The Cjeu As Well As Spanish Mortgage Law: Consumer Protection, Flooring Clauses As Well As Accelerated Repayment

Juan Carlos Benito Sánchez, PhD Fellow at the University of Louvain (Belgium).
Twitter: @jcbensan

In the past times years, the Court of Justice of the European Union has delivered a number of judgments hitting downwards noun as well as procedural provisions of Castilian mortgage law, or judicial interpretations thereof, on the grounds that they were reverse to European Union police push clit inwards the patch of consumer protection. In particular, the Court of Justice has based its decisions on Council Directive 93/13/EEC of five Apr 1993 on unfair price inwards consumer contracts, declaring inwards most of the cases that Castilian mortgage police push clit unduly restricted the correct of consumers to receive got unfair clauses inwards their mortgage loan agreements reviewed as well as nullified past times domestic courts.

This post focuses on the terminal 2 rulings delivered past times the Court of Justice inwards this regard: its judgment inwards Gutiérrez Naranjo (Joined Cases C-154/15, C-307/15 as well as C-308/15, EU:C:2016:980) as well as inwards Banco Primus (C-421/14, EU:C:2017:60), respectively delivered inwards Dec 2016 as well as Jan 2017. The starting fourth dimension illustration concerns so-called ‘floor clauses’, which found a minimum threshold for the variable charge per unit of measurement of involvement determined inwards mortgage loan agreements. The minute illustration concerns ‘accelerated repayment’ clauses, which let for the creditor to claim repayment inwards total of the outstanding debt inwards illustration of arrears during a relatively curt menstruum of time, frequently every bit petty every bit 3 months. Both judgments heighten a number of meaning issues with notable implications for European Union consumer police push clit and, ultimately, for the key correct to housing of individuals as well as families.

The judgment inwards Gutiérrez Naranjo: setting temporal limitations on the retroactive effect of unfair flooring clauses

This starting fourth dimension illustration concerns, inwards essence, the temporal limitation that the illustration police push clit of the Castilian Supreme Court placed on the retroactive effect of unfair flooring clauses included inwards mortgage loan agreements. In its (in)famous ruling of nine May 2013, the Supreme Court declared that those flooring clauses lacking transparency due to insufficient data for mortgagors were to live on considered unfair and, therefore, void. In practical terms, since the variable charge per unit of measurement of involvement determined inwards these agreements was usually tied to the Euribor—which plummeted owing to the fiscal crisis—, many consumers saw the involvement inwards their mortgage loans plateau at the minimum threshold instead of falling to the much lower marketplace charge per unit of measurement that would apply had flooring clauses non been included inwards the loan. Because the relevance of these clauses inside the understanding was inwards most instances non offset past times adequate data as well as transparency for consumers, allowing them to assess the extent of run a peril sharing, the Supreme Court affirmed that non-transparent flooring clauses—in practice, the vast bulk of them—should live on deemed unfair and, consequently, void.

In the same ruling, however, the Supreme Court tempered this annunciation past times determining that the retroactive effect of the nullity of non-transparent flooring clauses was to live on express inwards time. In particular, as well as referring to the regulation of legal certainty, it considered that such nullity should non extend to situations obtaining prior to the engagement of delivery of its judgment (9 May 2013). In the Supreme Court’s view, total retroactivity would otherwise Pb to ‘a severe disruption with consequences for the economical world order’. This interpretation effectively shut the avenue for consumers to claim the recovery of amounts overpaid on the footing of non-transparent flooring clauses if those payments had been made prior to nine May 2013.

The diverse questions referred to the Court of Justice for a preliminary ruling inwards Gutiérrez Naranjo thus seek to determine whether European Union police push clit inwards the patch of consumer protection—specifically, Directive 93/13/EEC—precludes this temporal limitation. The Court, edifice on its previous judgments, ruled that a finding of unfairness regarding a contractual clause ‘must let the restoration of the legal as well as factual province of affairs that the consumer would receive got been inwards if that unfair term had non existed, past times inter alia, creating a correct to restitution of advantages wrongly obtained, to the consumer’s detriment, past times the seller or supplier on the footing of that unfair term’ (§ 66). It considered that a temporal limitation of the legal effects stemming from a annunciation of nullity is ‘tantamount to depriving, inwards general, whatever consumer having concluded, earlier [9 May 2013], a mortgage loan contract containing such a clause of the correct to obtain repayment inwards total of the amounts overpaid past times the consumer to the bank’ (§ 72).

This conclusion does non come upward unexpected considering the Court of Justice’s settled illustration police push clit on Directive 93/13/EEC. Yet the judgment inwards Gutiérrez Naranjo goes a pace further: the Court of Justice found that ‘it is for the Court alone, inwards the calorie-free of the key requirement of a full general as well as uniform application of European Union law, to determine upon the temporal limitations to live on placed on the interpretation it lays downwards inwards observe of [a dominion of European Union law]’ (§ 70). In other words, the Court of Justice clarified that domestic courts cannot throttle inwards fourth dimension the effects of a dominion of European Union police push clit of their ain accord. The full general as well as categorical price inwards which this contention is framed advise wide-ranging implications extending far beyond the realm of consumer protection.

The judgment was widely reported past times Castilian media as well as was welcomed every bit a meaning triumph of civil lodge organisations defending the correct to housing inwards Spain, which had made flooring clauses ane of their to a greater extent than visible claims. The Castilian authorities rushed to do a novel extrajudicial machinery to settle consumers’ claims for recovery of amounts overpaid on the footing of non-transparent flooring clauses, which has been widely criticised inwards that it creates doubtfulness for consumers as well as does non impose sanctions for non-compliant mortgage lenders. Very recently, on xv Feb 2017, the Castilian Supreme Court delivered its starting fourth dimension judgment amending its previous illustration police push clit to this effect as well as confirming the total retroactivity of unfair flooring clauses inwards a mortgage loan agreement.

