The Consumer Finance Law Review: Spain
With the persistence of the covid-19 health crisis, the legal consumer finance landscape in Spain has remained severely conditioned by the evolution of the pandemic throughout 2021. Spain remained in a state of emergency until 9 May 2021, which had originally been approved via Royal Decree 926/2020 of 25 October and extended by Royal Decree 956/2020 of 3 November. From a legislative point of view, the main implication has been delays in the approval of a number of measures, including some that had initially been intended for 2020 and had already been delayed by the initial outbreak. From an economic point of view, the pandemic has entailed a significant increase in public spending, accompanied by a slowdown in economic activity in certain sectors, as a consequence of the restrictions imposed by the health authorities in their efforts to combat the pandemic. However, progress in vaccination and the effectiveness of measures implemented by the authorities to mitigate the impact of the pandemic have allowed a progressive recovery of pre-pandemic levels of activity, which has prevented an increase in the number of non-performing loans.2
With the gradual return to business as usual, the authorities' legislative focus has mainly been on (1) reacting to the evolution of the pandemic by adopting and implementing any necessary measures required from time to time, and (2) planning for the recovery of the Spanish economy, with the Council of Ministers' approval of the Spanish Plan for Recovery, Transformation and Resilience, which should expedite Spain's access to the 'Next Generation EU' funds.
Legislative and regulatory framework
Broadly speaking, Spanish consumer-finance regulations follow European rules and are based on the general consumer law framework. The following is a brief overview of the most important applicable regulations. In addition to the below-mentioned general regulations, various regional provisions apply.
Royal Legislative Decree 1/2007 of 16 November approves the revised text of the general law for the protection of consumers and users and other supplementary laws, which regulates the general terms and conditions that apply to the relationship between companies (including credit entities) and consumers (i.e., the rights of consumers, contracts executed with consumers, rights of withdrawal, unfair clauses and vendor liability). This Royal Legislative Decree has been modified several times in 2021, namely by (1) Royal Decree-Law 1/2021 of 19 January, which introduced and developed the concept of 'vulnerable consumers' in line with the New Consumer Agenda published by the European Commission in 2020 and considering the lasting impact of the covid-19 pandemic; and (2) Royal Decree-Law 7/2021 of 27 April and Royal Decree-Law 24/2021 of 2 November transposing certain directives of the European Union as regards contracts for the sale of goods and the supply of digital content or services.
Law 7/1998 of 13 April governs contracting with consumers by adhering to general terms in contracts. Law 7/1998 transposed Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts into Spanish law. All court-declared unfair clauses are recorded in Spain's General Terms in Contracts Registry, which was created by Law 7/1998. Citizens may check this registry to verify whether the clauses included in their contracts are unfair prior to entering into the contracts.
Deposit and lending services
Law 10/2014 of 26 June on the organisation, supervision and solvency of credit entities,3 and related Order EHA/2899/2011 of 28 October on transparency and protection of banking services consumers and the Bank of Spain's Circulars 5/2012 of 27 June and 4/2020 of 26 June are addressed to credit entities and payment services providers, on the transparency of banking services, lending responsibility and publicity of the underlying products and services. Circular 5/2012 has been amended by the Bank of Spain's Circulars 1/2021 of 28 January and 3/2012 of 13 May with the objective of increasing the number of official interest rates available to credit entities to be used as main and substitute interest rates in the granting of loans.
Order ECO/734/2004 of 11 March on customer service departments and services and the ombudsman for customers of financial institutions outlines the functioning of the complaints departments of such institutions.
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 Spanish law. The LCC applies to credit granted by an entity (as part of its commercial or business activity) to a consumer (defined as natural persons who are acting outside their trade, business or profession). Specific contracts are excluded from the scope of the LCC including, among others, contracts with consideration of less than €200, credit agreements secured by mortgages or leasing agreements.
Law 28/1998 of 13 July on the sale by instalments of movable goods complements the LCC by establishing the contractual framework for the sale by instalments of non-consumable and identifiable movable goods of loan contracts intended to facilitate their acquisition and of the guarantees created to ensure compliance with the obligations arising therefrom.
