Consumer finance has been one of the business areas most affected in Spain by the economic downturn following the financial crisis. Unemployment increased by over 4 million, eroding the net wealth of the country and triggering a surge in non-performing loans. The length and severity of the downturn and the discovery of cases of malpractice among financial institutions have led to the government's introduction of new legislation to protect the most vulnerable segments of society.
Spanish financial institutions' balance-sheet problems also contributed to the decrease in credit availability in the system. However, since 2013, this trend has slowly been reversing. Non-performing loans are gradually declining from their peak levels in early 2014, while production of new loans has been picking up.
Since that time, credit entities have activated growth strategies, particularly in the consumer-lending segment, which has benefited from an increase in household spending on consumer goods. However, although this was especially true during past years in the motor sector, where for example vehicle registrations in November 2017 were 12.4 per cent higher than the same month the previous year, in November 2018 the number of registrations of vehicles in Spain decreased by 12.6 per cent in comparison with the year before.2 It remains to be seen whether this reduction is a passing trend or if the tendency will continue in 2019. In any event, the levels of vehicle registration in Spain have not reached the pre-crisis figures: 1.22 million vehicle registrations were filed from January to November 2018, compared with the 2.35 million vehicles registered in 2007.
Excluding credit cards, consumer lending is the fastest-growing segment in household lending and, according to Bank of Spain data, it was growing in mid-2018 at a rate of 14 per cent (and up to 21 per cent with regards to the financing of durable goods). The cumulative growth of consumer lending since 2014 amounts to 47 per cent, the main reason for the increase being the recovery of the Spanish economy. It seems that the level of consumer lending in Spain is reaching pre-crisis figures: in 2017 more than €43 billion in consumer lending loans were granted to Spanish households by financial institutions, overcoming the amounts granted in mortgage loans. With most observers expecting economic growth to be above 2 per cent in 2018–2019, growth in this segment should continue. New entrants in the financial technology space are also likely to necessitate ongoing reviews of legislation.
II LEGISLATIVE AND REGULATORY FRAMEWORK
Broadly speaking, Spanish consumer finance regulations follow the European rules and are built upon the general consumer law regime.
A number of provisions apply to consumer payment, deposit and lending services. Below is a brief overview of the most significant regulations applicable to the Spanish consumer finance industry, in order of relevance.
Law 16/2011 of 24 June on consumer credit (LCC), which regulates the granting of credit to consumers, transposed Directive 2008/48/EC of 23 April 2008 on credit agreements for consumers into the domestic legal system.
The LCC applies to loans and credit granted to a consumer (defined as a natural person who, in the contractual relationships covered by the LCC, is acting for purposes outside his or her trade, business or profession) by an entity as part of its commercial or business activity. Certain contracts are excluded from the scope of the LCC, namely contracts with a value of less than €200 and credit agreements secured by mortgages, leasing agreements, etc. The LCC deals with various matters related to consumer credit, such as pre-contractual information that must be provided, rights of the consumer, the credit agreement and the calculation of the annual percentage rate. The special consumer protection covered by the LCC focuses on:
- the information and actions required prior to entering the credit agreement – including publicity;
- the information provided to consumers;
- the content, form and events or circumstances under which the agreements become null and void;
- the right of withdrawal; and
- the delimitation of terms, such as the total cost of the credit and the annual percentage rate, specifying the circumstances under which the total cost of the credit may be modified and stipulating the conditions under which the agreement must be amended.
In relation to the agreements expressly linked to credit financing entered into by consumers, failure to provide the credit results in the ineffectiveness of the agreement. This preserves the consumers' rights both against the supplier of the goods and services and against the lender.
Directive 2008/48/EC was recently modified by Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No. 596/2014. Regulation (EU) 2016/1011 primarily establishes a specific obligation of the credit entity to, in a separate document, inform the consumer of the name of the benchmark index, identity of its administrator and potential implications for the consumer. Regulation (EU) 2016/1011 entered into force in June 2016, but started applying as from 1 January 2018.
