Brussels, 14/03/2013 (Agence Europe) - Spanish mortgage rules do not provide enough protection for consumers because they prevent judges from ruling mortgage contracts abusive and thus suspending mortgage enforcement proceedings, ruled the European Court of Justice on Thursday 14 March 2013 in Case C-415/11, which had been referred by a Spanish court querying the legality of Spanish rules in connection with the EU directive on abusive clauses in consumer contracts, EU Directive 93/13/EEC.
In Spain, lenders may arrange suspension of mortgage enforcement proceedings on the grounds of abusive contracts in the mortgage agreement, but this only applies in separate declaratory proceedings which do not have the effect of staying the mortgage enforcement proceedings. In addition, in the Spanish enforcement proceedings, the final vesting of immovable property in a third party - such as a bank - is, in principle, irreversible. Consequently, if the court hearing the declaratory proceedings declares a term of a loan agreement unfair and accordingly annuls the mortgage enforcement proceedings after enforcement has taken place, that judgment can enable that consumer to obtain only subsequent protection of a purely compensatory nature, the person evicted being unable to recover ownership of his property. The third Barcelona Commercial Court asked the Court of Justice whether the Spanish rules complied with the above-mentioned EU directive because they make it very difficult for judges to provide sufficient protection to consumers; what exactly constitutes an abusive clause under the EU directive and whether early closure of the mortgage as a result of failure to pay that does not last for a very long period is possible; the late payment interest charges that are not laid down in law and would be seen as abusive in other areas of business life; and the unilateral decision by lenders to sell property and charge interest.
In the ruling, the Court of Justice finds “that the Unfair Terms in Consumer Contracts Directive precludes national legislation, such as the Spanish legislation at issue, which does not allow the court hearing the declaratory proceedings that is, the proceedings seeking a declaration that a term is unfair - to adopt interim measures, in particular, the staying of the enforcement proceedings, where they are necessary to guarantee the full effectiveness of its final decision”. The lack of such an option makes it possible to repossess property and evict the consumer before the judge is able to state that a clause in the mortgage contract is abusive and the mortgage enforcement proceedings are void. This means that consumers to not have sufficient protection, only providing cash but not allowing the consumer to get their house or flat back and is certainly not an effective way of putting an end to abusive clauses. Particularly because, as in this case, the property is the consumer's family home and eviction thus caused problems for his family and the consumer protection rules that only provide payment of damages and interest do nothing to prevent the family home being permanently lost to the consumer. All that mortgage companies need to do to deprive consumers of protection under EU rules is to issue mortgage enforcement proceedings.
On the criteria for deciding what constitutes an abusive clause under the EU directive, the Court of Justice points out that an abusive clause gives rise to a “significant imbalance” in the light of the consumer's rights and the means available to him under national rules to ensure the removal of abusive clauses. In order to decide “whether the imbalance has been caused 'contrary to the requirement of good faith', it must be assessed whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations”, explains the Court of Justice.
In the case in question, the Spanish court should check whether or not clauses in mortgage contracts are abusive by examining the clause on late payment interest charges (late payment interest of 18.75% is automatically added to mortgage payments that do not arrive on time, with no appeal being possible), compared with the standard interest rate to determine whether the late payment interest goes beyond what is needed to ensure the objectives pursued by Spain's in the use of late payment interest. For the “acceleration clause, that allows the bank to call in the totality of the loan after a single failure to meet a due payment of principal or interest, the national court must in particular assess whether that right is conditional upon the non-compliance by the consumer with an essential obligation of the contract and whether such non-compliance is sufficiently serious in the light of the term and amount of the loan”. Finally, the Court of Justice says that vis-a-vis the clause “on unilateral quantification of the unpaid debt that stipulates that the bank may immediately quantify that amount in order to initiate mortgage enforcement proceedings, the national court must assess whether and, if appropriate, to what extent, that term makes it more difficult for the consumer, given the procedural means at his disposal, to take legal action and exercise rights of the defence”. (FG/transl.fl)