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2021 | OriginalPaper | Chapter

Ex-Post Fairness Controls and Contract Design: The Spanish Experience

Authors : Fernando Gómez, Mireia Artigot

Published in: Consumer Law and Economics

Publisher: Springer International Publishing

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Abstract

The application of the ex post unfairness controls of the Directive 93/13 in consumer financial contracts in Spain has resulted in a litigation wave that has had a significant impact in terms of financial as well as judicial costs. The terms involved in this litigation range from those allocating risks among the contracting parties to terms setting between the parties their share of the mandatory taxes and fees accompanying a mortgage loan. Spanish courts and the Court of Justice of the European Union (CJEU) have held many of these standard terms as unfair and hence, non-binding on consumers. A collateral effect of this litigation has touched contract design. Some of the cost impact of these terms are now included—without specification—as part of the overall contract price. Directive 93/13 on unfair contract terms arguably aimed at maximizing consumer welfare through, among others, enhancing transparency in consumer contracts. This chapter analyzes whether the litigation on consumer mortgage contracts and its impact in contract design has resulted in an increase of contract transparency and discusses whether the resulting contract design regarding some contract dimensions—such as exogenous costs in mortgage financing—has actually served the interests of consumers.

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previous chapter The Law on Unfair Terms in Standard Form Contracts in Europe

next chapter Correcting Information Asymmetry Via Deep Consumer Information; Compelling Companies to Let the Sunshine In

Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95, 21.4.1993, pp. 29–34 (hereinafter Directive 93/13).

Riesenhuber (2013) and Micklitz and Reich (2014), p. 771.

The Spanish GDP was in 2017 around 110,000 million EUR in constant prices of 2010 (http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=139.AME.A.ESP.1.0.0.0.OVGD). The disputed amount regarding unfair standard terms in mortgage contracts may total 25,000 million EUR.

Pursuant to art. 3.1 Directive 93/13, a standard term will be deemed unfair if “[..] contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.”

Jansen and Zimmermann (2018), p. 939.

Cases RWE Vertrieb, C-92/11 and especially Gutiérrez Naranjo, C-154/15, C-307/15 and C-308/15.

See El Economista, 14-11-2017, Los jueces de “cláusulas suelo¨ solo han resuelto el 7% de las demandas. http://www.eleconomista.es/empresas-finanzas-ss/noticias/8742041/11/17/Los-jueces-de-clausulas-suelo-solo-han-resuelto-el-7-de-las-demandas-.html.

See Cinco Días, 17 November 2017. Los españoles presentan 1000 demandas contra la banca cada día (https://cincodias.elpais.com/cincodias/2017/11/16/midinero/1510850222_349769.html).

Floor clauses, generally accompanied by caps, are contract terms that introduce limits on adjustable interest rates (which in Spanish practice are generally based on the Euribor plus a spread). Adjustable interest rates were by far and until very recently the most widely used interest rate alternative in Spain.

In Spain, roughly around 75% of the households are homeowners, while over 10% of the households rent their primary residence. The percentage of households living in rental housing has increased these last years to reach around 17% of all households. However, the proportion of ownership of residential properties over total dwellings, with some slight variation, ranges from 75% to 80%. Source: Instituto Nacional de Estadística (http://ine.es/jaxiT3/Datos.htm?t=4566).

In the years of the housing and credit bubble (up to 2008) there were over 1 million new mortgage loan contracts signed in Spain each year. Since 2009 this number decreased up to a minimum in 2013 and 2014 of less than 300,000 mortgage contracts. In 2018, there were around 315,000 new residential mortgage loan contracts.

The number and the social and economic impact of mortgage foreclosures went down after its peak in 2012–2013, due to improved economic and employment conditions in the Spanish economy. Moreover, some legal relief was offered in 2013 to low-income defaulting debtors. The diminishing trend has accelerated, since in 2018 the average quarterly number of foreclosures on consumers due to mortgage default was around 2200, whereas the equivalent figure was 10,000 in 2015. In this dramatic reduction, decisions by the Spanish Supreme Court against acceleration clauses in mortgage contracts have surely played a role. This litigation is also ongoing, and the last item in it has been the recent decision by the CJEU in Abanca, C-70/17 and C-179/17.

