General background of the dispute in the main proceeding
In the context of a claim of a consumer against a Spanish bank regarding the potential unfair nature of a IRPH indexed floating interest rate clause, the First Instance Court number 38 of Barcelona filed a preliminary ruling request before the ECJ. In the case being decided, a mortgage loan agreement to acquire a dwelling was entered into in 2001. Thereafter the consumer sued the bank and requested that the IRPH clause was declared unfair. The consumer alleged that most mortgage loans in Spain were indexed to Euribor, which it is more beneficial for the consumer. The First Instance Court asserted that around 10% of these contracts were indexed to IRPH that was indeed less beneficial for the consumers since it implies a higher cost for them. The First Instance Court also showed its concerns in connection with the information provided to the customer when subscribing the contract.
Despite the Spanish Supreme Court case-law, which understands that a reference rate like the IRPH is not subject to court control since it does not fall within the scope of application of the Directive 93/13 (the Directive), the Spanish First Instance Court considered that in this case it did fell within the Directive’s scope. The First Instance Court considered that the IRPH was not a mandatory index and so the bank could have chosen another index. Likewise, it considered that the consumer was not properly informed and therefore the clause was not clear or transparent, which implied a lack of compliance with the Directive.
Conclusions from the General Advocate
General Advocate Szpunar has filed his conclusions on a report dated 10 September 2019, analysing whether clauses regulating floating interest rates indexed to the Mortgage Loan Reference Index (IRPH) included in mortgage loan agreements with Spanish consumers can be considered unfair. These conclusions refer to Case 125/18 in connection with a preliminary ruling filed by Barcelona First Instance Court number 38. This is an important document in the course of this litigation, as it is estimated that around 10% of all outstanding consumer mortgage loan agreements in Spain have the IRPH (instead of Euribor) as the reference index to calculate interest payable under the loans.
The General Advocate main conclusions are as follows:
- IRPH indexed floating interest clauses fall under the transparency control requirements set out in Directive 93/13 and are therefore subject to court control regarding their potential unfair nature, as the application of the IRPH is not mandatory according to Spanish national legislation. This conclusion contradicts the position upheld by the Spanish Supreme Court in its decision of 14 December 2017, in which the Spanish Supreme Court decided that the IRPH, as such, cannot be the subject of the transparency control requirements set out in the Directive. The argument of the Spanish Supreme Court is based on the fact that the IRPH is an index defined and governed by a regulatory instrument, therefore, the loan contract refers to the index as per the instrument in which it is regulated, it is the duty of the Spanish public administration to control that the IRPH conforms to the legal framework, not the civil courts.
- In order to comply with the Directive, the information provided to consumers in connection with floating interest rate clauses that are linked to a reference index that has a complex and unclear calculation methodology (such as the IRPH) must (a) be enough, specifying the entire definition of the index and the applicable legislation, so that the consumer can make a conscious careful decision; and (b) make specific reference to the evolution of that index in the past.
On the other hand, and this is important for the affected lenders, the General Advocate expressly admits that in the particular case being decided:
- The average consumer must understand the calculation methodology applied to determine the floating rate applicable to its loan, and in order to fulfill that requirement it must have access to the particulars of such methodology. In the case at hand the methodology was not set out in the contract but it was available in Annex VIII of Circular 8/1990 (the regulatory instrument governing the IRPH).
- It cannot be considered that the claimant was not capable to assess the economic consequences of the application of the IRPH to its loan, as (without prejudice to the subsequent analysis of the conditions surrounding the entering into the loan agreement by the relevant Spanish court) the claimant knew that (i) the amount payable on each installment was the result of adding the IRPH plus a margin, and (ii) the IRPH calculation methodology was publicly available as its governing regulatory instrument was published in the Spanish Official Gazette (Boletín Oficial del Estado).
- The fact that the IRPH is an official reference index published in the Spanish Official Gazette (Boletín Oficial del Estado) allows to consider that it is relatively easy for an average consumer to access the calculation methodologies of the different available official indexes and compare the different options offered by banking entities. As a consequence, it cannot be required from the banks to offer different interest rate references to consumers. On this regard, the information obligations imposed on the lenders by the jurisprudence of the ECJ is not an advisory obligation and cannot imply in any case a requirement for the banking entities to offer different official indices to consumers.
The foregoing considerations led the General Advocate to conclude in this case that the banking entity involved in the case at hand fulfilled the transparency requirements imposed by the Directive. However it also concludes that it corresponds to the Spanish court to analyse the circumstances surrounding the granting of the loan, including the publicity and information provided to the claimant in that context in order to confirm whether the banking entity complied with the information obligations imposed at the time by the said Circular 8/1990.
These conclusions are not binding for the ECJ but the most common approach is that the ECJ follows these conclusions in its judgment (expected for first quarter of 2020). However, sometimes the ECJ differs from the General Advocate conclusions (e.g. this happened in March when ruling in connection with the early termination clauses of mortgage loan agreements).
What does this mean for the IRPH litigation proceedings in Spain?
If the conclusions of the General Advocate are followed as such by the ECJ, this means that Spanish courts will be able to exercise a transparency control of the IRPH clauses and it will have to be decided on a case by cases basis, in light of the circumstances surrounding the granting of the loan, including the publicity and information provided to the claimant by the relevant bank in that context, whether the bank complied with the information obligations imposed by the laws implementing the Directive and the transparency rules imposed at the time by Circular 8/1990, but bearing in mind that the obligations of the banks are not of an advisory nature (by offering comparisons among the different indexes).
We will therefore foresee a substantial number of litigation proceedings on this regard, with a variety of outcomes depending on the circumstances of each case. It is interesting to note that litigation proceedings will eventually reach again the Spanish Supreme Court, and this court has a well established position regarding the transparency of the IRPH on the basis of the fact that it was an officially regulated index.