Duty to warn
The duty to warn requires a broker to alert an unsophisticated borrower to the risks of excessive debt arising from the proposed loan, in light of that borrower's financial capacity. Distinct from the duty to advise, it protects clients from entering commitments that are unsuitable for their situation.
Key points
- Applies to 'unsophisticated' borrowers, i.e., those without specialist financial knowledge.
- The broker must assess the client's financial capacity before issuing the warning.
- The warning must be personalized, given in writing, and kept on file.
- Failure to comply may expose the broker to civil liability.
- Distinct from the duty to advise: the duty to warn alerts; the duty to advise guides toward the best option.
Frequently asked questions
Who does the duty to warn apply to?
It applies to borrowers classified as 'unsophisticated,' meaning those who lack sufficient financial expertise to independently gauge the risks of taking on credit. The broker must assess the client's profile at the first meeting to determine whether this obligation is triggered.
What is the difference between the duty to warn and the duty to advise?
The duty to warn is reactive: it consists of flagging a specific risk of over-indebtedness given the borrower's situation. The duty to advise is proactive: the broker must actively seek the most suitable solution and justify their recommendations. Both obligations coexist and neither replaces the other.
How can a broker prove they have fulfilled this duty?
Traceability is key: the warning must be written, dated, and countersigned by the borrower. A read-receipt in the digital file is enough to constitute proof. In the event of a dispute, the burden of proof falls on the broker to show the client was warned; the absence of a paper trail is presumed a failure.
In practice
A broker reviews a first-time buyer's file and finds that the projected debt-to-income ratio will reach 38% after the purchase. Before forwarding the application to lenders, the broker formally issues a written warning about potential budget strain in the event of job loss, has the client sign it, and adds it to the file. This step protects the broker in the event of a future dispute.
Official sources
- Cass. civ. 1st, 25 June 2009, no. 08-16.434 (duty to warn) · Légifrance
- Article L519-1 of the Monetary and Financial Code · Légifrance
- Prudential supervision and resolution authority · ACPR (Banque de France)