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 four 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 led to the government's introduction of new legislation to protect the most vulnerable segments of society, and a number of landmark rulings concerning consumer lending.
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. 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. Excluding credit cards, consumer lending is the fastest-growing segment in household lending and, according to Bank of Spain data, it grew in mid-2019 at a rate of 12 per cent. The cumulative growth of consumer lending since 2015 amounts to 61 per cent, the main reason for the increase being the recovery of the Spanish economy.2
Still, the positive growth trend of the Spanish economy in recent years may be slowing down as a consequence of the appearance of uncertainties surrounding the global economy. For example, vehicle registrations in November 2018 were 12.5 per cent lower than the same month the previous year, and were just 1.45 per cent higher in November 2019.3 Additionally, recent figures have shown a surge in the number of non-performing loans in the consumer lending segment, with figures for 2019 estimated to be the highest in the past six years.4
With most observers expecting economic growth to be around 2 per cent in 2019, and decreasing just below that figure for 2020, it remains to be seen whether past years' growth can be sustained in the medium term.
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 modified in 2016 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. In addition to the above, Directive 2008/48/EC has been amended by Regulation (EU) 2019/1243 of the European Parliament and of the Council of 20 June 2019, adapting a number of legal acts providing for the use of regulatory procedures with particular attention to Articles 290 and 291 of the Treaty on the Functioning of the European Union (TFEU). Such amendment is aimed at empowering the European Commission to adopt certain delegated acts in accordance with Article 290 TFEU.
Law 5/2019 of 15 March on Real Estate Credit (LREC) partially transposes 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 legal transparency in the granting of real estate financing and decrease the level of litigiousness related to abusive clauses.
Among other things, the LREC:
- hardens the requirements for lenders to accelerate unpaid mortgage loans;
- increases the standards of conduct applicable to creditors;
- defines the amount of information that financial entities have to provide to borrowers and reinforces such entities' transparency obligations;
- establishes an obligation on the banks to evaluate the solvency of potential clients; and
- includes 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.
Law 2/2009 of 31 March5 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 1/20076 of 16 November approves 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 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 governs contracting with consumers through the adherence to general terms in contracts (the Law on General Terms in Contracts), which regulates standard terms in contracts.7
Law 22/2007 of 11 July, on distance marketing of consumer financial services, 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,8 the related Order EHA/2899/2011 of 28 October on transparency and protection of banking services consumers9 and the Bank of Spain Circular 5/2012 of 27 June are addressed to credit entities and payment services providers, on transparency of banking services and lending responsibility.10
Law 5/2015 of 27 April on promoting corporate financing (Law 5/2015) 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, Law 7/1998 of 13 April, as amended, Law 22/2007 of 11 July and Legislative Royal Decree 1/2007 of 16 November 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.11
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:
- financial services users' right to submit complaints and enquiries;
- the medium and content of such complaints and enquiries;
- 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;
- the filing of collective complaints;
- the conditions and procedure for the rejection of complaints; and
- 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, Consumption and Social Welfare. 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.12
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.
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 within the fintech sector, the legislation will need to be adapted.
As mentioned in Section II.i, payment services in Spain 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, 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 (PSD2), 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).
In addition to the above, the Bank of Spain publishes the interchange and discount fees received by payment companies from the use of cards in point of sale terminals when the payment service provider and beneficiary are both located in Spain, 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.13 The law specifies that the information will be available on the websites of both the Bank of Spain and the payment service provider.
ii Recent developments
On 22 February 2019, the Spanish Counsel of Ministers adopted the Draft Law for the Digital Transformation of the Financial System, which was sent to the Spanish Parliament for the corresponding parliamentary procedure, proposing a comprehensive response to the implications of the digital transformation of the financial system and introducing a regulatory sandbox that would allow safe conditions to be created so that technology-based financial innovations can be tested under the control of supervisors (Bank of Spain, CNMV and the Directorate-General of Insurance and Pension Funds), but this Draft Law was not approved and the new Spanish government has yet to take a position on the issue.
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 PSD2 entered into force as of 14 September 2019, the Bank of Spain extended the deadline for completing the migration to strong consumer authentication payment transactions in line with other European regulators until 31 December 2020, following the opinion published by the European Banking Authority on 16 October 2019.
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.