The judgment inwards Banco Primus: setting judicial review limitations on unfair accelerated repayment clauses

This minute illustration concerns, inwards essence, the limitations placed past times Castilian mortgage police push clit as well as inwards the illustration police push clit of the Castilian Supreme Court on the possibility for courts to declare the nullity of unfair accelerated repayment clauses inwards mortgage loan agreements. Accelerated repayment clauses, every bit explained above, let for the creditor to claim repayment inwards total of the outstanding debt (principal as well as interest) inwards cases of non-payment of a real reduced number of instalments past times the debtor. In practical terms, this entails that if a mortgagor falls into arrears for, usually, 3 months—out of their thirty-, forty-, or fifty-year loan term—, the lending establishment may telephone telephone inwards the total amount of the loan. Following the impossibility for the debtor to brand such a large payment, the lender volition ordinarily convey mortgage enforcement proceedings, sometimes nether the special distraint physical care for foreseen inwards Castilian mortgage law, which volition terminate inwards plough inwards foreclosure as well as eviction.

Accelerated repayment clauses receive got been routinely included past times mortgage lenders inwards loan agreements for years, as well as their execution, peculiarly inwards the aftermath of the fiscal as well as housing crisis inwards Spain, tin live on identified every bit the ane of the primary causes of thousands of foreclosures across the country. Not only were these clauses frequent inwards mortgage lending, but they were explicitly authorised past times the Castilian Civil Procedure Act, which mandates a minimum of 3 months inwards arrears earlier total repayment of the debt tin live on claimed. Before a statutory alteration inwards 2013, lenders could fifty-fifty claim total repayment afterward ane calendar month of arrears. Following the illustration police push clit of the Castilian Supreme Court, however, accelerated repayment clauses deemed unfair past times lower courts because of the meaning imbalance inwards the parties’ rights as well as obligations to the detriment of the consumer could non live on declared void if they had non been effectively applied inwards the particular case. Since lending institutions could rely on the Civil Procedure Act to claim accelerated repayment instead of executing the—almost ever unfair—accelerated repayment contractual clause, courts were inwards fact prevented from declaring the nullity of the latter as well as from suspending mortgage enforcement proceedings on these grounds.

In Banco Primus, the referring courtroom posed, alongside others, the enquiry whether domestic police push clit as well as the judicial interpretation thereof could preclude courts from declaring the nullity of unfair accelerated repayment clauses inwards the lawsuit that they had non been effectively applied inwards the particular case. The Court of Justice starting fourth dimension recalled its previous illustration police push clit regarding unfair terms, as well as fix out inwards particular the parameters which domestic courts shall accept into trouble organisation human relationship inwards monastic say to declare the unfairness of an accelerated repayment clause on the footing of Directive 93/13/EEC. These include, inter alia, the nature of the goods or services covered past times the contract as well as the agency provided for inwards national police push clit to enable the consumer to remedy the effects of the loan beingness called inwards (§ 67). It as well as so struck downwards the interpretation of the Castilian Supreme Court, noting that ‘the prerogatives of the national courtroom ruling on whether a term is unfair, […], cannot live on contingent on whether that term was genuinely applied or not’ (§ 73). When the national courtroom determines the unfairness of a contractual term, ‘the fact that that term has non been executed cannot, inwards itself, preclude the national courtroom drawing the appropriate conclusions from the ‘unfair’ nature of that term’ (§ 73).

The practical consequences of this judgment inwards the Castilian context are blunt: thousands of foreclosures as well as evictions carried out on the footing on unfair accelerated repayment clauses whose nullity domestic courts were prevented from declaring should receive got been, inwards fact, void. Not only does this enquiry the degree of consumer protection afforded to mortgagors past times the Castilian authorities; but it too reveals, inwards the author’s view, how Castilian mortgage police push clit has successively been modified to favour the interests of lending institutions to the detriment of mortgagors inwards vulnerable situations.

A correct to housing perspective

The 2 cases examined inwards this entry are for certain illuminating, yet they are non the starting fourth dimension ones revealing the shortcomings of Castilian mortgage police push clit inwards price of consumer protection as well as inwards price of the correct to housing. At the European Union level, other judgments of the Court of Justice addressing this number volition audio familiar to about readers (Aziz, Sánchez Morcillo as well as Abril García, Finanmadrid EFC). At the international level, the United Nations Committee on Economic, Social as well as Cultural Rights of late delivered its starting fourth dimension determination nether the Optional Protocol to the ICESCR examining the judicial protection afforded to the correct to housing of individuals as well as families inwards the framework of mortgage enforcement proceedings (I.D.G. v. Spain).

It should live on borne inwards heed that the correct to adequate housing is enshrined, alongside others, inwards Article vii of the Charter of Fundamental Rights of the European Union, which contains the correct to observe for private as well as household unit of measurement life. Framing mortgage police push clit issues alone inwards price of consumer protection does non ever capture the severity of the situations that foreclosures as well as evictions may create: it is non only nigh fiscal institutions imposing unfair price onto consumers with the indulgence of world authorities, but too nigh individuals as well as families beingness denied adequate judicial protection of their correct to housing. Incorporating this dimension into illustration police push clit could serve to amend contextualise the imbalance betwixt mortgagors as well as mortgagees past times taking into trouble organisation human relationship human rights considerations, as well as strengthen the protection for mortgagors inwards price of their legal safety of tenure.

Photo credit: www.thejournal.ie

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