CONSUMER CREDIT AGREEMENTS

INTRODUCTION
The main element of credit relationships is the transfer of purchasing power to the borrower in exchange for interest or a similar benefit. This transfer, while achievable through various methods under evolving market conditions, is most commonly realized through consumer credit agreements.

The consumer, as the financed party in consumer credit agreements, typically plans to repay the credit in installments. However, they often adopt an overly optimistic outlook on the future, ignoring the long-term costs of the credit and focusing on short-term, temporary gains, avoiding detailed calculations. (Atamer, Professor Dr. Yeşim M., Consumer Protection in Credit and Other Financing Contracts, On İki Levha Publishing, 1st Edition, February 2016, pp. 10–16.) Consequently, this leads to numerous risks, both for the consumer and for the regular operation of the market. Consumers, due to the aforementioned vulnerabilities, tend to overborrow, sharp short-term changes occur in interest rates, and the nature of competition in the market is disrupted.

Due to these vulnerabilities, lawmakers have developed various legal regulations to protect consumers. Many of the consumer protection regulations are contained within the Consumer Protection Law No. 6502 (“CPL”) and the Regulation on Consumer Credit Agreements (“Regulation”), which constitute the subject of this article.

Consumer credit agreements, due to their consumption loan element, represent a specific form of the legal transaction of “consumption loans” as regulated under Articles 386–392 of the Turkish Code of Obligations No. 6098 (“TCO”), but are treated as a distinct category within the CPL. The legislature has chosen to regulate consumer credit agreements separately from consumption loan agreements to protect consumers, who are considered to be in a weaker position in terms of foreseeing the legal consequences of their declarations of intent, against lenders.

In this article, we will first discuss the definition and parties of consumer credit agreements. Then, we will examine the distinctive features of the formation and termination stages of consumer credit agreements under the provisions of the CPL and the Regulation.

DEFINITION AND ELEMENTS
Consumer credit agreements are regulated under Articles 22–31 of the CPL. According to Article 22, a consumer credit agreement is defined as "an agreement in which the lender provides, or commits to provide, credit to the consumer in the form of deferred payment, loan, or other similar financing methods in return for interest or a similar benefit."

One of the key elements of the agreement is the provision of credit to the consumer through deferred payment, loan, or similar financing methods, or the commitment to provide such credit. It is stipulated that a consumer credit agreement can be established not only through the provision of a loan but also through deferred payment or similar financing methods. Until the lender fulfills one of these alternative obligations, the consumer's repayment obligation cannot become due.

Another essential element of the agreement, as per the law, is the interest or similar benefit to the lender. Consumers must repay the principal amount along with interest or other benefits such as commissions or installment fees akin to interest. If the agreement does not stipulate an interest or similar benefit in favor of the lender, it may instead be considered a consumption loan agreement under Articles 386 et seq. of the TCO, as consumer protection is deemed unnecessary in the absence of any compensation for the credit. (Atamer, p. 18.)

Unlike the previous CPL, the current CPL no longer requires the credit to be provided in cash or tied to the provision of goods or services agreed upon between the lender and the consumer. In other words, under the current CPL, any credit agreement where one party is a consumer and the other is a lender, regardless of the reasons for the consumer's need for credit, falls within the scope of consumer credit agreements. The broad scope of the CPL's provisions on consumer credit agreements prevents lenders from creating alternative financing types similar to consumer credit agreements to circumvent the consumer protection regulations. (Baysal, Başak, "Consumer Credit" in New Consumer Law Conference, ed. Murat İnceoğlu, Istanbul, On İki Levha Publishing, 2015, p. 281.)

At this point, it is pertinent to address the distinction between consumer credit agreements and credit card agreements. The circumstances under which credit card agreements are deemed consumer credit agreements are clarified in Article 22(2) of the CPL. According to this provision, credit card agreements are considered consumer credit agreements if the payment is deferred for more than three months or if installment payment options are provided in exchange for interest or similar benefits.

While credit card agreements are governed by the Bank Cards and Credit Cards Law No. 5464 and the Regulation on Bank Cards and Credit Cards, they are classified as consumer credit agreements if the payment is deferred for at least three months. For instance, if a consumer uses a credit card to withdraw cash and the repayment is deferred for six months or divided into installments, disputes arising from this situation will be subject to the provisions of the CPL on consumer credit agreements. ("Deferring a consumer’s due payment for more than three months and deriving a benefit from this deferral constitute a consumer credit transaction. Such deferral may be agreed upon initially or during restructuring. Consequently, a consumer credit relationship arises under Article 22/2 of Law No. 6502 if the unpaid installments are restructured, necessitating compliance with Article 28 of the same law requiring at least two consecutive missed payments and a 30-day notice before acceleration." Supreme Court, 11th Civil Chamber, Decision No. E. 2021/1523 K. 2021/6812, Date: 03.12.2021.)

