The organisation of financing through the seller is today an ordinary practice in sales of housing and vehicles. The seller directs the person wishing to purchase from it to the bank with which it has an arrangement for the particular project; the bank approves the credit and, instead of transferring the sum to the consumer’s account, pays it directly to the seller. Which good the consumer may acquire with that credit is likewise settled from the outset.
The picture that emerges is that the seller and the bank act as a single structure vis-à-vis the consumer. Because the price passes to the seller in advance, the consumer is left with no means of pressure where delivery is not made at all or is made incompletely. In order to remedy that imbalance, the Consumer Protection Act No. 6502 (mevzuat.gov.tr) has brought the institution providing the credit within the circle of liability as well.
Below we address the conditions for the formation of linked credit, its statutory definition, the scope and temporal limits of the liability, and the regime specific to housing finance.
How Is a Linked Credit Relationship Established?
In linked credit the seller arranges for its customer to obtain financing from the bank with which it works; the bank, for its part, transfers the sum made available to the seller’s account without handing it to the consumer. The consumer’s freedom as to which good or service to acquire is thereby markedly narrowed.
The expectations of the three parties feed one another: the bank opens the financing only to purchases from the seller with which it has established cooperation, the seller organises the provision of credit in order to increase its sales volume, and the consumer pays the bank in instalments for the good acquired.
Not every credit, however, is linked credit. Where the consumer takes out credit from a bank of their own choosing without any direction from the seller and the sum is paid to the consumer, there can be no talk of such a relationship. The Act draws this distinction expressly in the fifth paragraph of Article 30:
Consumer Protection Act No. 6502, Art. 30(5)
“Credits made available by the credit provider paying the price of a good or service determined by the consumer themselves, in the absence of an agreement between the credit provider and the seller or supplier relating to the supply of a particular good or service, are not deemed to be linked credit.”
The Statutory Definition and the Requirement of Economic Unity
Article 30 of the Act, headed “Linked credits”, defines the linked credit agreement in the following terms:
Consumer Protection Act No. 6502, Art. 30
“an agreement in which the consumer credit is granted exclusively for the financing of an agreement relating to the supply of a particular good or service and in which these two agreements form, from an objective standpoint, an economic unity”
The key element of the definition is economic unity. For that unity to exist, at least one of the situations listed in the second paragraph of Article 30 of the Act must be present. Those situations are: that the credit is expressly stated in the text of the agreement to be directed at the supply of a particular good or service; that the financing is undertaken by the seller or supplier; or, where the financing is provided through a third party, that the credit provider makes use of the seller’s services at the stage of preparing or signing the agreement.
The Court of Cassation has also set out the structure of this relationship in detail. In its decision of 21.10.2015, case no. 2013/2294, decision no. 2015/2330, the Assembly of Civil Chambers of the Court of Cassation made the following assessment:
Court of Cassation, Assembly of Civil Chambers, case no. 2013/2294, decision no. 2015/2330, 21.10.2015
“In other words, linked credits denote, as a rule, an arrangement establishing a three-sided legal relationship. The parties to that three-sided relationship are the consumer, the seller of the good/supplier of the service and the credit provider. In this three-sided relationship there are, as a rule, at least two agreements legally independent of one another. The first of these agreements is the agreement for the supply of the good/service concluded between the seller/supplier and the consumer, while the second agreement is the credit agreement concluded by the consumer with the credit provider in order to finance the agreement concluded with the seller/supplier. Alongside these two agreements, in the relationship arising within the scope of linked consumer credits there is generally a relationship between all three of these parties within the scope of a ‘framework agreement’ made between the seller/supplier and the credit provider, and by reason of the relationship between the credit provider and the seller/supplier the consumer is directed towards buying a good of a particular brand or contracting with a particular person. In all these situations, the credit agreement concluded within the scope of the linked credit relationship is termed a ‘linked credit agreement’.”
May the Consumer Proceed Directly Against the Bank?
Since the price is transferred to the seller in advance, the consumer’s stopping payment of their own motion where the seller fails to perform produces no practical result. Delivery not being made at all, being made incompletely or defectively, or the seller’s insolvency are the typical forms these failures take; and leaving the consumer unprotected against a seller that has already collected the price is irreconcilable with the principle of consumer protection.
For that reason our law allows certain claims arising from the sale relationship to be addressed directly to the institution providing the credit. Where the seller fails to perform at all or fails to perform duly, the consumer may also select the bank as the party to proceed against. That possibility cannot, however, be said to be open indefinitely; the fourth paragraph of Article 30 of the Act lays down a one-year limit:
Consumer Protection Act No. 6502, Art. 30(4)
“However, the liability of the credit provider is limited to the amount of credit used and lasts for one year, running — where the good is not delivered or the service is not performed — from the date of delivery of the good or performance of the service stated in the sale agreement or in the linked credit agreement, and — where the good is delivered or the service is performed — from the date on which the good was delivered or the service performed.”
For the detail of the rights afforded to the consumer, reference may be made to our note entitled The Rights of the Consumer Using Linked Credit.
The Scope and Limits of the Liability
In the continuation of the Assembly of Civil Chambers decision of 21.10.2015 cited above, the monetary framework of the liability is drawn in the following sentence:
Court of Cassation, Assembly of Civil Chambers, 21.10.2015
“Where linked credit exists, the bank’s liability is to be understood as liability limited to the amount of the credit.”
