Advocate General: Spanish "floor" clauses in morgtgage contracts are lawful

Source: Court of Justice of the European Union

The following information has been just published at the Court of Justice of the European Union, pending publication of the full text of the Advocate`s General Opinion. Note the Opinion is not binding on the Court of Justice (Advocate General proposes to the Court a legal solution to the case). The Judges of the Court are now beginning their deliberations in this case. Judgment will be given at a later date:

“According to Advocate General Mengozzi, the temporal limit on the effects of the invalidity of ‘floor’ clauses included in mortgage loan agreements in Spain is compatible with EU law.

This limit is justified by the macroeconomic issues associated with the scale on which those clauses are used In Spain, many individuals have initiated judicial proceedings against financial institutions seeking a declaration that the ‘floor’ clauses inserted in mortgage loan agreements concluded with consumers are unfair and that, consequently, they are not binding on the consumers.

The clauses in question provide that, even if the interest rate falls below a certain threshold (or ‘floor’) defined in the agreement, the consumer must continue to pay minimum interest equivalent to that threshold, without being able to benefit from a lower rate. By judgment of 9 May 2013, the Tribunal Supremo (Supreme Court, Spain) held the ‘floor’ clauses to be unfair, given that the consumers had not been informed properly about the economic and legal burden which the contract would place upon them. Nevertheless, the Tribunal Supremo decided to limit the temporal effects of the declaration of invalidity of those clauses, so that they would have effect only for the future, as from the date of delivery of the abovementioned judgment. Some of the consumers affected by the application of those clauses are asking for repayment of the sums they claim have been unduly paid to the financial institutions from the date on which their loan agreements were concluded. The matter having been brought before them, the Juzgado de lo Mercantil no 1 Granada (Commercial Court No 1, Granada, Spain) and the Audiencia Provincial de Alicante (Provincial High Court, Alicante, Spain) ask the Court of Justice whether the limitation of the effects of the declaration of invalidity from the date of delivery of the judgment of the Tribunal Supremo is compatible with the Directive on unfair terms, given that, according to that directive, such clauses are not binding on consumers. In his Opinion, Advocate General Paolo Mengozzi takes the view that the directive does not seek to harmonise the penalties applicable in the event that a term is found to be unfair and, therefore, does not require Member States to provide for the retroactive invalidity of such a term. Similarly, the Advocate General notes that the directive does not define the circumstances in which a domestic court may decide to limit the effects of decisions in which a term is found to be unfair. Therefore, it is for the internal legal order of the Member States to define those circumstances, subject to compliance with the EU law principles of equivalence and effectiveness.

With regard to the principle of equivalence, the Advocate General notes that the Tribunal Supremo does not limit the temporal effects of its decisions only in disputes involving EU law. On the contrary, it is common ground that that court has already made use of such an option in purely internal disputes. With regard to the principle of effectiveness, the Advocate General takes the view that, given that they constitute penalties having a deterrent effect on sellers or suppliers, the prohibition of ‘floor’ clauses as from 9 May 2013 and the obligation to repay the amounts unduly received from that date contribute to achieving the objectives pursued by the directive.

Moreover, the Advocate General recognises that, when ruling on the temporal effects of its decision, a national supreme court may balance consumer protection with macroeconomic issues associated with the scale on which ‘floor’ clauses are used. In that context, the Advocate General takes the view that, exceptionally, a temporal limit on the effects of the invalidity of an unfair term may be justified without upsetting the balance in the relationship between consumers and sellers or suppliers.

In those circumstances, the Advocate General suggests that the Court should hold that the temporal limit on the effects of the invalidity of ‘floor’ clauses included in mortgage loan agreements in Spain is compatible with the directive.

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