A-G Szpunar: operational lease is covered by Services Directive

Advocate General Szpunar published an interesting opinion on may 11th 2023 on a case involving a Croatian company leasing cars to its customers (ECLI:EU:C:2023:401). This company was in dispute with a Croatian financial services authority. According to the authority, the company was not allowed to conduct leasing activities in the absence of a valid licence to offer financial services.

Rental, financial lease or operational lease?

To begin with, the AG gives a fine account of the differences between rental, financial lease and operational lease.

Renting involves only one legal relationship: X rents a car from Y for a fee. This gives X temporary and (generally) short-term possession of the car. For example, for a holiday or a business trip.

Like rental, leasing is also intended to make a car available to a customer for use. Leasing is therefore considered a form of a rental agreement in many legal systems. Compared to rental, however, leasing responds more to medium- and longterm needs. Usually, the owner purchases the car on behalf of the user, and then leases the car to the user.

The difference between operational lease and financial lease, is that with operational lease, the user does not assume any ownership or residual value rise. The owner remains responsible for maintenance and repairs. With financial lease, the user assumes residual value risks and is responsible for maintenance and repairs. Another characteristic of financial leasing is that the car is “paid off” at the end of the defined period and ownership either passes to the user or the user has the option to purchase the car on payment of a final amount.

Is operational lease a financial service?

Article 2 of the Services Directive states that it does not apply to financial services. It specifically mentions banking services, credit, insurance and pensions. According to the AG, operational leasing does not qualify as a financial service. To this end, he has three arguments.

First, activities listed in an annex to a 2006 Directive on the taking up and pursuit of the business of credit institutions (Directive 2006/48/EC) are excluded from the scope of the Services Directive. This annex mentions financial leasing but not operational leasing.

Secondly, according to the AG, the focus of operational leasing is the temporary rental of a car and not the financial elements. These are secondary and cannot in themselves lead to operational leasing being classified as a financial service.

Thirdly, the AG considers it irrelevant that the owner purchases the car on behalf of the user. According to the AG, this has no bearing on whether a transaction is a financial service because it typifies any form of lease.

Licensing system for operating leases

If the Services Directive applies to operational leasing, this has major implications for the ability of public authorities to regulate. Restricting access to this market with an authorisation scheme is permissible only if (a) the authorisation scheme does not have a discriminatory effect against the service provider concerned; (b) the need for an authorisation scheme is justified by an overriding reason of general interest; and (c) the objective pursued cannot be achieved by a less restrictive measure, in particular because ex-post control would be too late to be truly effective. The criteria on which an authorisation scheme is based must also meet strict requirements .

In particular, the A-G sees a problem for the Croatian regulator in the context of the necessity and proportionality of the licensing scheme. The AG does not see why a licensing regime is necessary to protect consumers, as there is no particular vulnerability of a consumer in operational leasing. Consumers already receive general consumer protection. Nor does it involve significant risks to the financial sector. Above all, it is not clear to the AG why the aim of consumer protection cannot be achieved by a less limited measure, such as ex post control.

Private leasing in the Netherlands

Although the facts of this case are set in Croatia, the case may still be relevant to the Netherlands. This is because leasing is also rife in the Netherlands. Especially cars, but now also other items such as washing machines or computers.

Due to the “stormy” rise of leasing structures, the AFM still called for legal regulation and supervision of private leasing (operational leasing for consumers) in a legislative letter in 2020. Minister Hoekstra announced an investigation into the private lease market in 2020. The results of that investigation were presented in 2021. The Minister’s findings are largely positive, although a risk is seen in the group of consumers who opt for private leasing because of a financial need. Partly on the recommendation of the Dutch state, the European Commission made a proposal in 2021 to bring private leasing under the scope of the Consumer Credit Directive (Directive 2008/48/EC). That proposal does not seem to have made it.

Lease constructions thus continue to occupy minds. We will keep you updated on further developments.

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A-G Szpunar: operational lease is covered by Services Directive