Mini-guide: Understanding abusive clauses in Spanish mortgage contracts

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Introduction to Abusive Clauses

Background 

In Spain, the prevalence and impact of abusive clauses in mortgage contracts have been a significant legal issue, impacting a vast number of consumers

A comprehensible definition of abusive clauses in the context of Spanish and European consumer law is that they are contractual terms which create a significant imbalance in the rights and obligations of the parties, to the detriment of the consumer. These clauses, typically not individually negotiated, can lead to unfair terms that significantly disadvantage the consumer and are often concealed in the fine print of contracts.

In response to these concerns, the Spanish legal system has been reinforcing consumer protection laws and regulations. The Supreme Court of Spain, in several landmark rulings, has declared many such clauses null and void for their lack of transparency and fairness, leading to a wave of litigation. These decisions have had a considerable economic impact on the banking sector, with banks required to refund millions of euros to affected customers.

The European Court of Justice has also played a pivotal role, ensuring that Spanish legislation aligns with broader EU consumer protection standards. This legal landscape has led to a more vigilant approach to contract drafting and reviewing, promoting transparency and fairness in mortgage lending.

For consumers, this highlights the importance of understanding mortgage contracts and seeking legal advice when necessary. It also exemplifies the evolving nature of consumer rights in Spain, showing a trend towards greater protection against unfair contractual terms in financial agreements. This issue remains a dynamic area of Spanish law, reflecting the balance between the interests of financial institutions and the protection of consumers.

Importance of Legal Rulings

The landscape of consumer rights and contract law in Spain has been significantly shaped by rulings from the Court of Justice of the European Union (CJEU) and the Spanish Supreme Court. These judgements have established vital precedents, reinforcing consumer protections and clarifying contractual obligations.

The CJEU, with its overarching jurisdiction in the EU, plays a pivotal role in ensuring that member states, including Spain, adhere to EU directives on consumer rights. Its decisions often lead to amendments in national laws, ensuring uniformity and fairness in consumer transactions across the EU.

For example, CJEU rulings on unfair terms in consumer contracts have compelled Spanish courts to scrutinize such clauses more rigorously, offering greater protection to consumers against exploitative practices.

In the case of the Spanish Supreme Court, despite its accuracy in some rulings, there have been occasions where its decisions, especially in consumer protection matters, have required review by the Court of Justice of the European Union (CJEU). For instance, the CJEU mandated full refunds to consumers in the mortgage floor clauses issue, overruling the Supreme Court’s stance on limited retroactivity.

Similarly, the Supreme Court’s handling of the Mortgage Loan Reference Index (IRPH) was scrutinized by the CJEU to ensure adequate transparency and fairness. These instances underscore the dynamic interplay between national and EU legal frameworks in consumer rights cases.

Together, these courts have created a more consumer-friendly legal environment in Spain. Their rulings not only safeguard consumer rights but also foster a fairer, more transparent market, benefiting both consumers and businesses by promoting trust and legal certainty in contractual relationships.

This evolving legal landscape demonstrates the dynamic interplay between national and EU laws, shaping a more equitable legal framework for all parties involved in consumer contracts.

 Key CJEU Rulings

May 17, 2022 (Cases C-869/19 and C-600/19)

On May 17, 2022, the European Court of Justice (ECJ) ruled in cases C-869/19 and C-600/19 regarding ‘floor clauses’ in mortgage contracts. These clauses set a minimum interest rate, preventing borrowers from benefiting from lower rates. The judgment enables consumers to sue banks over these clauses, even if they had previously waived their right to do so.

For a waiver to be valid, it must pass a transparency test by Spanish judges, ensuring that the consumer’s consent was freely and informatively given. This decision allows for more claims against banks for floor clauses, even with waivers in place.

Additionally, it addresses the retrospective application of judicial decisions on unfair terms and the national courts’ obligation to order full repayment of excess amounts paid by consumers, despite certain national procedural law principles.

December 21, 2016: (  In Joined Cases C-154/15, C-307/15 and C-308/15)

On December 21, 2016, the Court of Justice of the European Union (CJEU) issued a significant decision in Joined Cases C-154/15, C-307/15, and C-308/15, which had a profound impact on Spanish banking practices, specifically concerning the retroactive effect of nullifying abusive clauses in mortgage contracts.

The core issue revolved around the ‘floor clauses’ (cláusulas suelo) in Spanish mortgage contracts. These clauses set a minimum interest rate, meaning that even if the benchmark interest rate dropped significantly, borrowers would not benefit from lower rates.

Spanish courts, including the Supreme Court, had previously ruled that while these clauses were not illegal if properly disclosed, they were unfair if customers were not adequately informed about their implications. However, the Spanish Supreme Court had limited the retroactive effect of its rulings. It declared that the clauses were null and void due to a lack of transparency but limited refunds to amounts overpaid by consumers only after May 9, 2013, the date of its first ruling on the matter.