Law 22/2007 of 11 July on distance marketing of consumer-financial services applies to contracts for financial services entered into between regulated entities and consumers where the services are rendered and the contract has been formalised at a 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 5/2019 of 15 March on real estate credit (LREC) partially transposed Directive 2014/17/EU of 4 February 2014 on credit agreements for consumers relating to residential immovable property into Spanish law. The main purpose of Directive 2014/17/EU was to harmonise the regulations on consumer protection with regard to the procurement of mortgage loans, as well as to strengthen legal transparency in the granting of real estate financing and decrease litigiousness in connection with specific unfair clauses (as it established which party had to bear each of the costs related to the granting of a mortgage-backed loan). At the national level, the LREC's scope extends to all natural persons, regardless of whether or not they are consumers.
Law 2/2009 of 31 March on contracting mortgage loans and credit with consumers and brokering the execution of loans and credit regulates the granting to consumers of mortgage-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 mortgage-backed loans or rendering brokerage services for the granting of mortgage-backed loans to consumers must be registered with the public registry of the region where their registered address is located. 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.
Royal Decree-Law 6/2012 of 9 March on urgent measures for the protection of low-income mortgagors (1) includes, among other things, a code of good practices, to which financial institutions may voluntarily adhere in order to assist with the renegotiation of loans and, if not possible, to accept payment in kind (eliminating, in practice, the full recourse nature of the secured loan); and (2) introduces some flexibility in connection with out-of-court repossessions of the mortgage collateral. Law 1/2013 of 14 May on measures to reinforce the protection of mortgage debtors, debt restructuring and social renting and Royal Decree-Law 6/2012 have been amended a number of times. As a consequence of these amendments: (1) the subjective scope of the measures of protection has been broadened; and (2) the moratorium on evicting vulnerable households has been extended until May 2024.
Law 25/2015 of July 28 is on the second-chance mechanism, the reduction of financial burden and other social measures for individuals. Law 25/2015 was recently modified by Royal Legislative Decree 1/2020 of 5 May approving the consolidated text of the Insolvency Law.
Payment services and crowdfunding
Royal Decree-Law 19/2018 of 23 November on payment services and other urgent financial measures (Royal Decree-Law 19/2018) partially incorporates into Spanish law Directive (EU) 2015/2366 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.4
Royal Decree 736/2019 of 20 December on the legal regime for payment services and payment institutions (Royal Decree 736/2019) continues to pursue the transposition of Directive (EU) 2015/2366 into Spanish law. In particular, Royal Decree 736/2019 expands on the legal framework governing payment services and payment institutions by regulating aspects concerning the authorisation and activities of payment institutions including, among others, the requirements for own funds and guarantees, risk controls and client protection, as well as the requirements from which they may be exempted depending on their activity, size and volume of transactions.
Law 5/2015 of 27 April on promoting corporate financing deals with crowdfunding for the first time in Spain and lays out the requirements applicable to platforms providing these services.
The Bank of Spain, the Spanish Securities' Market Commission (CNMV) and the Directorate-General for Insurance and Pension Funds (DGIPF) are mainly in charge of implementing and enforcing regulations on consumer-finance services in Spain with regard to, respectively, (1) credit entities, payment services institutions and electronic-money institutions; (2) investment services firms, as well as funds and fund management firms; and (3) insurance companies. To carry out these functions, these institutions have legislative powers and may issue circulars.
The complaints departments of these three types of institutions were identified in Law 44/2002 of 22 November, on measures to reform the financial system, as the competent bodies to deal with and resolve any complaints, claims and queries that financial customers may have. As part of the legislative reform in the financial sector in the years that followed the 2008 financial crisis, Law 2/2011 of 4 March on the sustainable economy and Order ECC/2502/2012 of 16 November on the procedure for submitting claims to the complaint departments of the Bank of Spain, the CNMV and the DGIPF modified the Spanish system for addressing customer complaints in the financial sector, aiming to improve the efficiency and effectiveness of these departments.5 Resolutions issued by these departments are not binding but tend to be followed by the institutions, as reflected in the annual statistics set forth in Section IX regarding credit institutions and the complaints department of the Bank of Spain.