Law 2/2009 of 31 March3 on the contracting of mortgage loans and credit with consumers and the brokering of execution of loans and credit, regulates the granting to consumers of real-property-backed loans and the rendering of brokerage services for the granting of consumer loans. Under this regulation, entities (other than credit entities or financial credit establishments) granting real estate loans or rendering brokerage services for the granting of real-property loans to consumers must be registered with the public registry of the region where they maintain their corporate address. Foreign entities must be registered with the national registry maintained by the National Consumers' Institution in accordance with Royal Decree 106/2011 of 28 January.
Legislative Royal Decree 1/20074 of 16 November, approving the revised text of the general law for the protection of consumers and users and other supplementary laws (as amended by Law 3/2014 of 27 March), which regulates the general terms and conditions that must apply to the relationship between companies (including credit entities) and consumers (i.e., the rights of consumers, contracts executed with consumers, rights of withdrawal, clauses deemed abusive and the vendor's liability). The Legislative Royal Decree was recently modified by Law 7/2017 of 2 November, which transposes into Spanish law Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No. 2006/2004 and Directive 2009/22/EC. It was also modified by the Royal Decree-Law 9/2017 of 26 May, which transposes EU directives on the finance, corporate and health sectors and on the displacement of employees into the Spanish legal system.
Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent financial measures, partially incorporates into the Spanish legal system Directive 2015/2366/EU of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, together with Regulation 2015/751/EU of the European Parliament and of the Council of 29 April 2015 on interchange fees for card payment transactions. The main objectives of this new European framework and of Royal Decree-Law 19/2018 are to facilitate the use of online payment systems while improving their security, to strengthen the level of protection of users against fraud and potential abuses, as well as to promote innovation in payment services through mobile phones and the internet.
Law 7/1998 of 13 April governing contracting with consumers through the adherence to general terms in contracts (the Law on General Terms in Contracts), which regulates standard terms in contracts.
Law 22/2007 of 11 July on distance marketing of consumer financial services, which applies to contracts for financial services entered into by regulated entities (such as credit entities and branches of credit entities in Spain) and consumers, where the services are rendered and the contract has been formalised by distance. It contains a set of rules that govern the provision of pre-contractual information, communications, rights of withdrawal, payment and unsolicited services and communications.
Law 10/2014 of 26 June on organisation, supervision and solvency of credit entities, the related Order EHA/2899/2011 of 28 October on transparency and protection of banking services consumers and the Bank of Spain Circular 5/2012 of 27 June, addressed to credit entities and payment services providers, on transparency of banking services and lending responsibility.
Law 5/2015 of 27 April on promoting corporate financing (Law 5/2015), which deals with crowdfunding for the first time in Spain and lays out the requirements with which platforms providing these services must comply.
All these regulations aim at protecting consumers and impose several obligations on the lenders contracting with them, including exhaustive duties of information and transparency. Furthermore, both Law 7/1998 of 13 April and Law 22/2007 of 11 July contain provisions whereby abusive clauses or misleading or obscure provisions that are detrimental to consumers should be considered void.
In addition to the aforementioned general regulations, certain regional provisions also apply.5
Special attention should be drawn to the future Law on Real Estate Credit the draft of which was approved on 11 December 2018 by the Economy and Business Commission of the Spanish Parliament and which is expected to be definitely approved during the first quarter of 2019.
The Law on Real Estate Credit will partially transpose Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No. 1093/2010 into the Spanish legal system. The main purpose of Directive 2014/17/EU is to harmonise the regulations on consumer protection with regards to the procurement of mortgage loans, as well as to strengthen the legal transparency in the granting of real estate financing and decrease the level of litigiousness related to abusive clauses.
Among other matters, the Law on Real Estate Credit (as currently drafted) will (1) harden the requirements for lenders to accelerate unpaid mortgage loans; (2) increase the standards of conduct applicable to creditors; (3) define the amount of information that financial entities have to provide to borrowers and reinforce such entities' transparency obligations; (4) establish an obligation on the banks to evaluate the solvency of potential clients; and (5) include a number of requirements related to the levels of knowledge and competence of borrowers, credit intermediaries or representatives designated to carry out activities regulated in the draft Law.
