The Court of Justice of the European Union (CJEU) has ruled on Tuesday that Spanish judges will decide in each case if the mortgages linked to the Mortgage Loan Reference Index (IRPH) are abusive. The European Justice verdict exposes Spanish banks to thousands of claims for an amount that could amount to 3,000 million euros. EL CJEU, however, will allow magistrates to change the IRPH by the Euribor if they consider that the mortgage was not very transparent. The case has been in court for years and these are the keys to the judgment and the advice of the experts to claim.
1. An official index
The IRPH is an official index, prepared by the Bank of Spain since 1994 from a ministerial order that enabled it to calculate it according to the data provided by the entities. Like any other index, it can be used to determine the interest rate at which the debt owed with a mortgage loan must be returned. To do this, banks usually add to the index, which varies over time, a fixed differential, or margin.
2. An average of interest on mortgages
IRPH is calculated based on the average interest rates on the loans of the mortgages granted by banks and savings banks or other entities for three or more years. It is the second most used index to reference variable loans to buy a home, behind the Euribor. Fernando Richart, lawyer of the Lean law firm, explains that “the entities sent to the Bank of Spain an average of the interests to which they placed their mortgages. The agency, in turn, averaged the figures received and published it. That was the reference to market the loans, but nobody controlled the data sent by the banks, so the IRPH was easily manipulated by them. ” Along the same lines, the president of the Association of Financial Users (Asufin), Patricia Suárez, asks: “If in the past it was proven that other indexes such as the Euribor were manipulated, can we believe that the same was not done with the IRPH? “
Conversely, in the calculation of the Euribor, they are taken into account three levels of sources. The first is the interest rate that the 18 banks that are part of the role of the index managing body (the European Institute of Monetary Markets; EMMI) apply to lend money to each other. In the second, historical operations and, in the third and last level, theoretical prices are contemplated. Each of the entities of the panel uses the three cascade levels daily, that is, if the first fails because there are not enough operations, it will use the second and, if this is not enough, it would go to the third.
3. Always above the Euribor
Some of the latest mortgages sold by Banco Popular before it was acquired by Santander bank, in 2017, were still linked to IRPH, according to Asufin. The entities assured that this index was more stable than the others. However, it was also shielded from declines in interest rates that occurred from 2013 and was at all times above the Euribor, the index that began to be adopted in 1999. The Euribor closed February at -0.288% while the last IRPH data for January places it at 1.83%. In 2004, one in ten mortgage contracts was linked to this index, although it is deprecated and has decreased to 0.28% of total mortgages in 2018, according to the latest available data.
4. One million possible affected
There are no official records of how many credits still have types of inefficiency that take IRPH as a reference, but according to the web reclamador.es they are about 300,000. Other firms, such as Collective Complaints, believe there may be approximately 800,000 credits with IRPH. Asufin estimates that households affected by the sentence can be around one million. The amount that each client could receive varies from 15,000 euros to 40,000 depending on the amount of the credit and the duration, according to the associations and claim companies consulted.
5. Tens of thousands of euros of extra cost
Demands on the use of this index began in 2013, when the Euribor began to drop to values close to zero, dragged down by the ECB rate drops, while IRPH stabilized near 2%. This meant that the variable mortgages referenced with the IRPH were substantially more expensive than those used by the Euribor. The difference, according to a calculation of the main platform of affected Asufin, would be 165 euros on average per month. This would mean that a mortgage of 200,000 euros granted in 2004, would have accumulated until today an extra cost of about 25,000 euros.
6. The three responses of the CJEU
The CJEU has answered all the questions addressed to it by the Court of First Instance number 38 of Barcelona, solving them in favor of the user. First, although it admits that clauses that reflect mandatory legal provisions are excluded from the scope of the European Directive on abusive clauses, the CJEU observes that nothing obliged the bank – in the case examined, Bankia – to use an official index such as the IRPH. Therefore, it concludes that the clause contained in IRPH can be judged taking into account the content of the Directive.
Second, it establishes that national judges must ensure that the clauses that refer to the main purpose of the contracts are clear and understandable. In particular, those referring to the variable interest rate should allow the average user to be in a position to understand how it is calculated, to clearly assess the economic consequences of adopting an index instead of other possible ones. In this way, Luxembourg leaves in the hands of the Spanish judges the decision to establish in each case if the mortgage is abusive for this reason. The CJEU cites the fact that the bank has not delivered to the user the historical evolution of the index as one of the criteria to establish whether the clause that contains it is abusive. “It is obvious that no bank has complied with it,” says Almudena Velázquez, legal coordinator of the Reclamador.es claim platform.
Thirdly, the CJEU leaves open the possibility that the Spanish judges, once the nullity of the clause containing the IRPH has been declared, replace this index with another. According to the user associations and the complaint companies consulted, it is expected that the IRPH be replaced by the Euribor. But there are three types of IRPH: savings banks, banks and entities. “Even if a judge could consider that in a specific case the clause was not transparent, the effect will be the replacement of the IRPH boxes (or of the IRPH banks, as the case may be) applied, by the IRPH entities, whose value is practically identical, “says a statement issued by the Spanish Banking Association (AEB).
“It is curious that banks are interpreting this statement as an obligation to replace the IRPH with another index in any case, but the truth is that the judges of the CJEU say that this should be done when the removal of the abusive index did not allow the subsistence of the loan but it should be remembered that both the Civil Code and the Commercial Code allow the loan without interest and, in any case, the differential would be applicable, “says Velázquez. “The dictate of the CJEU Judgment makes us suspect that this point will lead to different interpretations by our Courts,” adds this lawyer.
