On 10 September 2019 Advocate General Maciej Szpunar concluded that the IRPH index can be subject to the transparency review of the unfair terms directive. What it means for mortgage holders and what is still pending.
On 10 September 2019, Advocate General Maciej Szpunar of the Court of Justice of the European Union (CJEU) delivered his opinion in Case C-125/18, a preliminary reference from Court of First Instance No 38 of Barcelona in a dispute between a consumer and Bankia. He proposes that a clause setting a mortgage’s interest rate by reference to the IRPH should not fall outside the review of the EU directive on unfair terms. The judgment, which is what decides the matter, has not yet been given.
What the IRPH is and what was at issue
The IRPH (mortgage loan reference index) is an official index compiled by the Bank of Spain from data supplied by lenders. Many variable-rate mortgages were signed on the formula “IRPH plus a margin”; the press estimates there are around a million of them. The issue is not the index itself but whether a judge can review the clause that incorporates it and check whether the bank explained it clearly.
Until now, the case law of the Supreme Court, set out in its judgment of 14 December 2017, was that this clause could not be subject to a transparency review and was not unfair. The Barcelona court doubted that this case law was compatible with EU law and asked the CJEU.
What the Advocate General proposes
Szpunar argues, first, that the directive can apply. It excludes clauses that reflect mandatory statutory or regulatory provisions; if the national court finds that the rule did not oblige lenders to use an official index and allowed others, the clause falls within its scope. He also considers that, if the national legislature did not write into law the exception in Article 4(2) of the directive (which leaves the main subject matter of the contract and the price outside the fairness review when they are drafted clearly), a court cannot apply it on its own initiative to avoid examining the clause.
Third, the information the consumer receives must allow an informed decision on how the interest rate is calculated and on its elements: the full definition of the index, the national provisions governing it and its past evolution. It is for the national court to check, in light of all the circumstances of the signing, whether the contract explained this in a way that let the consumer assess the economic consequences, and whether it met the information obligations of Spanish law.
What it means for mortgage holders
The opinion does not annul any clause or give an automatic right to anything. What it opens up, if the Court follows it, is that Spanish judges could examine case by case whether the bank explained the IRPH properly. For anyone with a mortgage tied to this index, what matters is what information they received and what their contract says, not the fact of having the IRPH.
What remains pending is the judgment. The Advocate General’s opinion does not bind the Court, although it often points the way; the judgment is expected in the coming months. After that, it will be for the Spanish courts to apply what the CJEU decides, and it will still have to be clarified what the consequences would be, in each case, if a clause were declared unfair.
In the meantime, it is worth gathering the loan deed, the binding offer and any information documents received at signing, checking which index and margin the mortgage is reviewed with, and avoiding hasty decisions. Ask your lawyer how it applies to your case.
The transparency review does not measure the index, but what the client could understand when signing.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