The Bank of Spain is the main body in charge of implementing and enforcing regulation of consumer finance services in Spain.
In addition to executing the guidance and instructions of the Eurosystem's monetary policy in Spain, the Bank of Spain promotes the general economic policy of the Spanish government and the stability of the financial system. To execute these functions, the Bank of Spain also has legislative powers and may issue circulars.
Order ECC/2502/2012 of 16 November regulates, among others, the procedure for filing claims before the Bank of Spain's Complaints Service. In particular, the Order sets out: (1) financial services users' right to submit complaints and enquiries; (2) the medium and content of such complaints and enquiries; (3) other procedural aspects such as the need to file a prior complaint or claim with the credit entity's customer service or, where applicable, with the consumer ombudsman; (4) the filing of collective complaints; (5) the conditions and procedure for the rejection of complaints; and (6) the handling of complaints.
Notwithstanding the above, consumers may raise their complaints and submit suggestions through Spain's regional consumer associations. Once the relevant form has been filed, the Complaints and Suggestions Unit will inform the consumer within the next 20 business days of the actions to be taken. If there is no reply, the consumer may address his or her complaint to the General Services Inspectorate of the Ministry of Health, Equality and Social Policy. Because of the structure of regional governments, there are 17 different consumer protection bodies in Spain, one per region. Some municipalities and cities have also created their own bodies.6
All clauses considered abusive by a court ruling are filed in Spain's General Terms in Contracts Registry, created by the Law on General Terms in Contracts. Citizens may check this registry to verify whether the clauses included in their contracts are abusive.
As mentioned in Section II.i, payment services are regulated by Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent financial measures and Order EHA/1608/2010 of 14 June on transparency and payment services.
In particular, the recently approved Royal Decree-Law 19/2018 partially transposes into the Spanish legal system Directive 2015/2366/EU of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, together with Regulation 2015/751/EU of the European Parliament and of the Council of 29 April 2015 on interchange fees for card payment transactions.
These regulations govern the performance of payment transactions by any means (dealing with issues such as, among others, consent and withdrawal of consent in payment transactions, limitations on payment methods, information to be provided to the payer and beneficiary of a payment transaction, authentication, expenses derived from payment transactions, and the notification procedure for unauthorised transactions) and the provisions of services framework agreements (content, amendment and termination).
The payment industry has evolved substantially over the past decades, from traditional channels using cash and cheques to a much greater use of digital channels such as online banking and mobile payments. Payment services can be defined as activities relating to payment transactions (transfers of funds from one account to another) made through payment methods other than cash: wire transfer, direct debit and payment cards. With new entrants into the payment services industry, ranging from large technology companies to specialised start-ups, the legislation will need to be adapted.
Fintech is continuously evolving, however, and in the future more areas will need to be addressed through regulation. An example of this is the wider use of blockchain technology in the banking system. Although still in its infancy, it could be used for shared databases with applications to international payments and securities settlements, which could raise consumer protection and data privacy issues.
ii Recent developments
New payment technologies, including both contactless cards and new mobile payments, are increasingly present in Spanish purchasing processes. These payment methods have certain advantages for consumers, such as their convenience and the intentional increase in the security of daily transactions.
Although fintech and mobile payments are not yet regulated in Spain, final guidelines on the security of online payments, published by the European Banking Authority on 19 December 2014, were approved by the executive committee of the Bank of Spain on 24 March 2015.
Limits on cash payments
A limit on cash payments to prevent tax fraud came into force in 2012 when the Spanish government passed Law 7/2012 of 29 October. Under this regulation, cash payments of €2,500 or more cannot be made in transactions where at least one of the parties involved is a company or professional. This law has significant implications for citizens who are sometimes obliged to use alternative means of payment.
The previous Spanish government was considering the reduction of the limit to €1,000, but this modification was not formalised and the new Spanish government has not taken a position on this issue.
The use of big data
Another aspect of fintech is the use of big data (often focusing on spending and payment patterns) for the purposes of credit scoring, the provision of other financial services or cross-selling. This is not yet specifically regulated, although the European Banking Authority launched a public consultation on 19 December 2016 regarding the potential benefits and risks of big data for consumers and financial firms, to determine whether any further regulatory or supervisory action may be needed.