On 19 October 2018, the Spanish Council of Ministers adopted a draft law on measures to prevent and counter fiscal fraud, which was sent to the Spanish Parliament for the corresponding parliamentary procedure. However, this draft law was not approved and the new Spanish government has yet to take a position on the 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. Even though this area is not yet specifically regulated, on 15 March 2018, the European Banking Authority (EBA) published its Fintech Road Map, setting out the main conclusions deriving from the public consultation launched on 19 December 2016 regarding the potential benefits and risks of big data for consumers and financial organisations, and detailing the indicative milestones of the actions to be taken by the EBA throughout 2018 and 2019. Such document was published following in the footsteps of the European Commission's Fintech Action Plan, published on 3 March 2018, which was to seek input from stakeholders to further develop the Commission's policy approach towards technological innovation in financial services.14
Both documents aim to set out the next regulatory steps to be taken by the European Union in this area, underlining the difficulty of fostering a proactive regulatory approach that stimulates new solutions in fintech while at the same time guaranteeing financial stability and consumer protection.
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 2019, 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. Order EHA/2899/2011 and Bank of Spain Circular 5/2012 complete the above-mentioned regulation mandating entities that allow for implicit overdrafts to publish the maximum applicable overdraft rates and to facilitate a detailed breakdown of any amounts charged to the consumer on such account.
In relation to this, the Spanish Supreme Court ruled, on 25 October 2019, the nullity of a €30 overdraft commission that accrued repetitively and automatically, finding it in breach of the applicable legislation.15
V REVOLVING CREDIT
Although credit card use in Spain is not particularly widespread, the number of Spanish consumers using credit cards is increasing: the number in circulation in Spain in 2018 was 36.64 million (a 6.57 per cent increase over 2017) and increased up to 36.97 million by June 2019.16 The amount credited is usually paid at the end of the month, and instalments rarely continue for more than three months.
Another form of consumer credit that can be linked to credit cards is credit lines for consumers taking the commercial name 'revolving credit'. The main 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. Furthermore, the amounts credited that the cardholder repays periodically are automatically renewed at maturity, resembling a permanent credit line. This increase in the repayment time, and the lack of a corresponding increase in any related guarantees, determine that interest rates are far superior to any other form of consumer credit, averaging nearly 20 per cent for 2019.17
ii Recent developments
Since 25 November 2015, when the Spanish Supreme Court declared null a 24.6 per cent interest rate applicable to a revolving credit granted by a Spanish credit entity to a consumer, applying the Usury Law of 23 July 1908, the litigation associated with revolving credit in Spain has been on the rise.
For an interest rate to be declared null in accordance with the Usury Law, it has to be both 'notoriously superior to the average for money' and 'manifestly disproportionate to the circumstances of the case'. As such, many lower courts have struggled in the past years to rule whether or not rates applicable to revolving credits complied with these two requirements, particularly taking into account that the Bank of Spain only started publishing revolving credit-specific interest rates in 2017. While average rates for this type of credit are, as stated above, abnormally high, many courts have ruled nullity out stating that the difference in rates can be explained taking into account the repayment conditions under which such credits are granted and, therefore, that the rates for these credits can only be judged considering the revolving credit-specific interest rates.
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 that 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:
- defines the target population to be protected;
- stabilises a limit on late payment interest that can be charged to that population;
- 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);
- establishes certain tax or fiscal measures to support these mechanisms; and
- introduces some flexibility into out-of-court repossessions of the mortgage collateral.
Both Royal Decree 6/2012 and Law 1/2013 were 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 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 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, the LREC has recently introduced minor amendments to both regulations so as to clarify or repeal certain aspects that have been regulated by it.
VII OTHER AREAS
As stated in Section II.i, Law 5/2015 regulates crowdfunding, an area previously unregulated by Spanish law.
Law 5/2015 addresses crowdfunding from three perspectives:
- the legal framework governing crowdfunding platforms;
- the authorisation, registration and setting aside of the activity of the platforms; and
- 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 have made the Law obsolete. Among other things, 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.18
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 201319 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 (CJEU) 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 2016,20 the CJEU 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 has 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 2017,21 the Spanish Supreme Court amended its own criteria to conform with the CJEU'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, 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 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 jure 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.22
On 10 September 2019, the Supreme Court decided to temporarily suspend pending appeals in floor clause matters in light of the CJEU's upcoming ruling on the matter. As of 30 September 2019, Spanish banks had returned €2,254 million to borrowers as reimbursement of excess interest paid on the basis of floor clauses.23
iii Acceleration clauses
The Spanish Supreme Court 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 were 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 of the existence of unfair contract clauses can be raised by the debtor or the judge in the course of the foreclosure proceedings until the physical repossession of the asset is obtained by the creditor.