Consumers may also state their complaints and submit suggestions through Spain's regional consumer associations. Given the structure of regional governments, Spain has 17 distinct consumer protection bodies (one per autonomous region). Some municipalities and cities have also created their own bodies.6
Payment services in Spain are regulated by Royal Decree-Law 19/2018 (as mentioned in Section II.i) and Order EHA/1608/2010 of 14 June on transparency and payment services. These regulations govern the performance of payment transactions by any means (dealing with issues such as 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).
ii Recent developments
On 14 November 2020, Law 7/2020 on the digital transformation of the financial system was published in the Spanish Official Gazette, aiming to (1) propose a comprehensive response to the implications of the digital transformation of the financial system; and (2) create a regulatory sandbox that allows the creation of a safe environment so that technology-based financial innovations can be safely tested under the control of supervisors (the Bank of Spain, the CNMV and the DGIPF) before they are released to the wider public. Concerning the regulatory sandbox, the Spanish Ministry of Economy received 67 proposals for projects in its first-ever call for proposals. Out of these, 18 (i.e., almost 27 per cent) received favourable preliminary evaluations from the corresponding supervisors.7 A second call for proposals was launched from 1 September 2021 until 13 October 2021.
As a recent development, it is worth highlighting that a legislative proposal regarding the digital transformation of Spain was submitted to the Spanish Congress by the main opposition party on 26 July 2021. Among other measures, the proposal included draft regulation on areas such as blockchain technology, cryptocurrency payments, initial coin offerings (ICOs) and the creation of a national cryptoassets council.
In accordance with the data collected by the Bank of Spain, the current trend towards social distancing generated by the covid-19 pandemic has consolidated consumers' preference for alternative electronic payment instruments, rather than cash. In parallel, the number of ATMs continues its gradual decrease while the number of point of sale (POS) terminals keeps increasing. However, it is noteworthy that the total number of cards (i.e., debit and credit) is not increasing at the same speed as that of POS terminals.8
Limits on cash payments
A limit on cash payments to prevent tax fraud entered into force in 2012 when the Spanish government passed Law 7/2012 of 29 October. Under this law, cash payments of €2,500 or more cannot be made in transactions in which at least one of the parties is a company or professional. This limit has been lowered to €1,000 by Law 11/2021 of 9 July on measures to prevent and combat tax fraud, transposing Council Directive (EU) 2016/1164 of 12 July 2016.
Deposit accounts and overdrafts
i Deposit guarantee
The Spanish deposit guarantee fund for credit entities was created by Royal Decree-Law 16/2011 of 14 October. Its objective is to guarantee the recovery of up to €100,000 per depositor in the event that a member entity is unable to meet its payment obligations.
Membership in the deposit guarantee fund is mandatory for all Spanish credit entities registered with the Bank of Spain's Special Registry, as well as for the branches of credit entities 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 corresponding coverage is insufficient. Membership of branches of credit entities registered in an EU member state is voluntary given that deposits and securities are already covered in the country of origin.
With regard to overdrafts, the law specifies that the client must immediately return the amount as well as the interest on the overdrawn amount and the corresponding bank fees. For consumers, the cost of the overdraft (including interest and fees) is limited by law. The annual percentage rate of the overdraft applied to a current account cannot – at any point in time – exceed 2.5 times the legal interest rate. For 2021, this limit was set at 7.5 per cent.
According to Article 20 of the LCC, if overdrafts are implicitly accepted, 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 in connection with the account.
On 13 March 2020, the Spanish Supreme Court ruled in favour of a credit institution concluding that the overdraft rate charged to a customer was consistent with the above-mentioned legal requirements. In particular, throughout its ruling, the Court analysed the difference between interest on arrears, overdraft rates and the fees charged by credit institutions to recover the amounts owed.9
Revolving credit is often associated with payment instruments that allow for the establishment of a flexible or revolving deferred payment method, which facilitates their accessibility. The main difference compared with standard credit cards is that the client is given a maximum spending limit over a specific period that the individual can choose when to pay off. Furthermore, the amounts credited that the cardholder repays periodically are automatically renewed upon maturity, thereby resembling a permanent credit line. This increase in repayment time, and the lack of a corresponding increase in any related guarantees, entails that interest rates are far higher than those in connection with any other form of consumer credit, averaging nearly 18 per cent in 2021. The data provided by the Bank of Spain reveals that this type of financing has experienced sustained growth since 2010 in terms of volume while average interest rates peaked in 2014.10
Since 25 November 2015, when the Spanish Supreme Court declared that a 24.6 per cent interest rate applicable to a revolving credit granted by a Spanish credit entity to a consumer was null, 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 must be both 'notoriously higher than the average rate for money' and 'manifestly disproportionate to the circumstances of the case'. As such, many lower courts have previously struggled to determine whether 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 indicated above, abnormally high, many courts have ruled out nullity, stating that the difference in rates can be explained taking into account the repayment conditions under which the credits are granted and, therefore, that the rates for these credits can only be judged considering the revolving credit-specific interest rates at the time the credit was granted.