Likewise, the European Commission launched a public consultation on 23 March 2017 entitled 'Fintech: a more competitive and innovative European financial sector', the main purpose of which was to seek input from stakeholders to further develop the Commission's policy approach towards technological innovation in financial services.7
IV DEPOSIT ACCOUNTS AND OVERDRAFTS
i Deposit guarantee
The objective of a deposit guarantee fund is to guarantee depositors the recovery of their money in the event that an entity that is a member of the fund becomes insolvent or encounters any other problem preventing it from meeting its payments and complying with its obligations. The guaranteed amount is limited to cash deposits of €100,000 per depositor.
Membership of the Deposit Guarantee Fund of Credit Institutions is mandatory for all Spanish banking institutions recorded in the Bank of Spain's Special Registry, as well as for the branches of banking institutions registered in a country outside the European Union if the guaranteed deposits and securities held by that branch are not covered by a guarantee system in the country of origin, or if the coverage is insufficient. Membership of branches of financial institutions registered in another country within the European Union is voluntary, because the deposits and securities are already covered in the country of origin.
With regard to overdrafts, the law specifies that the client must pay the amount back immediately, as well as the interest on the overdrawn amount and the corresponding banking fees. In the case of consumers, the cost of the overdraft (including interest and fees) is limited by law. The annual percentage rate of the overdraft in a current account cannot – at any point in time – be higher than 2.5 times the legal interest rate. For 2018 this limit was set at 7.5 per cent.
According to Article 20 of the LCC, if overdrafts are accepted implicitly, the consumer must be informed individually, in a timely and correct manner, of the rate of the overdraft, the reference rates used (if applicable), as well as of any potential modifications. If the overdraft lasts for more than one month, the bank will inform the consumer in the same way of the overdraft and its amount, the rate applied, and the penalties, expenses or late payment interest applied.
V REVOLVING CREDIT
Credit card use in Spain is not particularly widespread. The amount credited is usually paid at the end of the month, and instalments rarely continue for more than three months.
However, Spanish consumers are increasingly using credit cards: the number in circulation in Spain in 2017 was 52.35 million (compared to 48.75 million in 2016) and increased up to 53.76 million by June 2018.8
Credit lines for consumers are being introduced by some financial institutions, taking the commercial name 'revolving credit'. The difference from a credit card is that the client is given a maximum spending amount over a certain period that the individual can choose when to pay off.
ii Recent developments
The Bank of Spain publishes the interchange and discount fees received by payment companies from the use of cards in point of sale terminals (POS) when the payment service provider and beneficiary are both located in Spain. Publication of this information is pursuant to Article 13 of Law 18/2014 of 15 October on urgent measures for growth, competitiveness and employment and the Bank of Spain Circulars 1/2015 and 1/2016 of 24 March and 29 January, respectively, which expand on it. The law specifies that the information will be available on the websites of both the Bank of Spain and the payment service provider.
In 2014, the European Parliament established new maximum fees for consumer card payments, which were enacted into Spanish legislation through Royal Decree 8/2014 of 4 July and reiterated in Law 18/2014. The new law establishes a maximum fee of 0.3 per cent for credit cards and 0.2 per cent for debit cards (with a maximum of €0.07 per transaction). For amounts below €20, the maximum fee is 0.2 per cent for credit and 0.1 per cent for a debit. In addition, for payments with debit cards, the maximum fee will be €0.07 and will apply to all payments of an amount greater than €35.
VI INSTALMENT CREDIT
Conditions of mortgage loans vary depending on the type of asset to be mortgaged: primary residence, secondary residence, etc. In general, financial institutions offer better terms for primary residences. Virtually all mortgages in Spain are amortising mortgages with variable rates with a fixed spread over 12-month EURIBOR, although more recently fixed-rate mortgages have been on the increase. The maximum term allowed is 30 years, and the loan to value ratio of the loan can only exceed 80 per cent in certain exceptional cases.
In the event of default, repossession of the asset can be executed through court proceedings or an out-of-court agreement (attested by a notary), depending on what was agreed in the contract.