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.
v Mortgage loan reference index (IRPH)
Introduced by Bank of Spain Circular 8/1990, partially repealed by Bank of Spain Circular 5/2012, the mortgage loan reference index (IRPH) was marketed in Spain for years as a less volatile alternative to EURIBOR for mortgage loans. In fact, it is estimated that as many as one million mortgage loans exist in Spain – between 10 per cent and 20 per cent of the total number. However, litigation has grown over the years as consumers claimed that the index lacked transparency.
On 14 December 2017, Supreme Court Ruling 669/2017 confirmed the validity of clauses that establish IRPH as a reference index, concluding that it could not be subject to control of abuse in accordance with Directive 93/13/EEC, owing to IRPH's official nature as an index published by the Bank of Spain. The ruling was seen as controversial and, on 29 January 2018, a preliminary ruling from the CJEU was requested on the matter.
On 10 September 2019, the Advocate General of the CJEU concluded that such index fell under the scope of Directive 93/13/EEC and that, therefore, the Spanish courts would have to evaluate on a case-by-case basis whether or not commercialisation had complied with the applicable regulations. However, such conclusions are not binding for the CJEU, which, at the time of writing, has not yet ruled on the matter.
IX RECENT CASES
In 2018, the Bank of Spain's Complaints Department dealt with 49,708 new cases filed by users of financial services; 19,695 were complaints and 30,013 were enquiries. As such, the number of new cases in 2018 decreased by 39 per cent in relation to 2017, but the number remains above pre-crisis levels. The top three areas of dispute in 2018 were mortgages (54 per cent and, out of this, 57.2 per cent were related to disputes in connection with the costs and fees of formalisation), deposits (14.5 per cent) and cards (9.5 per cent). As highlighted by the Bank of Spain's 2018 Claim Report,24 the number of complaints remains highly variable, correlated with certain landmark judicial rulings.
According to the above document, out of the 19,695 complaints, 6,708 (34.05 per cent) were decided by the Complaints Department, with 70.15 per cent of the decisions issued in favour of the claimant and only 29.84 per cent in favour of the credit entity. Although the percentage in favour of the credit entities has slightly improved from the previous 2017 figure (26.9 per cent), the data underlines the inadequate attention paid by credit entities to customer service in the settlement of claims, which, as stated before, had already been filed in the first instance with the corresponding credit entity. Finally, the corrections carried out by the corresponding credit entities as a result of decisions issued in favour of the claimant amounted to 70.6 per cent.
The number of complaints to the Bank of Spain peaked in 2017, with 40,176 complaints and 41,056 enquiries, in contrast to the continuous decrease observed during the previous years. In addition, in 2017, only around 25 per cent (10,428) of the 40,176 complaints filed were decided upon, which contributed to the judicialisation of banking disputes, as many customers eventually decide to file a claim before the Spanish courts.
As the Bank of Spain highlights in the 2019 Financial Stability Report, the global economic slowdown and geopolitical uncertainty will have an impact on consumer spending that is yet to be determined. However, it seems the level of indebtedness may increase in the consumer sector because of the forecasted decrease in revenues.25
Additionally, the digital transformation that the financial sector is experiencing, with new channels such as crowdfunding, new entrants into the payment segment, and even the creation of virtual currencies, implies that more legislation is necessary.
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 they will play a bigger role in the consumer sector, with regard to payments or lending.
1 Jaime Pereda is a partner and José Félix Velasco is an associate at Uría Menéndez Abogados, SLP.
2 According to the Bank of Spain's 2019 Financial Stability Report, available at: www.bde.es/bde/es/secciones/informes/boletines/Informe_de_Estab/.
5 Articles 1 and 5 of Law 2/2009 have been amended by the LREC to expressly exclude certain aspects that have been regulated by the LREC, mainly: the contracting of any mortgage loans and credit (1) where the collateral is a residential property and (2) that are granted to acquire or retain ownership rights over land or properties, both finalised or not, insofar as the borrower or guarantor is a consumer.
6 Article 83 of Royal Decree 1/2007 has been amended by the LREC so as to regulate the nullity of any conditions incorporated into contracts with consumers in a non-transparent manner to the detriment of the consumer.