On the other hand, if the credit is granted with a deferral period of two months, the disputes will not fall under the CPL but rather under the Bank Cards and Credit Cards Law No. 5464.

LEGAL NATURE AND FORM

As outlined above, in consumer credit agreements, the lender grants the consumer the right to use money for a specified period in exchange for interest. In this regard, a consumer credit agreement is a bilateral contract imposing mutual obligations, where the essential element is a loan for consumption. (Kılıçoğlu, Prof. Dr. Ahmet, Special Provisions in the Law of Obligations, Turhan Publishing, Expanded 5th Edition, Ankara 2023, p. 386) Therefore, pursuant to the reference in Article 83 of the LPC, provisions related to loans for consumption under Articles 386 and following of the Turkish Code of Obligations ("TCO") apply to consumer credit agreements in cases where the LPC lacks specific provisions.

Unlike the formation of loan agreements for consumption, the validity of consumer credit agreements is contingent upon compliance with the written form requirement as per Article 22/3 of the LPC. However, the legislator has granted the right to invoke this validity requirement solely to the consumer. (Gületekin, Res. Asst. Esra, "Rights and Obligations of the Parties in Consumer Credit Agreements Under Law No. 6502," Selçuk University Faculty of Law Journal, Vol. XXIX, Issue 4, p. 390) Consequently, in cases where the agreement is concluded orally, the lender cannot invoke the validity requirement stipulated in Article 22/3 of the LPC.

The mandatory content of consumer credit agreements is regulated by the Regulation on Consumer Credit Agreements under Article 31/4 of the LPC. The provisions governing the mandatory content of such agreements, specified in Articles 10, 11, and 12 of the Regulation, differ based on whether the agreement is for a fixed-term or an open-ended consumer credit. The mandatory content includes regulations on the lender's obligation to inform the consumer and detailed requirements concerning the written form, such as font size.

The consequence of non-compliance with mandatory content requirements is regulated under Article 4/1 of the LPC. According to this article, the absence of one or more required terms does not affect the validity of the agreement, and the lender must immediately rectify the deficiency. However, some deficiencies in mandatory terms are subject to more severe sanctions, which will be examined in detail below.

LENDER'S OBLIGATION TO INFORM THE CONSUMER

To prevent disruptions in competition and ensure that consumers avoid reckless over-borrowing, it is mandatory to inform consumers at the pre-contractual, contractual, and post-contractual stages. Just as a consumer compares different options when purchasing a house or car to select the most suitable product or service, they must be able to compare various consumer credit offers and choose the most appropriate agreement. Therefore, lenders are legally obligated to inform consumers about the details of credit offers. (Baysal, p. 295)

This obligation stems from the fact that consumers, as non-commercial and non-professional individuals, are relatively weaker and less knowledgeable than lenders. To address this imbalance, the legislator introduced Article 23 of the LPC, which governs the pre-contractual information obligation of lenders. The purpose of this provision is to ensure that consumers consider the legal consequences of the agreement before it is concluded. Below, the scope of the lender's obligation to inform the consumer will be analyzed based on the timing of the obligation.

PRE-CONTRACTUAL DISCLOSURE OBLIGATION

According to Article 23 of the Turkish Consumer Protection Law (CPL), the lender is required to provide the consumer with a pre-information form containing the terms of the proposed credit agreement a reasonable time before the contract is concluded.

The pre-contractual information form must include the total amount of credit payable by the consumer, the contractual interest rate, and the annual percentage rate of charge (APR), in accordance with Articles 6 and 7 of the relevant regulation. These articles separately outline the pre-contractual disclosure obligations for consumer credit agreements with fixed and indefinite terms. From this, it is evident that the legislature aims to strengthen the consumer’s ability to make informed decisions about taking credit.

For example, Article 6/g of the regulation mandates the preparation of a sample repayment plan based on the credit amount and term requested by the consumer and the contractual interest rate applied by the lender. This ensures that the credit offer can be compared by the consumer.