See for an international comparison of the use of variable rates in mortgages, Badarinza et al. (2016). In Spain, as in other mortgage markets (Australia, Finland, Ireland, Italy, UK) variable rates have been and are pervasive in the mortgage market, albeit in others (Germany, Netherlands, US), fixed rates dominate mortgage finance.

See http://www.poderjudicial.es/cgpj/es/Poder-Judicial/En-Portada/Los-Juzgados-de-clausulas-abusivas-dictaron-30-744-sentencias-en-el-primer-trimestre-del-ano%2D%2Dun-126-2-por-ciento-mas-que-en-el-mismo-periodo-de-2018.

The governing body of the judiciary, the Consejo General del Poder Judicial (CGPJ), estimated that during the first year of activity of these new specialized courts around 190,000 claims would be filed. Judges, lawyers and court staff will be necessary to handle the amount of cases.

Since 2009 the interest rates established by the European Central Bank in the Euro-zone have been steadily decreasing. https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html.

Art. 3.1 Directive 93/13, provides that a standard term will be deemed unfair if “[..] contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.”

The new Law 5/2019 of March 15 which, among others, implements Directive 201/17 on residential credit contracts has banned floor clauses entirely in residential mortgages.

The finding of unfairness of floor clauses in mortgage contracts in Spain could alone represent up to 4.7 billion euros for the financial industry. See https://cincodias.elpais.com/cincodias/2017/01/27/mercados/1485543849_878448.html.

Hereinafter ADR.

The ad hoc ADR mechanism has received until August 2018 (last officially reported figures) 1,166,000 claims, 517,000 of which have been compensated.

See Miquel (2017).

Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa), C-415/11. In this case the CJEU did not find standard contract terms providing for acceleration clauses to be per se unfair, but held that an acceleration clause upon just one monthly default to be unfair. The Spanish Supreme Court has consistently applied this criterion since 2015: STS 23.12.2015; STS 18.12.2016.

Article 639.1 and 2 of the Spanish Law of Civil Procedure were amended in 2013 by the Law 1/2013 of May 14, of measures to reinforce the protection of debtors in mortgage contracts, debt restructuring and public rental contracts.

Law 19/2015 of July 13 of measures reforming the Administration of Justice and the Civil Registry.

Joined cases Abanca Corporación Bancaria SA v García Salamanca Santos (Case C-70/17) and Bankia SA v Lau Mendoza and Rodríguez Ramírez (Case C-179/17) EU:2019:250. Here, the European Court of Justice (ECJ) considered the conditions for a national court to replace an unfair contract term with default rules.

Typically, what would happen is that the amount of the loan would go up to cover these taxes and fees: if the price of the property to be financed was X, and the estimated taxes and costs was 10% of X, then the nominal amount of the loan to the borrower would be (X+10% of X). The borrower would get X to pay the seller, and the Bank would use 10%X to pay all costs (taxes and fees) on behalf of the borrower.

STS, 23.12.2015; STS 15.3.2018 (two identical decisions of the same date).

Spanish Supreme Court decisions 44/2019, 46/2019, 47/2019, 48/2019 and 49/2019 all dated 23.1.2019.

Minimum—and even negative—Euribor rates since mid 2012 (http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=143.FM.M.U2.EUR.RT.MM.EURIBOR3MD_.HSTA) might have been an important driving factor to the increase in the amount of fixed interest rate mortgage contract loans. In light of the ever in history lowest euribor and hence minimum financial costs of variable rate mortgage contracts since 2012, the expectation of this type of variable structure can only be in the mid-long term to increase their financial cost. Hence, fixed interest rates appear as an appealing alternative that eliminates the risks of the surely mid-long term future—perhaps slow—increase in euribor interest rates and hence of financial costs for debtor/consumers.