7 Articles 5 and 11 of Law 7/1998 have been amended by the LREC. In essence, the amendments regulate (1) as stated immediately above, the nullity of any conditions incorporated into contracts with consumers in a non-transparent manner to the detriment of the consumer and (2) the mandatory deposit by the lender within Spain's General Terms in Contracts Registry of any forms prepared in relation to the contracting of any mortgage loans and credit regulated by the LREC prior to carrying out any marketing activities in connection with them.
8 Articles 5, 90 and 103 of Law 10/2014 have been amended by the LREC. In brief, such amendments focus on: reinforcing the obligations of indexes providers, regulating that they must keep historical records of such indexes while stating that these indexes will have to be clear, accessible, objective and verifiable; transferring disciplinary competences from the Bank of Spain to the corresponding body within each Autonomous Community in relation to any infractions deriving from the regulations of the LREC whenever the services provider only renders its services in the territory of said Autonomous Community; and, lastly, including as aggravating circumstance for the determination of sanctions the fact that the debtors or guarantors are considered vulnerable or socially excluded.
9 In October 2019, the Spanish Ministry for Economy and Business published a proposal to amend Order EHA/2899/2011 focusing on measures relating to revolving credits associated with payment instruments. At the time of writing, the current draft focused mainly on two areas: (1) creditworthiness or scoring assessment, by introducing guidelines for potential lenders in order to ensure sufficient customer payment capacity and (2) new transparency obligations, both in the pre-contractual phase and during the term of the contract.
10 Certain provisions of Circular 5/2012 have been amended by the Bank of Spain Circular 2/2019 of 29 May on the requisites of the fee information document and the statement of fees, and payment account comparison websites. Circular 2/2019 completes the transposition into Spanish law of Directive 2014/92/EU, on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features, initiated by Royal Decree-Law 19/2017 and Order ECE/228/2019, and implements certain aspects related to the fee information document and the statement of fees regulated by these two regulations.
11 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.
12 A list of the different consumer bodies currently existing in Spain is available at: http://www.cec-msssi.es/CEC/web/noticias/Organismos_de_consumo.htm.
13 The 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, are established at 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.
14 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.
15 Supreme Court ruling of 25 October 2019, available at: www.poderjudicial.es/search/AN/openCDocument/f9caf3b37c84304484b8072b28c6b92a203df2820487d00c. The Spanish Supreme Court took the opportunity to restate the four requirements established by the Bank of Spain in order for overdraft commissions to be valid: (1) that its amount be linked to the real cost of the collection management; (2) that it not be reiterated for any additional costs incurred by the entity to the same end, even if the negative balance is prolonged in successive settlements; (3) that its amount be a single one, without percentage fees; and (4) that it not be applied automatically.
16 The latest available data can be found at www.bde.es/f/webbde/SPA/sispago/ficheros/es/estadisticas.pdf.
17 The latest available data can be found at https://clientebancario.bde.es/pcb/es/menu-horizontal/productosservici/relacionados/tiposinteres/guia-textual/tiposinteresprac/Tabla_de_tipos__a0b053c69a40f51.html.
18 Supreme Court ruling of 3 June 2016, available at: www.poderjudicial.es/search/doAction?action=contentpdf&databasematch=TS&reference=7693401&links=28079119912016100009&optimize=20160608&publicinterface=true.
19 Supreme Court ruling of 9 May 2013, available at: www.poderjudicial.es/search/doAction?action=
20 Judgment of the CJEU 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=186483&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=561464.
21 Supreme Court ruling of 24 February 2017 available at: www.poderjudicial.es/search/contenidos.action?action=contentpdf&databasematch=TS&reference=7946094&lins=%22123%2F2017%22&optimize=20170228&publicinterface=true.
22 Supreme Court ruling of 11 April 2018 available at: www.poderjudicial.es/search/contenidos.action?action=contentpdf&databasematch=TS&reference=8348440&links=clausula%20suelo%20%22205%2F2018%22&optimize=20180413&publicinterface=true.
23 The latest available data can be found at http://www.mineco.gob.es/portal/site/mineco/menuitem.32ac44f94b634f76faf2b910026041a0/?vgnextoid=ccbe2d55e0e70610VgnVCM1000001d04140aRCRD.
24 Bank of Spain's 2018 Claim Report available at: www.bde.es/f/webbde/Secciones/Publicaciones/PublicacionesAnuales/MemoriaServicioReclamaciones/18/00_Memoria_reclamaciones_completa.pdf.
25 According to the Bank of Spain's 2019 Financial Stability Report, available at: www.bde.es/bde/es/secciones/informes/boletines/Informe_de_Estab/.