However, the term “a reasonable time before the conclusion of the agreement” in Article 23 of the CPL is not defined in the law or the regulation. Some scholars, referring to the former Article 10/b of the old CPL regarding housing finance agreements and the provisions of Articles 40 and 50 of the current CPL regarding prepayment sales and timeshare contracts, argue that pre-contractual disclosure in consumer credit agreements should also be made at least one day prior to signing the contract (CANER, Mustafa Doğukan, “Son Değişiklikleriyle 6502 Sayılı Kanun Kapsamında Tüketici Kredisi Sözleşmeleri”, Ankara Barosu Dergisi 81, no.4 (Cumhuriyet 100. Yıl Özel Sayısı, October 2023), p.259).

Other scholars suggest that the measure of reasonable time should be determined based on the consumer’s ability to evaluate offers from other lenders. According to Professor Dr. Yeşim M. Atamer, a period of 3-4 days could be sufficient for consumers to compare offers from other banks (ATAMER, p.71-72).

The sanction for non-compliance with pre-contractual disclosure obligations is set forth in Article 4/1-f of the CPL. According to this provision, a consumer credit agreement signed without meeting the pre-contractual disclosure requirements will not be invalid but must be rectified immediately by the lender. Furthermore, Article 77 of the CPL imposes administrative fines for such violations.

DISCLOSURE OBLIGATION DURING AND AFTER CONTRACT FORMATION

The legal basis for disclosure obligations during the formation of the contract is Article 31/4 of the CPL, which focuses on the content of consumer credit agreements. According to this article, the mandatory content of such agreements will be regulated by the relevant regulation. Articles 11 and 12 of the regulation specify the mandatory elements for consumer credit agreements with fixed and indefinite terms, respectively.

As in the case of pre-contractual disclosure obligations, the requirements for the mandatory content of agreements must be drafted in a clear, simple, and readable manner, using a font size of at least 12 points. These documents must also be provided to the consumer either in hard copy or via a durable medium. Any deficiencies in this regard must be remedied immediately by the lender.

Non-compliance with disclosure obligations during and after contract formation may lead to sanctions under Article 4/1 of the CPL. If the lender fails to fulfill these obligations, the provisions will be subject to the unfair terms review under Article 5 of the CPL. If the violation was intentional and aimed at misleading the consumer, the agreement may be deemed void.

Articles 11 and 12 of the regulation impose stricter penalties for missing key elements in the agreement. One such penalty is outlined in Article 25/2 of the CPL. According to the first sentence of this provision, if the contractual interest, APR, or total cost of the credit is not included in the agreement, the credit amount will be used interest-free until the end of the contract term. This sanction underscores the importance of these disclosures, as they are essential for determining the scope of the consumer’s repayment obligation and for enabling comparisons of credit offers.

For instance, the APR—calculated as the annual percentage value of the total cost of credit, including fees such as allocation fees and insurance premiums—differs from the contractual interest rate in that it provides a definitive and clear measure of the total amount the consumer will repay. Therefore, failure to include the APR, the contractual interest rate, or the total cost of credit in the agreement constitutes a significant breach of the disclosure obligation, warranting the severe sanction stipulated in Article 25/2.

Lenders often attempt to display the APR—which is always higher than the contractual interest rate due to additional costs—as lower than the contractual interest rate to attract consumers. Such practices constitute a violation of disclosure obligations and are subject to sanctions under Article 25/2-3 of the CPL. In such cases, the stated contractual interest rate must be reduced to match the understated APR, and a new repayment plan must be arranged. For example, if a credit agreement lists the APR as 20% instead of the actual 25% (with the contractual interest rate being 15%), the consumer will repay according to the understated APR of 20%. This adjustment also reduces the contractual interest rate to 10% in the example provided (CANER, p.262).

CONSUMER’S RIGHT OF WITHDRAWAL

The right of withdrawal, introduced into Turkish law by Directive 2008/48/EC on Credit Agreements for Consumers, allows consumers to reconsider after signing a credit agreement, particularly if they were influenced by aggressive advertising. This right, codified in Article 24 of the CPL, permits consumers to withdraw from the agreement within 14 days without providing any reason or incurring any penalties.

The 14-day period for exercising the right of withdrawal begins on the day the agreement is concluded. If a copy of the agreement is provided to the consumer in writing or via a durable medium after the conclusion of the agreement, the period starts from the day the consumer receives the agreement.

The burden of proof regarding notification of the withdrawal right lies with the lender. If this obligation is not fulfilled, the withdrawal period does not commence. While some scholars argue that the withdrawal period remains indefinite until notification is provided, others suggest that it should be capped at one year by analogy with Article 47/6 of the CPL. However, some scholars argue that no such limitation should be imposed to the detriment of consumers.