One of the most popular consumer finance products, in which there has been significant increase after the crisis is car financing.
According to Law 10/2014 of 26 June on organisation, supervision and solvency of credit institutions, contracts will be considered operating leases when their exclusive purpose is to loan the use of an asset that was acquired for that purpose with the future beneficiary's specifications, in exchange for compensation consisting of periodic payment by instalments. When there is a call option, the price must be the market price.
This type of financing has traditionally been easier to obtain, given the higher remuneration of the loan and its relatively short term (e.g., compared with a mortgage loan). The financial institution assesses the client's repayment capacity and does not normally require any specific guarantee, but the individual will be liable for the debt with his or her present and future assets.
There are different ways to pay back a personal loan, depending on the frequency of the instalments (normally monthly) and how the amounts change over time (constant, increasing or decreasing). Another option is to establish an initial period with no payment of principal. However, the most common practice is for financial entities to extend personal loans with a repayment schedule consisting of periodic instalments of equal amounts which include both interest and repayment of principal.
ii Recent developments
Royal Decree 6/2012 of 9 March promulgated urgent measures for the protection of mortgagors lacking resources. The regulation aims to offer protection to families that, because of the long duration of the crisis, cannot meet their mortgage obligations. It (1) defines the target population to be protected; (2) stabilises a limit on late payment interest that can be charged to that population; (3) includes a code of good practice in its annex (regulated by Law 1/2013 of 14 May) with which financial institutions can comply to assist the renegotiation of loans to the target population and, if this is not possible, introduce payment in kind in favour of the lending institution (in practice, eliminating the full recourse nature of the loan); (4) establishes certain tax or fiscal measures to support these mechanisms; and (5) introduces some flexibility into out-of-court repossessions of the mortgage collateral.
Both Royal Decree 6/2012 and Law 1/2013 were recently amended by Royal Decree-Law 5/2017 of 17 March, which implements certain measures to strengthen the protection of mortgage debtors who are in a vulnerable position. Among other things, Royal Decree-Law 5/2017 (1) increases the scope of protection of the measures established in the code of good practice set out in Royal Decree 6/2012 and Law 1/2013 so as to include families with children who are minors and those who are victims of gender violence, and (2) extends the suspension of eviction of vulnerable groups of individuals from their permanent residences (regulated by Law 1/2013) by an additional three years (i.e., until May 2020). Likewise, as previously discussed, the future Law on Real Estate Credit is expected to amend the existing regulations applicable to mortgage debtors.
VII OTHER AREAS
As stated in Section II.i above, Law 5/2015 regulates crowdfunding, an area previously unregulated by Spanish law.
Law 5/2015 addresses crowdfunding from three perspectives: (1) the legal framework governing crowdfunding platforms; (2) the authorisation, registration and setting aside of the activity of the platforms; and (3) the regulations applicable to each of the three sides involved (the project owner requiring the financing, the investors interested in participating financially, and the platform through which the project owner announces the project and raises funds), including restrictions on activities permitted and rules to protect non-qualified investors, as defined in Law 5/2015. Specific restrictions apply to how the platforms can raise funds (i.e., only through issuance of shares in public limited companies, bonds or other equity securities; issuance of shares in limited companies; and loans, pursuant to Law 5/2015). The use of the funds is regulated (limited to purposes of entrepreneurialism, education or consumption), as are the services that can be rendered by the platforms (primarily marketing and communication services, not investment services or activities reserved to credit institutions).
The activities of crowdfunding platforms are subject to approval from the National Securities Market Commission (CNMV) and registration in the CNMV's registry, pursuant to the procedures established in Law 5/2015. In collaboration with the Bank of Spain, the CNMV is in charge of the supervision, inspection and penalisation of platforms and any other natural or legal person violating Law 5/2015 in relation to crowdfunding.
With regard to the protection of investors, Law 5/2015 refers to qualified and non-qualified investors, differentiating them primarily on the basis of proven economic capacity and, in some cases, on whether the investor has expressly applied to be considered as a qualified investor. In the latter instance, if it is a natural person the crowdfunding platform must analyse the request on a case-by-case basis. In projects published through a single crowdfunding platform, non-qualified investors may not invest more than €3,000 per project or more than €10,000 within any 12-month period. The platform must also warn investors of specific risks associated with the investment.