The statutory provision, for its part, appears in the fourth paragraph of Article 30 in its entirety:
Consumer Protection Act No. 6502, Art. 30(4)
“In linked credits, where the good or service is not delivered or performed at all or duly, the seller, the supplier and the credit provider are jointly and severally liable in the event that the consumer exercises the right to withdraw from the sale agreement or the right to a reduction in the price. Where the consumer exercises the right to a reduction in the price, the linked credit is also reduced in the same proportion and the payment plan is amended accordingly. Where the consumer exercises the right to withdraw from the agreement, the seller, the supplier and the credit provider are jointly and severally liable for the return of the payments made up to that date. However, the liability of the credit provider is limited to the amount of credit used and lasts for one year, running — where the good is not delivered or the service is not performed — from the date of delivery of the good or performance of the service stated in the sale agreement or in the linked credit agreement, and — where the good is delivered or the service is performed — from the date on which the good was delivered or the service performed.”
Under the provision, if delivery or performance does not take place at all or does not take place duly, the credit provider is held jointly and severally liable together with the seller where the consumer withdraws from the agreement or demands a reduction in the price. The practice of the Court of Cassation does not regard that liability as confined to the elective rights named in the Act; it accepts that, where a sum is awarded in favour of the consumer, the institution providing the linked credit is jointly and severally liable for that sum as well.
The decision of the 13th Civil Chamber of the Court of Cassation of 29.04.2010, case no. 2019/14676, decision no. 2010/4491, illustrates this approach:
Court of Cassation, 13th Civil Chamber, case no. 2019/14676, decision no. 2010/4491, 29.04.2010
“Pursuant to Articles 4 and 10 of Law No. 4077, the credit provider is jointly and severally liable for the defective good and for the consumer’s elective rights set out in that article, and that liability is not confined solely to the good not being delivered at all or not being delivered duly. That being so, whereas the court ought to have ordered that the sum awarded be collected jointly and severally from the defendant credit-providing company as well, the dismissal, on the contrary view, of the action brought against the credit provider for want of standing is contrary to procedure and to law and calls for reversal.”
Accordingly, the bank’s liability arises where the consumer turns to one of the following options:
- Demanding a reduction in the price
- Withdrawing from the sale agreement
- Claiming damages for the loss suffered
The Use of Linked Credit in Housing Purchases
In step with the growth in the use of credit, recourse to linked credit in the acquisition of housing has also become widespread; in large-scale construction projects in particular, making credit available to the purchaser through the project bank is an established practice.
Whether a housing loan may be assessed within this framework depends on there being an arrangement between the bank and the seller to the effect that financing will be provided to the consumer for the purpose of purchasing from that seller. A housing loan taken from a bank of one’s choosing without such a bond is not deemed to be linked credit.
Because of the prevalence of the practice, the legislature has separately regulated the case of linked credit being used in housing finance. Article 35, which appears in the third chapter of the Act, headed Housing Finance, contains the following definition:
Consumer Protection Act No. 6502, Art. 35
“A linked credit agreement is an agreement in which the housing finance credit is granted for the financing of an agreement in the case of the purchase of a particular dwelling exclusively, and in which these two agreements form, from an objective standpoint, an economic unity.”
The article goes on to provide that, where the consumer has recourse to one of the elective rights afforded by the Act upon delivery not being made at all or not being made duly, the housing finance institution is likewise held jointly and severally liable together with the seller. A one-year time limit applies in respect of this liability as well:
Consumer Protection Act No. 6502, Art. 35
“However, the liability of the housing finance institution is limited to the amount of credit used and lasts for one year, running — where the dwelling is not delivered — from the date of delivery of the dwelling stated in the housing sale agreement or in the linked credit agreement, and — where the dwelling is delivered — from the date on which the dwelling was delivered.”
Conclusion
Linked credit is a financing model that unites three parties around the same economic purpose, dedicates the sum made available to a particular purchase and transfers the price to the seller; housing purchases are the field in which the model is applied most intensively. Where a good acquired in this way is not delivered at all or not delivered duly, the joint and several liability of the bank arises alongside that of the seller.
Independent Legal’s Assessment
In linked credit files the argument most often turns not on the merits but on the character of the relationship. Credit-providing institutions typically assert that there is no bond between them and the sale; the way past that defence lies in establishing economic unity with concrete evidence. The naming of the project in the credit agreement, payment being made directly to the seller and the application being taken at the seller’s office are strong indications to that effect.
The second critical point is time. The liability is limited to one year running from the date of delivery or performance and to the amount of credit used; where delivery has not been made at all, the starting point is the delivery date written in the agreement, and where that date has been left indeterminate the calculation becomes a matter of dispute in its own right.
The headings to which priority should be given in a specific file are the following:
- Bringing into the file the framework agreement or protocol between the bank and the seller
- Obtaining the payment records showing that the credit sum was transferred to the seller’s account
- Clarifying the delivery date written in the agreement and the starting point of the one-year period
- Making a considered choice among the claims for withdrawal, reduction in the price and damages
- Requesting, where the price is reduced, that the credit sum and the payment plan be corrected in the same proportion
- Not confusing the regime specific to Article 35 in housing finance with the general provisions
Independent Legal provides advisory services and conducts litigation in disputes arising from linked credit relationships, in proceedings to be pursued against the credit-providing institution and the seller.