ii Recent developments
On 4 March 2020, the Spanish Supreme Court handed down a ruling establishing that a 26.82 per cent interest rate on a revolving credit was null, applying the criteria mentioned in Section V.i above and comparing the interest rate with the average published by the Bank of Spain for the product. Specifically, the Supreme Court argued that 'the higher the index to be taken as the “normal interest of money”, the less margin there is to increase the price of the credit operation without incurring usury'. On 25 March 2021, the Court of Justice of the European Union (CJEU) delivered its answer to a request for a preliminary made by a lower Spanish court dealing with the matter of revolving credit in line with the previous jurisprudence of the Spanish Supreme Court. Data provided by the Bank of Spain indicates that the number of complaints filed by customers in relation to these products in 2020 has more than tripled since 2019.
In connection with the above, and with the main purpose of reducing litigation and providing legal certainty on the matter, the Ministry of Economy approved Order ETD/699/2020 of 24 July regulating revolving credit. Order ETD/699/2020 came into force on 2 January 2021 and essentially focuses on two areas: (1) creditworthiness or scoring assessments, by introducing guidelines for potential lenders to ensure sufficient repayment capacity of customers; and (2) new transparency obligations, both in the pre-contractual phase and during the term of the contract, reinforcing the information that the client must be provided.
The conditions of mortgage loans vary depending on the type of asset to be mortgaged, including main residence and secondary residences. In general, financial institutions offer more favourable terms for main residences. Virtually all mortgages in Spain are amortising mortgages with variable rates with a fixed spread over the 12-month EURIBOR, although more recently fixed-rate mortgages have become an increasingly popular choice for homeowners and have even surpassed variable-rates mortgages for some periods over this past year. The maximum permitted term is 30 years, and the loan-to-value ratio can only exceed 80 per cent in specific 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 the contractually agreed terms.
This type of financing has traditionally been easier to obtain, given the loan's higher remuneration 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, although borrowers are liable for the debt with their present and future assets.
There are various ways to repay 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, standard 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
Ever since the start of the pandemic, the Spanish authorities have approved a number of socioeconomic measures aimed at supporting workers, families and vulnerable groups in order to address the economic and social impact of covid-19. In particular, a number of royal decree-laws (such as Royal Decree-Law 8/2020 of 17 March on extraordinary urgent measures to face the economic and social impact of covid-19 and Royal Decree-Law 11/2020 of 31 March on additional urgent measures to address the social and economic impact of covid-19) were approved in 2020 outlining such measures, which provided for moratoria on the payment of both mortgage- and non-mortgage-backed loans for households and the self-employed and, subsequently, for certain economic sectors that have suffered particularly badly from the effects of the crisis.11 As a complement to the legal moratoria mentioned above, the Spanish government also introduced the legal framework for conventional moratoria, with a wider scope than the legal moratoria, via Royal Decree-Law 19/2020 of 26 May. This framework relies on sectorial moratoria agreements reached by the main associations comprising the Spanish financial entities at a private level, which then have to be notified to the Bank of Spain.12
The uncertainty about the duration of the pandemic and its effects have made it advisable to grant a certain flexibility to the moratoria and, as such, new measures were approved in this regard by Royal Decree-Law 3/2021 of 3 February 2021. The main implications of Royal Decree-Law 3/2021 have been: (1) the extension of the deadline to apply for these moratoria until 30 March 2021, and (2) the extension (up to nine months) of the duration of the moratoria set out in the previous regulations.