7. Spanish jurisprudence
This ruling reverses what the Supreme Court issued in November 2017. In a dispute with the Basque bank Kutxabank, the high court gave the reason to the entity and understood that the transparency control of the clause containing the IRPH was not possible, as it is an official index, defined by the Bank of Spain. However, the Court of First Instance number 38 of Barcelona submitted the matter to the CJEU two months later.
Pending the ruling that the CJEU has pronounced on Tuesday, most of the courts paralyzed the IRPH litigation they were examining. Therefore, last year there were only six sentences in Courts of First Instance and one in a Provincial Court. Since 2015, however, there were 166 failures, distributed throughout the Spanish territory, except in Castilla-La Mancha, Aragon, La Rioja and Cantabria. Catalonia stands out, with 40 sentences (representing 24.1% of the total), the Basque Country, with 36 (21.7%), and Madrid and Andalusia, with 22 each (13.25% in both cases), according to data collected by the Association of Financial Users (Asufin).
So far, the judges have issued contradictory sentences. In 57% of the cases they have ruled in favor of the consumer and, in 43%, against, as a result of the ruling issued by the Supreme Court in November 2017.
8. Steps to claim
From the Association for the Defense of Consumers and Users of Banks, Savings Banks and Insurance (Adicae), insist that “Any affected party must claim their rights.” For this, “the first thing is to make sure the existence of IRPH in the mortgage loan, since it can appear in different ways, and many of them are very confusing,” explain the same sources.
If you have a mortgage linked to IRPH, the next step that Asufin advises to take is to file a claim with the bank. “We must demonstrate good faith and offer the entity the possibility of rectifying,” says the president of the association, Patricia Suárez. “We advise the person affected by the IRPH not to sign anything that compromises him and, if he does not receive a positive response from the bank within two months, consider the lawsuit,” Velázquez adds. The judicial route would then be opened. According to Suarez, the courts could take years to resolve the litigation, “but it is the only way.”
9. Return of abusive interests
The ruling of the CJEU only establishes that Spanish judges can assess on a case-by-case basis whether the inclusion of IRPH in the mortgage is abusive and introduces the possibility of this index being substituted with another. Thus, Suarez believes that the judges will not be favorable to remove the index and impose, without more, that the user returns only the outstanding debt, without interest. Although they admit that the matter will be settled by the courts, from Adicae they are also convinced that “justice must act from deterrent and punitive principles, and therefore, it is possible to fully return that interest.”
The opinion of the CJEU also says nothing about the possibility of the bank being obliged to return the money overpaid for having the IRPH. “I understand that there will be judges who will replace the IRPH with the Euribor and will not impose the return of the difference between what the user has paid so far with the IRPH and what they would have charged if they had applied the Euribor,” admits Suarez. On this point, however, he is confident that he will be able to fight in the courts, “as has already happened in the case of the ground and preferential clause”. The debate on the retroactivity of nullity of abusive clauses, in his opinion, “is settled.”
10. The impact on banks
The consensus of the analysts fixed around 3,000 million the impact of a sentence contrary to banking. But financial institutions have enthusiastically received the sentence of the CJEU issued on Tuesday and rise strongly in the stock market. Caixabank scores 6% more and Bankia 3.4% after hearing the ruling. Spanish banks, according to data made public by the entities themselves, would have about 16,220 million euros in loans referenced to IRPH. If the sentence had been clearer in favor of the million affected by the mortgages of this index could cost financial institutions about 25,000 million, according to Asufin data. However, according to Suárez, only between 20% and 30% of those affected end up claiming in these cases.
Arriaga Asociados has 12,000 cases and an average claim of about 30,000 euros per loan; Collective Complaints groups 2,500 claims, with an average damage per customer of 25,000 euros; the same amount as Asufin, which has 2,000 cases, and Adicae, which brings together 321 cases, with 12,000 euros per mortgage.
11. The entities involved
The entities that since 2013, when complaints were triggered, accumulate a greater number of sentences of this type are CaixaBank and Santander (24% each), Kutxabank (18%), BBVA (10%), Catalunya Caixa (4%) , and Banco Sabadell (3%). Most of the resolutions were concentrated in Catalonia (30%), Basque Country (22%) and Andalusia (13%), according to public data collected by Asufin.
12. The case examined by the CJEU
The Court of First Instance number 38 of Barcelona addressed the CJEU to know how it had to interpret the European Directive on abusive clauses in contracts concluded with consumers. The issue had arisen in the dispute between a user, Marc Gómez del Moral and Bankia, due to the allegedly abusive nature of the interest rate on their variable mortgage, referenced to IRPH and signed on July 19, 2001 for about 132,000 euros. The Court clarified that the IRPH is less favorable for the consumer than the Euribor, which meant that Gómez del Moral disbursed between 18,000 euros and 21,000 euros more, and doubted that the information provided in this regard was adequate.
The jurisprudence of the Supreme Court establishes that IRPH cannot be subject to judicial control, since it is not included in the scope of the Directive and, in 2017, endorsed the sale of mortgages with this index, considering that linking a loan to a Official guy like this is not opaque or abusive. The Court of Barcelona, however, considered that this case is an exception, since the entity was not obliged to apply this index and could have chosen another. In addition, the clause would not meet the transparency criteria required by the Directive. In his conclusions, submitted last September, the CJEU Advocate General said that the fact that it is an official index does not exclude that it may be contrary to Community law and advocated that the courts evaluate case by case. With the sentence of this Tuesday, the judges of the CJEU give the reason to the City Court and the General Counsel.