One of our clients, a British citizen, has won one of the first claims in Malaga on mortgage abusive clauses based on the IRPH index.
The European Court of Justice (ECJ) ruled on 3rd March 2020 against the validity of mortgage contracts where interest is calculated in accordance to the IRPH index.
The IRPH is used as an index to determine interest on a mortgage loan, calculated using an average interest rate of mortgages loans made by Spanish banks. Its computation is based on a very complex mathematical formula, not very transparent for an average consumer, as reported recently by Spanish Property Insight . In fact, mortgages using the IRPH index as a reference, instead of EURIBOR, work out more expensive for borrowers. Therefore, in accordance with EU consumer regulations, they may be deemed abusive.
The IRPH index is a variable interest used by many Spanish banks, and it is now considered abusive, as in most cases consumers do not understand the complexity of its calculations, and have not been offered appropriate information, as our case makes very clear.
We are particularly pleased with this case, as it is probably the first ruling in Malaga, and relates to a British client, which creates with sets a good precedent in the province.
The case in question is Case number 229/2020 of April 30th, from the First Tier Court number 18 bis of Malaga, with exclusive jurisdiction for the resolution of mortgage disputes.
A British citizen bought a property in Spain and entered into a mortgage agreement with a Spanish bank. The bank failed to provide the consumer with information about the evolution of the IRPH index in the two years prior to the signing of the contract, as well as to give sufficient information on the way that the IRPH index works to calculate the interest on the loan. The ruling is based on the following points:
- The bank has not provided any documentary or any other proposed evidence to justify that the computation method was properly explained to the client
- The bank has failed to prove what information was provided to the client in order to calculate with precision interest payable.
- The bank did not inform the customer of the historical evolution of the said index.
- In accordance with the ECJ above mentioned rule a clear explanation on how the index works is essential to understand the economic significance of entering into such a loan agreement.
- The borrower must understand, and the bank should have properly explained those points, in order to make a decision on the type of index to be used.
- This, in the opinion of this Court, constitutes absolute evidence to prove what the defendant is responsible for providing that the essential information is provided, for the plaintiff to truly internalize and understand the legal and economic scope of the clause in question.
- The fact that the clause is clear in its grammatical wording, as is the case in writing, does not imply that the consumer has understood it, with the information provided by the bank.
- In a mortgage loan agreement where the chargeable interest will be calculated over a period of several years, it is fundamental that the consumer has a clear understanding on how the aforementioned stipulations will work along the life of the contract.
Although the ruling is not final, and it may be subject to an appeal, when considering together with other similar court decisions on first tier tribunals in different provinces, will start building a strong precedent.
It is, however, significant, that it is a court in Malaga, where many British citizens have bought properties. This is, of course, a very important landmark, as this case can offer us some insight and indications on how other Spanish courts will be ruling on similar circumstances in this province, and all around Spain.
In our opinion this is excellent news for borrowers with IRPH referenced mortgages, and although there is a long way to go, the first battle has been won by our client.
Head of Litigation
Del Canto Chambers