The CJEU’s decision in 2016 overruled the Spanish Supreme Court’s limitation on retroactivity. It declared that limiting the effects of declaring such clauses null and void was incompatible with EU law. According to the CJEU, if a floor clause was ruled as abusive, it was deemed never to have existed, thus obliging banks to refund all the excess amounts paid by the borrowers from the beginning of the contract, not just from May 2013.

This ruling had a substantial impact on Spanish banking practices. Banks were faced with the prospect of refunding billions of euros to customers. The decision also led to increased scrutiny and greater consumer protection measures in the Spanish mortgage market. Banks had to review and modify their mortgage contract terms, enhancing transparency and fairness.

This case is a prime example of the significant influence of EU law on national legal practices, especially in protecting consumer rights against unfair banking practices.

2023 Ruling on case  C-565/21

The 2023 CJEU ruling in case C 565/21 offers crucial insights regarding mortgage opening commissions and the principle of informed consent, particularly in the context of insurance contract clauses. This decision underscores the importance of clear and comprehensible terms in contracts, especially when setting service costs, such as legal fees based on an hourly rate.

The Court highlighted that consumers must be provided with adequate information to make informed decisions about the economic consequences of these contracts. If a contract term regarding costs is found unfair, national courts are obliged to disapply it, unless opposed by the consumer. In extreme cases, where the removal of such terms renders a contract nonviable and potentially harmful to the consumer, courts may replace the unfair term with a supplementary national law provision or a mutually agreed provision.

This ruling is pivotal in emphasizing the necessity for transparency and fairness in consumer contracts, reinforcing consumer rights and the principle of informed consent in complex financial agreements.

Significant Spanish Supreme Court Decisions

May 9, 2013

On May 9, 2013, the Spanish Supreme Court issued a significant ruling regarding floor clauses in mortgage contracts. The Court declared these clauses null and void, labeling them as abusive primarily due to their lack of transparency. Transparency was defined as the clarity of information and the client’s ability to understand its content and consequences.

This judgment required the withdrawal of floor clauses from some mortgage loan agreements and mandated compensation for overpaid amounts, but only from the date of the sentence. Major banks affected included BBVA, Novagalicia Banco, and CajaMar. This decision established a precedent for future claims but initiated a prolonged legal struggle for full refunds from the inception of mortgage loans, as the retroactivity limitation to the sentence’s date was at odds with the Spanish Civil Code​

January 21, 2016

The Spanish Supreme Court issued a ruling against Banco Popular, mandating the removal of floor clauses from its mortgage contracts. This decision was based on the finding that these clauses were included without sufficient transparency. The ruling was a significant step in addressing the issues surrounding floor clauses in mortgage agreements in Spain​ 

February 15, 2017

On February 15, 2017, Spanish law incorporated the European Court of Justice’s (ECJ) doctrine regarding the retroactivity of unfair ‘floor clauses’ in mortgage contracts. Prior to this, the Spanish Supreme Court, in its rulings n.º 241/2013 and n.º 139/2015, had declared these clauses null due to their abusive nature but limited the repayment for consumers to amounts paid after May 9, 2013.

The ECJ, in its judgment on December 21, 2016, found this limitation incompatible with EU Directive 93/13 on unfair terms in consumer contracts. The ECJ emphasized that unfair clauses should not bind consumers and any advantages gained by sellers at the expense of consumers should be fully restored. This led to a significant shift in Spanish jurisprudence, aligning it with the ECJ’s interpretation that consumers should be reimbursed for all amounts paid under unfair terms, not just those paid after a certain date.

April 11, 2018

The Spanish Supreme Court’s ruling on April 11, 2018, regarding floor clauses in mortgage contracts, marked a significant shift in their interpretation. This decision concerns agreements between consumers and banks to modify or remove floor clauses from existing mortgage contracts.

The ruling overturns a previous 2017 decision by declaring such agreements valid under two conditions: transparency and a balance of considerations. Transparency requires consumers to be fully informed about the agreement, including its legal and economic implications. The agreement must also involve mutual concessions, ensuring a fair and certain outcome for both parties. Although these agreements are binding, their validity can still be challenged in court. This ruling has significant legal and economic implications, influencing numerous consumers and the banking sector in Spain.

 June 7, 2018

The Spanish Supreme Court’s June 2018 ruling mandates that banks must pay legal costs in cases where mortgage clauses are declared null due to their abusive nature. This landmark decision shifts the financial burden of legal proceedings onto banks, even if consumers don’t appeal against the first instance judgment for the non-imposition of costs.

The ruling aligns with the European Union Court of Justice’s stance that consumers should not bear costs that deter them from exercising their rights against abusive clauses. It emphasizes that in cases where a consumer’s claim is entirely upheld, the bank is responsible for all legal costs, irrespective of any serious doubts about the law. This interpretation adheres to European law principles, ensuring the effectiveness of consumer rights and deterring the use of abusive clauses in contracts. The specific ruling from July 6, 2018, clearly states this obligation of banks, reinforcing consumer protection and bringing Spanish jurisprudence in line with European Union principles

March 21, 2019

The Spanish Supreme Court’s rulings on March 4, 2019, addressed the transparency control of floor clauses in mortgage contracts, emphasizing that pre-contractual information sent via email is not sufficient to ensure transparency and thereby declaring such clauses null and void.

