify whether they are accurate. This can be done even when banks have never met borrowers.
Judgement of the Court of Appeal, 10 January 2018 No. 16-23.845 F-D
Our comments: Using an intermediary in banking transactions relieves lending banks from their duty to notify about borrowers. Indeed, unless there is an apparent irregularity, banks do not have to verify whether the information provided by borrowers to intermediaries is accurate. Therefore, intermediaries have to verify whether transactions are suited to borrowers’ financial capacities.
This is only an applicable solution when a banking intermediary who has been authorised by the bank and whose work is governed by articles L 519-1 et seq. of the Monetary and Financial Code is being used.