As stated in Section II.i, Law 5/2015 regulates crowdfunding, an area previously unregulated by Spanish law and that, until the recent entry into force on 10 November 2021 of (1) Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and (2) Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020, was not regulated at the European level either.
Law 5/2015 establishes the legal framework governing crowdfunding platforms and addresses: (1) the authorisation, registration and setting aside of the activity of the platforms; and (2) 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. 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.
With the recent entry into force of the European regulations, the Spanish government submitted to the Spanish Congress a legislative proposal on 30 November 2021 which, among other things, aims to adapt the pre-existing Spanish Law 5/2015 to the new European regulatory framework.
In addition to the aforementioned practices and regulation of usury, the following are unfair practices that have recently drawn attention from the courts.
i Limitation on late payment interest
The Spanish Supreme Court has ruled on this various times in recent years (Supreme Court rulings of 22 April 2015, 3 June 2016 and 28 November 2018), following a number of related rulings by the CJEU. According to those rulings, in the absence of a specific legal provision on the matter, any late payment interest that is set higher than the legal interest rate plus 2 per cent (i.e., >r + 2 per cent) on a loan granted to a consumer should be considered unfair and, as such, null. Once declared null, the Supreme Court has established that the agreed remunerative interest rate for the loan should accrue instead.
In 2019, the LREC established a mandatory amount for the maximum late payment interest for individuals who are contracting a mortgage loan to finance the acquisition of residential housing at the legal interest rate plus 3 per cent (i.e., r +3 per cent). Whether this legal limit should be applied extensively to other loans granted to consumers is uncertain, as the scope established by the LREC is limited to the above-mentioned case and the Supreme Court has yet to rule on the matter since the LREC entered into force.
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 establishing 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 as to whether these clauses are unfair to consumers, and, consequently, numerous individuals have initiated judicial proceedings seeking a court ruling declaring floor clauses unfair and unenforceable. In this regard, the Supreme Court's ruling on 9 May 2013 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 overcharged amounts as from May 2013 (the date of the ruling).
Several Spanish courts asked the 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 the Directive, such clauses are not binding on consumers. On 21 December 2016, the CJEU ruled against the limitation on retroactivity, concluding that the overcharged amounts had to be returned not only from May 2013 but also from their original start date.
In its ruling on 24 February 2017, the Spanish Supreme Court amended its own criteria to be consistent with the CJEU's judgment of 21 December 2016. The Supreme Court recognised the invalidity of floor clauses with retroactive effects, not only from 9 May 2013 (as initially established) but as from their original start date.
In turn, the Spanish government approved Royal Decree-Law 1/2017 of 20 January on urgent measures for the protection of consumers in floor clause matters (Royal Decree-Law 1/2017), which, among other things, implemented measures expediting a 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 established a preliminary procedure for the out-of-court settlement of disputes that is voluntary for the affected 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.
In addition, the Spanish General Council of the Judiciary issued a resolution of its Permanent Commission, dated 25 May 2017, assigning specific courts exclusive jurisdiction over all disputes relating to general conditions included in financing agreements containing in rem guarantees involving a borrower who is a natural person.
Several subsequent rulings from the Spanish Supreme Court (including the ruling of 16 October 2017) have confirmed the de jure nullity of floor clauses, emphasising 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 that seemingly accepted the possibility that extrajudicial agreements could be agreed between parties in relation to floor clauses.
On 10 September 2019, the Supreme Court decided to temporarily suspend pending appeals in floor clause matters in light of the CJEU's imminent ruling on the matter. As of 30 September 2019, Spanish banks had returned €2.25 billion to borrowers as reimbursement of excess interest paid on the basis of floor clauses.
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 null and unfair. In this regard, 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 and the acceleration event must be registered with the corresponding 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 creditor effectively repossesses the asset.
iv Mortgage loan reference index
The mortgage loan reference index (IRPH), introduced by Bank of Spain Circular 8/1990, partially repealed by Bank of Spain Circular 5/2012, 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 indexed to the IRPH exist in Spain; that is, between 10 per cent and 20 per cent of the total number of secured loans. However, litigation has increased in recent years as consumers have claimed that the index lacks transparency.