Subject to specific particularities, regulations on the protection of consumers apply to relationships between project owners and investors, as well as to relationships between platforms and project owners, in the event that the project owner is considered a consumer.
In any event, parties in the relevant sectors are demanding an update of Law 5/2015 based on recent developments that they believe has made the Law obsolete. Among other things, more clarity is required in the definitions of the activities subject to Law 5/2018 and the lack of access of foreign investors and promoters to services offered by a Spanish crowdfunding platform is being criticised.
VIII UNFAIR PRACTICES AND LITIGATION
In addition to the aforementioned practices and the regulation of usury, we would highlight the following unfair practices that have recently drawn attention.
i The limitation on late payment interest
A maximum rate of 2 per cent applies to the interest rate agreed on consumer loans, and for mortgages the maximum rate for late payments is three times the legal interest rate.9
ii Mortgage interest rate floor clauses declared unfair due to a lack of transparency
In recent years, Spanish mortgage loan agreements have often included floor clauses providing that, if the interest rate falls below a certain threshold, the client must nevertheless continue to pay a minimum interest equal to that threshold. There has been a great deal of discussion on whether these clauses are unfair to consumers, and, consequently, numerous individuals have initiated judicial proceedings seeking a court ruling declaring floor clauses unfair and not binding. In this regard, the Supreme Court's ruling on 9 May 201310 declared some floor clauses void (i.e., those establishing a minimum variable interest rate for mortgages) for lack of transparency.
Owing to considerations of financial stability and the public interest, the Supreme Court also obliged financial institutions to pay clients back all the overcharged amounts as from May 2013 (the date of the ruling).
Several Spanish courts asked the Court of Justice of the European Union whether limiting the effects of the invalidation to cases after the Supreme Court's judgment is compatible with Council Directive 93/13/EEC of 5 April on unfair terms in consumer contracts, given that, according to that Directive, such clauses are not binding on consumers.
On 21 December 2016,11 the Court of Justice of the European Union ruled against the limitation on retroactivity, deciding that the overcharged amounts had to be returned not only from May 2013, but also from their original start date. The Spanish government recently announced its intention to pass a Royal Decree in the near future. This will set out the terms for credit entities' return of the amounts overpaid in relation to floor clauses and provide consumers with an extrajudicial process that is quicker and less costly than court proceedings.
In its ruling on 24 February 2017,12 the Spanish Supreme Court amended its own criteria to conform with the Court of Justice of the European Union's judgment of 21 December 2016. The Supreme Court recognised the invalidity of floor clauses with retroactive effect, not only from 9 May 2013 (as established initially), but from their original start date.
In relation to the above, the Spanish government passed Royal Decree-Law 1/2017 of 20 January, on urgent measures for the protection of consumers in floor clause matters, which among other things (1) implements measures expediting the recovery process for amounts unduly paid by consumers to credit entities as a result of floor clauses contained in loan or credit agreements guaranteed by chattel mortgage, and (2) establishes a preliminary procedure for out-of-court settlement of disputes that is voluntary for the consumer, establishing the obligation of the banking entities to implement this procedure and ensure that consumers who have floor clauses in their loan or credit agreements have been properly informed about their existence.
Royal Decree-Law 1/2017 was expanded upon by Royal Decree 536/2017 of 26 May, the main purpose of which was to create and regulate the monitoring, control and evaluation commission established by Royal Decree-Law 1/2017.
In addition, the Spanish General Council of the Judiciary issued a resolution of its Permanent Commission, dated 25 May 2017, assigning certain courts exclusive competence over all disputes relating to general conditions included in financing agreements with in rem guarantees where the borrower is a natural person.