Article 24/3 of the regulation specifies the method of exercising the right of withdrawal, requiring consumers to notify the lender in writing or via a durable medium within the withdrawal period. However, if the consumer repays the full amount of the loan within the withdrawal period, the right of withdrawal is deemed exercised without any further notice.

The right of withdrawal is retroactive. If the consumer has not utilized the loan, no repayment obligations arise. If the loan has been utilized, the consumer must repay the principal amount and accrued interest within 30 days of the withdrawal notice. If this repayment is not made, the withdrawal right is deemed abandoned, and the agreement continues as originally planned. The lender cannot demand any costs other than the principal, interest, and fees paid to public institutions or third parties. Any excess amounts collected must be refunded within seven days of the principal and interest repayment (CANER, p.267).

EARLY PAYMENT AND MATURITY CONDITIONS

Article 96 of the Turkish Code of Obligations No. 6098 does not grant the debtor any right to a discount after early performance of the debt. Considering that these general regulations are insufficient to protect consumers, who are in a weaker position against creditors, the legislator introduced a provision in Article 27 of the Consumer Protection Law (TKHK) that grants consumers the right to request a discount if they pay part or all of their consumer credit in advance. (ATAMER, p. 167)

Article 27 of the TKHK states that a consumer “may make a payment of one or more installments before the due date or may repay the entire credit debt early. In such cases, the creditor is required to apply a discount on all the interest and other costs related to the amount paid early.” As indicated in the text of the article, early payment applies not only to the entire loan amount but also to any extra installments paid. In the case of early payment, the consumer is only responsible for the principal and interest up until the date of payment and is not required to pay any future interest or costs. If the early payment covers the full remaining principal, interest, and costs, the loan will be considered fully paid off. However, if the early payment is not sufficient to cover the entire remaining principal, interest will only be calculated on the remaining principal amount. (ATAMER, p. 172; For many examples and explanations regarding the discount amount and calculation method in early payments, see Annexes 3 and 4 of the Consumer Credit Regulation.)

In order to protect the consumer, the legislator has set very protective conditions for the maturity of the debt. The entire credit debt will become due, meaning the creditor can demand not only the unpaid installments but also all installments in the payment plan, if the conditions specified in Article 28 of the TKHK are met. One of these conditions is that the contract must include a provision stating that if the consumer delays payments, the entire debt may be demanded, and the consumer must have been informed about this default clause both in the pre-information form and the signed contract text. (ATAMER, p. 197) The second condition for maturity is that the creditor must have fulfilled all of its obligations under the credit agreement. The creditor cannot place the consumer in default if they have not performed their own obligations. The most radical condition under which the creditor can demand the full debt is that the consumer has delayed payment of at least two consecutive installments. In this case, if one installment is unpaid but the following installment is paid, the consumer will not be considered in default for the entire debt. Essentially, this condition has been introduced to determine whether the consumer is genuinely in financial difficulty, as the inability to pay two consecutive installments strengthens the assumption that the consumer will not be able to pay future installments. In addition to these conditions, the creditor must notify the consumer of the maturity of the debt and provide a 30-day period to make the payment. If the overdue installments are paid with default interest within this period, future payments will not trigger maturity. (BAYSAL, p. 319) In cases of maturity, the creditor will collect even the unpaid installments that have not yet matured, which is effectively a mandatory early payment under the law. If the consumer makes an early payment, the creditor is obligated to apply a discount as stated in Article 27 of the TKHK, and Article 28 of the TKHK, which is more stringent, stipulates that no interest, commission, or other costs will be included in the calculation of the matured installments.

CHANGE OF INTEREST RATE AND CONTRACT AFTER SIGNING

Interest refers to the compensation that must be paid for temporarily losing the use of money in a loan agreement. In general, interest is an accessory right to the main claim in debt law, but in consumer credit agreements, interest is a principal element of the contract.

There is no specific limitation regarding the interest rate in the TKHK. Therefore, the parties can agree on the interest rate freely within the limits set out in Articles 88 and 120 of the Turkish Code of Obligations (TBK). (CANER, p. 270) The conditions under which the interest rate can be changed after the signing of the contract differ for fixed-term and indefinite-term consumer credit agreements. According to Article 25/1 of the TKHK, in fixed-term loan agreements, since the payment period is predictable, the interest rate will be determined as fixed. With this regulation, the legislator aims to protect the consumer from high-interest risks in fixed-term contracts. To circumvent this provision, creditors may open credit accounts in the consumer's name without their knowledge, thereby generating higher returns through higher interest rates on these accounts compared to the fixed rates in the credit contract. (BAYSAL, p. 313) To counter these attempts to bypass the law, the legislator included a provision in Article 31/2 of the TKHK stating, “A deposit agreement related to a fixed-term credit contract cannot be made without the consumer's explicit consent.”