The court highlighted that for a floor clause to pass the transparency control, it is essential to provide consumers with complete pre-contractual information about the existence of the clause and its impact on the loan’s cost. This decision reinforces the need for clear and comprehensive communication to consumers, particularly regarding critical contractual terms like floor clauses in mortgage agreements.

 May 13, 2020

The Spanish Supreme Court’s decision on May 13, 2020 (Sentencia 168/2020) represents a pivotal change for self-employed individuals, businesses, and professionals concerning floor clauses in mortgage contracts. Previously considered “non-consumers,” these groups had difficulty reclaiming excess payments due to these clauses.

The ruling acknowledges their right to recover these overpayments, effectively expanding the definition of ‘consumer’ in the context of abusive contractual clauses. This landmark decision provides a strong legal foundation for non-consumers to negotiate with financial institutions for refunds and, if necessary, to pursue legal action with enhanced assurance of their rights.

April 20, 2023

Supreme Court Ruling on Legal Costs for Abusive Clauses: A significant ruling dated April 20  mandates that banks must bear legal costs even if consumers did not appeal the initial ruling regarding the non-imposition of costs.

This follows the European Court of Justice’s decision from July 16, 2020. In July 2022, the Supreme Court had already established a doctrine for imposing costs on banks, even if the consumer’s claim was only partially upheld. This specific case involved clauses on early termination and mortgage expenses.

May 29, 2023

Ruling on Loan Opening Commission, May 29, 2023, ruling (No. 816/2023), the Supreme Court applied the European Court of Justice’s doctrine from its March 16, 2023 decision. It held that there’s no uniform solution regarding the validity of opening commission clauses; each case requires individual examination.

In this specific case, the commission was deemed valid, being transparent and non-abusive, considering factors like legal definition, clause drafting, and visibility in the public deed, among others.

Recent Court Decision from the Constitutional Court

On September 2023, the Spanish Constitutional Court unanimously granted a citizen’s appeal against being ordered to pay part of the legal costs in a case where contract clauses were deemed abusive. This decision, influenced by European Union law and previous Supreme Court rulings, emphasized that imposing costs on consumers in such cases is contrary to ensuring effective protection against abusive clauses. The court thus overturned a previous decision, highlighting the importance of safeguarding consumer rights and effective judicial protection.

Seeking Legal Advise

Our Legal Services:

At Costaluz Lawyers, with extensive experience since 2008 in mortgage contract consultancy in Spain, we offer the following services:

  1. Review and Analysis of Mortgage Contracts: We thoroughly examine mortgage agreements to ensure they comply with legal standards and protect our clients’ interests.
  2. Consultation on Abusive Clauses: We offer specialized advice on the implications of abusive  clauses, including updates on legal changes and their effects on clients.
  3. Representation in Legal Disputes: We assist clients in legal proceedings related to mortgage contracts, including negotiations with banks and court representations.
  4. Guidance on Contract Modification: We advise on restructuring mortgage contracts, focusing on the removal or modification of abusive clauses.
  5. Pre-contractual Advice: We provide counsel before signing mortgage agreements to ensure clients are fully informed about their rights and obligations.
  6. Debt Settlement Solutions for Overvalued Properties: Specializing in agreements to eliminate debt through property transfer, we assist homeowners who purchased high-priced properties at the peak of the housing bubble, guiding them in navigating negative equity challenges.

In Spain’s complex mortgage landscape, the role of a specialized legal expert, constantly updated with the latest jurisprudential developments, is indispensable. Such professionals are crucial for interpreting evolving laws and court rulings, particularly regarding mortgage floor clauses and consumer protections. Their up-to-date knowledge ensures clients make informed decisions, navigating contracts and regulations effectively. In this dynamic legal field, their expertise is not just valuable, but it’s essential for safeguarding rights and financial interests.

Contact Information

If you are interested in our legal services, especially in navigating the complexities of mortgage law in Spain, please feel free to contact us. Our team of experts, well-versed in the latest developments and nuances of Spanish mortgage law, is ready to assist you.

  • Email: marialuisa@costaluzlawyers.es
  • Address: C/ San Antonio 3-5 Entreplanta C, 11201 Algeciras, Spain
  • Opening Hours: Monday to Friday, 9:00 AM to 5:00 PM

We look forward to providing you with professional legal guidance tailored to your needs.

Maria Luisa Castro

Director and Founder
María founded CostaLuz Lawyers in 2006 and is the Firm’s Director. María is registered Lawyer number 2745 of the Cadiz Bar Association and is licensed to practice in all areas of law throughout Spain. Working closely with her team, María has developed the firm into one of the most highly regarded and trusted Spanish Law Firms acting for English-speaking clients with legal problems in Spain. We’re here to help. Contact us today for a free, no-obligation, initial legal orientation.
 

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