Several subsequent rulings from the Spanish Supreme Court (including, among others, the ruling of 16 October 2017) have confirmed the de iure nullity of floor clauses, pointing out the impossibility of parties agreeing to validate those types of clauses, which are automatically voided. However, on 11 April 2018, the Spanish Supreme Court issued a ruling where it seemed to accept the possibility that extrajudicial agreements could be reached among the parties in relation to floor clauses.13 As of 15 November 2018, Spanish banks had returned €2,292 million to borrowers as reimbursement of excess interest paid on the basis of floor clauses.
iii Acceleration clauses
The Spanish Supreme Court also declared in its ruling on 23 December 2015 that mandatory early-repayment clauses in mortgage loans in the event of non-payment of fewer than three instalments are to be considered null and abusive. In this regard, in order for Spanish financial entities to initiate mortgage foreclosure proceedings there must be a material breach by the debtor of its payment obligation under the loan agreement (i.e., mainly only payment defaults of more than three instalments); and the acceleration event must be registered with the Land Registry. Likewise, since 2013 the new ground for challenging foreclosure proceedings consisting in the existence of unfair contract clauses can be raised both by the debtor or the judge himself in the course of the foreclosure proceedings until the physical repossession of the asset is obtained by the creditor.
The upcoming ruling of the European Court of Justice (ECJ) will answer a number of preliminary questions raised by several Spanish courts on certain aspects of the mortgage foreclosure proceedings, especially in relation to the unfairness of acceleration clauses in foreclosed mortgage loans. In his conclusions, the Advocate General adopted a firm position in favour of declaring the unfairness of acceleration clauses and argued that the effects of such unfairness should be more burdensome for lenders. It remains to be seen whether the ECJ will adopt the Advocate General's view in connection with the preliminary questions raised by the Spanish courts. In the meantime, most of Spanish enforcement proceedings are suspended.
iv Other nullified clauses
In addition, in its ruling on 23 December 2015, the Spanish Supreme Court also declared that, among others, the following clauses in financing agreements with consumers are to be considered null and abusive:
- clauses imposing an obligation on the consumer to pay pre-procedural and procedural expenses or legal fees for the creditor's lawyers and legal representatives in the event of a payment default;
- clauses prohibiting the borrower from modifying the use of the building without the creditor's express authorisation;
- clauses equating the consumer's acceptance of a telephone offer with his or her written signature and of the special terms and conditions of the agreement; and
- clauses imposing an obligation on the consumer to cover all costs and expenses related to the formalisation of the agreement that should instead be borne by the bank, such as notarial fees, registry fees and taxes.
IX RECENT CASES
In 2016, the Bank of Spain's Complaints Department dealt with 48,230 new cases filed by users of financial services. Claims peaked in 2013, with a gradual decrease since then but the number remaining above pre-crisis levels. Twenty-seven per cent of claims received in 2016 related to mortgage-floor disputes, 28.3 per cent referred to other forms of lending and 21.2 per cent related to deposits.
According to the Bank of Spain's 2016 Claim Report,14 the number of decisions issued in favour of the claimant in claims unrelated to floor clauses remains extremely high. This underlines the inadequate attention paid by credit entities to customer service in the settlement of claims, since in 60.4 per cent of cases the Bank of Spain's Complaints Department upheld claims, which, as stated before, had already been filed in the first instance with the corresponding credit entity.
In relation to claims dealing with floor clauses, 62.8 per cent of decisions issued by the Bank of Spain's Complaints Department found in favour of the claimant (similar to the 66.6 per cent figure from the year before). This indicates weaker performance by credit entities' customer service departments when handling this kind of claim, even though the percentage of decisions in favour of the claimant slightly decreased in 2016 in comparison with 2015.
Finally, the corrections carried out by the corresponding credit entities as a result of decisions issued in favour of the claimant amounted, on average, to 36.8 per cent in claims unrelated to floor clauses and 31 per cent in claims that did deal with floor clauses – a reduction of the corrections in both categories in comparision with the previous year.
According to the Bank of Spain's 2017 Claims Report,15 the number of claims filed by users of financial services has significantly grown in 2017, while it had been continuously decreasing during the previous years. The total number of claims submitted to the Bank of Spain in 2017 was 40,176, in comparison with the 14,462 claims filed in 2016.