In indefinite-term loan agreements, the situation is different. Article 26/2 of the TKHK regulates the conditions for increasing the interest rate in indefinite-term loan contracts. According to this article, any interest rate change in indefinite-term credit contracts must be notified to the consumer at least 30 days in advance, either in writing or through a durable medium. The legislator also regulates the details of the notification, which must include information about the new interest rate, the number, amount, and intervals of the installments to be paid after the rate change. The consumer can terminate the contract according to Article 27 of the TKHK or pay off the entire debt. If the consumer pays off the entire debt or stops using the credit within 60 days of receiving the interest rate change notification, they will no longer be affected by the interest rate increase.

The provisions of consumer credit contracts other than interest cannot be changed to the detriment of the consumer, as regulated in Article 4 of the TKHK. This general prohibition on changing the terms of contracts to the detriment of the consumer is repeated for fixed-term contracts in Article 26/1 of the TKHK. According to Article 26/1, the terms of fixed-term consumer credit contracts cannot be changed to the detriment of the consumer. However, for indefinite-term consumer credit contracts, the provisions other than the interest rate can be changed according to the procedure specified in Article 13 of the regulation. Accordingly, the creditor must notify the consumer in writing or through a durable medium 30 days before the change comes into effect. If the consumer does not accept the change, they have the right to terminate the contract. (CANER, p. 275)

CONCLUSION

Consumer credit contracts are agreements that create mutual obligations, with the lender's duty being to provide a specific sum of money and the consumer's duty to repay the loan with interest or similar benefits. If there is no agreed interest or similar benefit in favor of the lender, a consumer loan agreement can be considered to have been established as a consumption loan under Articles 386 and subsequent provisions of the Turkish Civil Code (TBK).

Consumer credit contracts are subject to significantly different regulations compared to general credit agreements, both in terms of their establishment, performance, and post-performance stages. Because consumers often lack sufficient information when taking out loans, the legislator aims to make them think twice before borrowing, through the provisions of the TKHK.

Before a consumer credit contract is established, the consumer must be properly informed. If this is not done, under Article 4 of the TKHK, the credit provider is required to immediately correct the deficiency. Furthermore, at the performance stage of the contract, certain terms must be included in the consumer credit agreements. Failure to include these terms may result in severe sanctions for the credit provider, such as the consumer using the credit without any interest.

Under Articles 25/2-3 of the TKHK, if the effective interest rate is lower than the agreed interest rate, the higher stated interest rate will be reduced according to the effective rate, and a new payment plan will be arranged.

Another significant consumer protection mechanism is the right of withdrawal from the contract. This allows consumers to evaluate other credit offers despite entering into a loan agreement. According to Article 24 of the TKHK, the consumer can cancel the loan agreement without any reason or penalty within 14 days. This right does not require any reasoning for its exercise. It is sufficient for the consumer to express their intent to withdraw from the contract to the lender. If the consumer repays the entire loan amount within the 14-day withdrawal period, they will not incur any interest charges for that period.

The key difference between consumer credit contracts and general credit agreements is the conditions of acceleration. To demand full repayment from the consumer, the lender must ensure that a provision exists in the credit agreement and that the consumer has been informed about it. Additionally, the lender must have fulfilled its obligations in the contract. The consumer can only be considered in default if two consecutive installments are unpaid. If these conditions are met, the lender must notify the consumer of the acceleration and allow a 30-day period for the repayment.

In fixed-term consumer credit contracts, the interest rate cannot be changed after the contract has been signed. However, in indefinite-term contracts, the interest rate can be changed by notifying the consumer in writing or via a permanent data carrier at least 30 days before the change. The content of this notification is regulated under Article 26 of the TKHK, and the new terms must also include details about the number, amount, and intervals of payments. If the consumer receives such a notification, they can either terminate the contract or repay the full amount of the loan, in which case they will no longer be affected by the interest increase.

Finally, regarding credit-related insurance, a credit provider can only insure the loan if the consumer explicitly requests it. The provider can offer both an insurance-inclusive loan contract and one without insurance, allowing the consumer to choose. If the consumer has obtained insurance from another provider that is compatible with the loan, the lender must accept it without altering the terms.

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