Debt consolidation in France: rules, fees and IRA

What is a loan buyout?

Service-public.gouv.fr distinguishes between:

• renegotiation (renégociation), carried out with your current bank and formalised by an avenant (amendment) to the agreement;
• a buyout (rachat), carried out by another lender, who has you sign a new agreement and pays off the old one.

Debt consolidation (regroupement de crédits) is a buyout covering several loans at once (property, consumer, revolving credit, etc.), or even other debts. The Consumer Code devotes a separate section to it (art. L314-10 to L314-14).

Property loan or consumer credit: the 60% threshold

The legal regime of the new agreement depends on what it is made up of:

• if the operation consolidates only consumer loans, the new agreement falls under consumer credit (art. L314-10);
• if it consolidates only property loans, it falls under property credit (art. L314-12);
• if it is mixed, everything depends on the share of property loans, calculated including fees, interest, penalties and commissions. The decree sets the threshold at 60% of the total amount of the operation (art. R314-18): if this share does not exceed the threshold, consumer credit; if it exceeds it, property credit (art. L314-11);
• any consolidation secured by a mortgage or comparable security on a home falls under property credit, whatever its purpose (art. L314-12).

This classification determines the period that protects you:

(service-public.gouv.fr, fact sheet F37911). During the withdrawal period for consumer credit, neither the lender nor the intermediary may ask you for any payment (fact sheet F2451).

Early repayment charges (IRA)

Buying out a loan means repaying it early. The borrower can always do so; the agreement can only prohibit partial repayments equal to or less than 10% of the original amount, unless they clear the balance (art. L313-47).

Property loan. If the agreement provides for a charge, it may not exceed “the value of six months’ interest on the capital repaid at the average rate of the loan, and may not exceed 3% of the capital outstanding before repayment” (art. R313-25). The lower of the two amounts applies. For a loan with different rates over different periods, the charge can be increased to secure for the lender the average rate originally provided for.

No charge when the repayment is prompted by the sale of the home following a change of place of work of the borrower or their spouse, their death or the forced cessation of their professional activity (art. L313-48). No other cost may then be charged (art. L313-49).

Consumer credit. A charge is only possible above €10,000 repaid early over 12 months; it is capped at 1% of the amount of credit if the repayment takes place more than a year before the end of the agreement, and 0.5% if less than a year before (service-public.gouv.fr, F2451).

The other costs of a buyout

For a buyout of a property loan, service-public.gouv.fr lists:

• the IRA on the loan or loans paid off;
• the costs of releasing the mortgage (mainlevée d’hypothèque) if the old loan was secured by one;
• the arrangement fees and security costs (guarantee or mortgage) of the new loan;
• possibly new borrower insurance required by the new lender.

The information document required by article R314-20 must give, for each loan to be consolidated, the capital outstanding, the planned repayment date, the estimated IRA and the estimated costs of release. It also contains a warning: you must keep paying your monthly instalments and insurance until the old loans have actually been repaid. It is provided no later than the pre-contractual information sheet (FIPEN for a property loan or FISE for consumer credit), to which it can be annexed (art. R314-19).

When a revolving credit is paid off in full, the new lender repays the original lender directly, reminds you that you can terminate that credit, and offers to send the termination letter free of charge (art. L314-13).

Pitfalls identified by the authorities

In a survey of 182 institutions, the DGCCRF (the French consumer protection authority) found an infringement rate of 20.3%: prohibited statements in advertising, late provision of the FIPEN “as a bundle of papers”, omission of certain costs and no information on the right of withdrawal (economie.gouv.fr, 2016). Service-public.gouv.fr also warns against fake loan buyouts: check that the lender is listed on the REGAFI register and that the intermediary is registered with the ORIAS.

Which professional to consult

A courtier en crédit (mortgage broker) registered with the ORIAS can compare buyout offers and work out the total cost of the operation, including IRA and security. If the old loan is secured by a mortgage, or the new one is, the notaire (notary) handles the release and the registration.