Mortgage expenses “to be refunded in full”, says the European Court of Justice…

Once again, the ECJ corrects the jurisprudence of the Spanish Supreme Court, on this occasion with regards to the mortgage expenses and the mortgage opening fees.

A judgement has been handed down in the Court of Justice of the European Union (CJEU) on 16th July 2020 relating to several issues regarding mortgage expenses, mortgage opening fees, claim limitation periods and payment for litigation costs. Today, we will analyse a long-awaited decision by clients in connection to mortgage expenses and mortgage contracting fees.

Mortgage expenses

The CJEU directly addresses the issue of who has to pay expenses related to setting up a mortgage contract. This issue originates in the Court of First Instance 17 of Palma de Mallorca. This Spanish Court enquired the European Court about the mortgage fees clause, which had been declared invalid as it imposed all costs on the client. The Court wanted to clarify whether the subsequent limitation imposed by the Spanish Supreme Court on the banks’ obligations to refund abusive fees ran against European Union Law.

The European Court is clear and declares that, once a clause is deemed abusive, the judge cannot deny the full restitution of the fees paid by the client, unless there is a domestic law that allows such limitation. In other words, the bank must refund all amounts paid in full if there is no Spanish law which explicitly opposed it.

This declaration by the CJEU is important because it follows the same argument as in 2016, when this Court corrected the Spanish Supreme Court when the latter sought to limit the refund of floor clause compensations until 9th May 2013. It also suggests which will be the line of the European Tribunal on future rulings, particularly, the Spanish Stamp Duty (Acto Jurídico Documentado – AJD) which is expected to follow this argument.

Spanish mortgage opening fees 

While the mortgage opening fee clause had not been considered abusive by the Spanish Supreme Court, the European Court again corrects the Spanish Court ruling and establishes that national judges must supervise the transparent and understandable character of the clause. Equally, as the Court highlights, the Judge must ascertain “if the financial entity has sufficiently explained to clients the mortgage, so the client gains awareness of the content and function of the clause that requires an opening fee, as well as, its function within the mortgage contract”.

We say it is important because this way the European Court links back to the Spanish Supreme Court judgement of 9th May 2013. This judgement defined that a clause was abusive, and therefore not transparent, when the bank had not provided the client with sufficient information which allowed the client to understand the role of said clause. In this case, the same principle applies to the opening fees included in the mortgage contract.

Finally, the European Court also confirms that the cost of this opening fee must align with any services provided by the bank. Therefore, this leads to the following question:

Which service does the bank effectively undertake for the client to allow charging this fee?

In any case, every situation is different and special, so it is advisable to check with a lawyer first to check the viability of any legal reclaim.