It seems, however, that the sudden notable increase in the number of claims filed in 2017 is a passing trend since, according to the information provided by the Bank of Spain, the number of claims filed with the Complaints Department by the end of October 2018 only reached 15,530.16 In any event, the Bank of Spain has experienced difficulties in resolving all the filed claims, the majority of which are related to controversies with financial entities. In 2017, only around 25 per cent (10,428) of the 40,176 complaints filed were decided upon. This has contributed to the judicialisation of banking disputes, as many customers eventually decide to file a claim before the Spanish courts.
Overall, the total average of decisions issued in 2017 in favour of the claimant, in relation to all matters, amounted to 73.07 per cent of cases while, at the end of October 2018, 61.16 per cent of the total average of decisions were issued in favour of the claimant.
The corrections carried out by the corresponding credit entities as a result of decisions issued in favour of the claimant amounted, on average, to 62.4 per cent in 2017, experiencing a significant increase in comparison with 2016, where the figure was 36.8 per cent.
In 2017, 81.4 per cent of the claims filed before the Bank of Spain's Complaints Department were related to mortgage loans and, in particular, to disputes in connection with the costs and fees of formalisation of those loans.
The economic outlook and the need to address the aftermath of the real estate bubble suggests that consumer lending will continue as the fastest-growing type of loan in Spain, at least in the medium term.
However, the digital economy is transforming the traditional consumer lending space, with new channels such as crowdfunding, new entrants into the payment segment, and even the creation of virtual currencies.
These new entrants are largely unregulated entities from the technology sector, often already with a well-known consumer brand. They are targeting the consumer-lending segment because of its relatively high profitability and healthy growth prospects and, lacking the legacy and capital requirements of banks, new entrants can be faster to market and more competitive in pricing, offering lower rates.
This will result in a higher degree of disintermediation in the future. The fact that the new entrants are largely unregulated entities from the fintech sector means that as they come to play a bigger role in the consumer sector, either with payments or lending, more legislation will prove necessary.
1 Leonor de Osma is an associate at Uría Menéndez Abogados, SLP.
2 According to the Spanish Vehicles and Trucks Manufacturers Association.
3 It should be noted that certain provisions of Law 2/2009 will be amended by the future Law on Real Estate Credit referred to below.
4 It should be noted that certain provisions of Royal Decree 1/2007 will be amended by the future Law on Real Estate Credit referred to below.
5 For instance, Law 20/2014 of 29 December, modifying Law 22/2010 of 20 July of the Consumer Code of Catalonia, aimed at improving consumer protection in relation to mortgage loans and credit, financial vulnerability and consumer relations.
6 A list of the different consumer bodies currently existing in Spain is available here:
7 A summary of the contributions to the referred public consultation can be found at https://ec.europa.eu/info/sites/info/files/2017-fintech-summary-of-responses_en.pdf.
9 Supreme Court ruling of 3 June 2016, available at: http://www.poderjudicial.es/search/doAction?action=
10 Supreme Court ruling of 9 May 2013, available at: http://www.poderjudicial.es/search/doAction?action=
11 Judgment of the Court of Justice of the European Union of 21 December 2016, joined cases C-154/15, C-307/15 and C-308/15, available at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=
12 Supreme Court ruling of 24 February 2017 available at: http://www.poderjudicial.es/search/contenidos.
13 Supreme Court ruling of 11 April 2018 available at: http://www.poderjudicial.es/search/contenidos.action?action=contentpdf&databasematch=TS&reference=8348440&links=clausula%20suelo%20%22205%2F
14 Bank of Spain's 2016 Claim Report available at: https://www.bde.es/f/webbde/Secciones/Publicaciones/PublicacionesAnuales/MemoriaServicioReclamaciones/16/Ficheros/MSR2016_Documento_completo.pdf.
15 Bank of Spain's 2017 Claim Report available at: https://www.bde.es/f/webbde/Secciones/Publicaciones/PublicacionesAnuales/MemoriaServicioReclamaciones/17/MSR2017_Documento_completo.pdf.
16 Market Conduct and Complaints Department Statistics, available at: https://clientebancario.bde.es/pcb/es/menu-horizontal/actualidadeducac/actualidad/estadisticas/.