On 14 December 2017, Supreme Court ruling 669/2017 confirmed the validity of clauses that establish the IRPH as a reference index, concluding that it could not be subject to unfairness control 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 controversial and, on 29 January 2018, the CJEU was asked to provide a preliminary ruling on the matter. The CJEU ruling was published on 3 March 2020 and stated that: (1) the IRPH clause is subject to the control of national courts, which can determine whether or not the clause is 'transparent' and, consequently, whether it should be considered unfair, annulled and, if necessary, replaced by another; (2) it is for the corresponding national court to determine whether, in light of the circumstances of each case, the corresponding clause satisfies the requirements of good faith, balance and transparency imposed by Directive 93/13, even if the clause regulates an essential element of the contract; (3) the national court's control of transparency must seek to determine whether the corresponding clause 'enables the average consumer to understand how the method of calculating that rate works in practice' ; and (4) the ruling recognises the possibility of the national court replacing the IRPH with a supplementary reference index if it concludes the clause governing the applicable interest rate is unfair. The above criteria mean that consumers can seek the nullity of IRPH-governed clauses in their secured loans and that credit entities could be forced to reimburse the additional costs on a case-by-case basis.
Following the CJEU's ruling, the Spanish Supreme Court issued four rulings regarding the IRPH on 12 November 2020 (rulings 595, 596, 597 and 598/2020). The main conclusion from these rulings is that the potential lack of transparency of the index cannot automatically mean that the clause is abusive and thus null. The Supreme Court determined that an offer by a credit institution of an official index (such as the IRPH) that is approved by the Bank of Spain, and even used as a reference index for the financing of social housing, cannot in itself be considered to be against good faith. The CJEU recently handed down a new ruling on 17 November 2021 (C-655/20), which does not contradict the position of the Supreme Court. However, a number of lower courts have already ruled against that position and, as such, this matter is expected to remain a significant source of litigation in the coming months.
v Mortgage formalisation costs and expenses
Another litigious area involves sharing the costs and expenses generated when constituting a mortgage-backed loan (i.e., essentially the costs associated with the notary public and the registry, the processing agency and applicable taxes).
On 23 January 2019, the Supreme Court established the nullity of contractual clauses imposing an obligation on a consumer to cover all costs and expenses related to the formalisation of the agreement. The Supreme Court held that the effect of the nullity was that the parties had to 'act as if such a clause had never been included in the agreement and, thus, payment of the expenses should be borne by the party to whom it corresponds as established pursuant to the legal system at the time the contract was signed'. This ruling was confirmed by the CJEU's ruling of 16 July 2020, which held, among other things, that once a specific clause has been declared unfair and null, the application of the corresponding provisions of national law governing the matter is appropriate.
The Supreme Court recently ruled on the matter, on 27 January 2021 and 7 October 2021, shedding some light on the matter of the distribution of costs. The question of the statutory period applicable for consumers to claim these amounts remains, however. The Supreme Court requested a preliminary ruling from the CJEU regarding this issue on 22 July 2021.
vi Other nullified clauses
In its ruling dated 23 December 2015, the Spanish Supreme Court also declared that the following clauses in financing agreements with consumers null and unfair: (1) 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; (2) clauses prohibiting the borrower from modifying the use of the building without the creditor's express authorisation; and (3) 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.
In 2020, the Bank of Spain's Complaints Department dealt with 68,204 new cases filed by users of financial services; 21,320 were complaints and 46,884 were enquiries. As such, the total number of new cases in 2020 increased by 51.22 per cent compared to 2019. The top three areas of dispute in 2020 were mortgages (26.9 per cent), cards (26.4 per cent) and deposits (19.7 per cent). As highlighted by the Bank of Spain's 2020 Claim Report, the increase in the number of new cases can be explained by the surge in the number of enquiries related to the impact of the covid-19 pandemic on the activities in the banking sector.
According to the above document, out of the 21,320 complaints, 7,094 (33.27 per cent) were decided by the Complaints Department, with 67.03 per cent of the decisions issued in favour of the claimant and 32.97 per cent in favour of the credit entity. The data emphasises that credit entities' customer service in settling claims, which, as previously indicated, had initially been filed with the customer care departments of the corresponding credit entities, is inadequate. Finally, the corrections carried out by the corresponding credit entities as a result of decisions issued in favour of the claimant amounted to 69.4 per cent.