Jolls et al. (2000), pp. 13–58. The fact that very often legal education and analysis, and even lawmaking itself, has paid more attention to other dimensions (both normative and technical) does not weaken this view, we believe.

Zamir and Teichman (2018), p. 299.

Loewenstein et al. (2003), pp. 1209–1248.

Della Vigna and Malmendier (2006), pp. 694–719. Penalties for lack of funds or overdrafts, or for overextended credit card spending, or annual fees—with no per-use charges—for a gym might be conceptualized as commitment devices. See Bar-Gill (2004), pp. 1373–1434. It should be noted that these commitment devices might not be effective or have the same impact for all types of consumers—for example, for sophisticated and for naïve consumers.

Della Vigna and Malmendier (2006), pp. 694–719 illustrating hyperbolic discounting through the overconfidence about the future in certain contractual decisions.

Bar-Gill (2012), p. 21.

Sarin (2018), at https://scholarship.law.upenn.edu/faculty_scholarship/2010); Zamir and Mendelson (2017) pp. 1–20, examine the policy in Israel towards a reduction in the number and complexity of bank fees.

Badarinza C, Campbell JY, Ramadorai T (2016) International Comparative Household Finance, National Bureau of Economic Research Working Paper No, 22066

Bar-Gill O (2004) Seduction by plastic. Northwest Univ Law Rev 98(4):1373–1434

Bar-Gill O (2012) Seduction by contract. Law, economics and psychology in consumer markets. Oxford University Press

Della Vigna S, Malmendier U (2006) Paying not to go to the Gym. Am Econ Rev 96(3):694–719CrossRef

Jansen N, Zimmermann R (eds) (2018) Commentaries on European contract laws. Oxford University Press, p 939

Jolls C, Sunstein C, Thaler R (2000) A behavioral approach to law and economics. In: Sunstein C (ed) Behavioral law and economics (Cambridge Series on Judgment and Decision Making). Cambridge University Press, Cambridge, pp 13–58

Loewenstein G, O’Donoghue T, Rabin M (2003) Projection bias in predicting future utility. Q J Econ 118(4):1209–1248. https://doi.org/10.1162/003355303322552784CrossRef

Micklitz H, Reich N (2014) The court and sleeping beauty: the revival of the unfair contract terms directive (UCTD). Common Mark Law Rev 51(3):771

Miquel JM (2017) Las cláusulas de vencimiento anticipado en el contrato de préstamos hipotecario. In: Albentosa LP, Martínez GT (eds) Culpa y responsabilidad. Thomson-Aranzadi

Riesenhuber K (2013) EU-Vertragsrecht, Mohr Siebeck

Sarin N (2018) The salience theory of consumer financial regulation. Faculty Scholarship at Penn Law, at https://scholarship.law.upenn.edu/faculty_scholarship/2010

Zamir E, Mendelson T (2017) Three modes of regulating price terms in standard-form contracts -the Israeli experience. Hebrew Univ Jerus Legal Stud Res Pap Ser 17(40):1–20

Zamir E, Teichman D (2018) Behavioral law and economics. Press, Oxford UniversityCrossRef

Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95, 21.4.1993, p. 29–34

Law 5/2019 of March 15, on residential credit contracts has banned floor clauses entirely in residential mortgages, Official Gazette (BOE) num. 65

Law 1/2013 of May 14 of measures for enhancing the protection of mortgage debtors, debt restructuring and social tenancy, Official Gazette (BOE) num. 116

Law 19/2015 of July 13 of measures reforming the Administration of Justice and the Civil Registry, Official Gazette (BOE) num. 167

Title: Ex-Post Fairness Controls and Contract Design: The Spanish Experience
Authors: Fernando Gómez
Mireia Artigot
Publisher: Springer International Publishing
Book: Consumer Law and Economics
Print ISBN: 978-3-030-49027-0

Electronic ISBN: 978-3-030-49028-7

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-49028-7_7