The ruling of the EU Court on IRPH in ten ideas
The Court of Justice of the European Union (CJEU) has decided on Tuesday that it is the Spanish courts that rule on the lack of transparency of the mortgages subscribed with the Mortgage Loan Reference Index (IRPH).
In practice, this means giving the reason to consumers with mortgages contracted with this index, which from now on will be able to go to the Spanish courts, which if they consider it appropriate will be able to replace the IRPH with another reference, and thus avoid the cancellation of this clause entails the cancellation of the contract.
However, the CJEU has evaded declaring the index void, in line with the provisions of the Spanish Supreme Court, which in November 2017 considered that the mere reference of a mortgage to an official index did not imply a lack of transparency or any abuse.
Hence, not only consumers but also financial institutions have valued the CJEU ruling, which in a note has made the following reflections:
-The Spanish courts will have to check if the clauses of the loans that refer to the application of IRPH for the calculation of interest are clear and understandable.
-If they consider that these clauses are abusive, they may replace them with another reference, so that it is not necessary to cancel the loan in its entirety.
-The cancellation of the loan, says the CJEU, could immediately make the payment of the amount pending repayment, in an amount that even exceeds the economic capacity of the consumer, which would harm this more than the lender.
-The CJEU thus protects consumers from the consequences that the cancellation of the loan could have.
-To establish whether the clauses referring to IRPH are abusive or not, what the CJEU says is that its wording should be "clear and understandable."
-And it is up to the Spanish courts to determine whether these clauses are indeed clear and understandable, indicates the CJEU.
-The Spanish legislation did not require an official reference index to be used in loans with a variable interest rate, the CJEU points out, but was limited to setting the requirements that the "reference rates or interest rates" had to meet in order for Credit institutions could use them.
-If the Spanish courts - and those of all the member states of the European Union - conclude that these clauses are abusive, they may replace them with a legally applicable index in a supplementary manner, to protect the consumers in question from the consequences especially harmful that could result from the cancellation of the loan contract.
-The clauses included in the mortgage loan contracts on variable interest rates should not only be understandable on a formal and grammatical level, but also allow the average consumer, normally informed and reasonably attentive and insightful, to understand what he signs.
-Not only what is what you have signed, but also how the interest rate you are going to pay is calculated, adds the CJEU.