In 2020, as part of the complaints procedure, €3,093,867 was returned by credit entities to their customers, the highest total amount returned in a decade.
The Spanish consumer finance landscape will be influenced by the gradual adoption of the reforms included in the Spanish Plan for Recovery, Transformation and Resilience. In addition, the evolution of the covid-19 pandemic will influence the gradual recovery of the Spanish economy and will determine the measures that are required to mitigate the adverse effects of the pandemic. A number of landmark rulings are also expected in certain areas that have been summarised throughout this chapter.
1 Jaime Pereda is a partner and José Félix Velasco is an associate at Uría Menéndez Abogados, SLP. The authors would like to specially acknowledge and thank the contributions of José María Beneyto Brunet to the preparation of this chapter.
2 According to the Bank of Spain's 2021 Financial Stability Report, available at: https://www.bde.es/bde/es/secciones/informes/estabilidad-financiera/informe-de-estabilidad/.
3 Law 10/2014 has recently been amended by Royal Decree-Law 7/2021 of 27 April and Royal Decree-Law 25/2021 of 8 November in aspects that did not specifically address consumer finance.
4 Royal Decree-Law 19/2018 has recently been modified by Royal Decree-Law 7/2021 of 27 April in aspects that did not specifically address consumer finance.
5 Although Law 7/2017 of 2 November, which transposed Directive 2013/11/EU of the European Parliament and of the Council of 21 May on the alternative resolution of consumer disputes into Spanish law, included an express mandate to the government concerning the creation of an institutional system of protection for financial customers in this field, its creation has been postponed a number of times. The latest development has been that the current Spanish government included the creation of such an entity as one of the objectives set out in the plan setting forth Spain's strategy for the recovery of the Spanish economy from the impact of the covid-19 pandemic.
6 A list of Spain's various consumer bodies is available at: http://www.cec-msssi.es/CEC/web/noticias/Organismos_de_consumo.htm.
7 After a project has received a favourable preliminary evaluation, a period of up to three months of negotiation takes place between the competent supervisor and the project sponsor on the protocol governing the testing period. Unless a decision is taken to extend this three-month period, the negotiations are automatically terminated at the end of that period.
8 According to the data collected by the Bank of Spain, available at: https://www.bde.es/f/webbde/SPA/sispago/ficheros/es/estadisticas.pdf.
9 On 30 October 2019, the Spanish Supreme Court held that a €30 fee charged by a credit institution to recover amounts owed that accrued repetitively and automatically was null, finding it in breach of the applicable legislation. The Spanish Supreme Court took the opportunity to restate the four requirements established by the Bank of Spain in order for these fees to be valid: (1) its amount must be linked to the real cost of the collection management; (2) it must not be recurrent for any additional costs incurred by the entity for the same end, even if the negative balance is prolonged in successive settlements; (3) its amount must be a single payment, without percentage fees; and (4) the amount must not be applied automatically.
10 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.
11 Royal Decree-Law 8/2020 (as amended) introduced an initial legislative moratorium on mortgaged-backed loans for individuals (both borrowers and guarantors) who could be considered vulnerable as a result of the covid-19 pandemic. The moratorium consisted of a three-month grace period, along with a corresponding extension of the loan term for the same period, and included the principal, ordinary interest and arrears. It also included a standstill (i.e., preventing the lender from accelerating the mortgage loan and initiating any judicial or extrajudicial proceedings to recover the entire loan). Financial institutions had 15 days to formalise it, starting from the date the debtor requested it since it applied automatically upon being requested, provided the requesting individual met the legal requirements. Royal Decree-Law 11/2020 introduced an additional moratorium on obligations arising from unsecured credit contracts for individuals who are economically vulnerable as a result of the covid-19 pandemic in terms broadly similar to those applying to the above-mentioned moratorium on mortgage-backed loans.
12 Through these types of moratoria, mortgage loans and specific unsecured loans could be amended to introduce a 12-month (for secured loans) or six-month (for unsecured loans) grace period for the payment of the principal and, where appropriate, an extension of the payment protection or repayment insurance.