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Courts put an end to unfairness in banking clauses

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Event hosted by the President of the High Court of Justice of Castilla y León, José Luis Concepción

The poor oversight, transparency, information and good faith that have often prevailed when signing contracts for banking services has led to very complex situations that have resulted in significant economic losses both for business and for individuals. The number of cases relating to unfair clauses included in contracts during the economic boom before the courts has risen since a shudder first ran through the foundations of the economy. And it has been courts, both national and European, that have limited the inequities created by certain types of clauses.

These issues were addressed at the Tribuna Andersen organised with the title “Unfair clauses in banking contracts. Case law of the Court of Justice of the EU” hosted by the President of the High Court of Justice of Castilla y León, José Luis Concepción, and which was presented by the partner of the firm, Íñigo Rodríguez-Sastre.

During his address, the magistrate explained that, together with the case law of the courts, there are another two avenues for putting an end to the unfairness of certain banking clauses: administrative measures - which include regulatory decrees - and regulations approved by various legislative institutions.

The magistrate explained that in the drafting and negotiation of clauses, there is a premium on good faith and there must be a fair balance in services, as pointed out in Directive 93/13 EEC, which aims to approximate legislation on unfair clauses and states that clauses that are not negotiated individually produce an imbalance to the detriment of the consumer.

The effectiveness of this regulation has been reduced by a number of decisions since this directive was approved. The CJEU judgement of 16 January 2014 states that in order for there to be a significant imbalance in services a great economic impact need not necessarily exist; rather, all that is required is sufficiently serious damage to the legal situation of the consumer, such as the imposition of an additional obligation for which there is no provision in national legislation.

Concepción also highlighted the necessary oversight of transparency referred to in various judgements. Specifically, he explains that banking clauses must pass a dual transparency test - one upon incorporation and one thereafter - because otherwise, these clauses can be declared null and void on the grounds of unfairness. This test allows clauses that have not been discussed in the negotiation of the contract to be left out of the contract and is aimed at ensuring real understandability, so that the consumer can be well-informed of the consequences of clauses (both the economic and the legal burdens) and aware that the clause could affect payment, and how the economy can affect the contract. “This cannot be concealed; it must be identified and explained in full”, explained the president of the TSJCyL, who says that the Supreme Court has shifted the duty to provide information in a number of judgements. According to these judgements, the information deficit could result in errors in consent and professionals should have an active duty to provide information: a generic warning of risk is insufficient and a degree of knowledge on the part of the consumer is also required.

José Luis Concepción emphasised the features that a bank contract must have in order to prevent unfairness in its clauses and to pass the transparency test: the existence of good faith and clauses that are easy to understand and clearly worded, so that the consumer can accept them in one-on-one negotiations with full knowledge of their impacts.

One of the most recent judgements has been the Court of Justice of the European Union (CJEU) ruling on multi-currency mortgages handed down on September 20, in which it decreed the nullity of said products due to the unfairness of the clause as a result of a lack of transparency. The 70,000 multi-currency mortgages it has been calculated exist in Spain could be affected by this resolution, according to the partner responsible for Litigation Department of Andersen Tax & Legal at the Valencia office, Benjamín Prieto, who stated that the product is described in the clause on loans as a foreign-currency mortgage – mainly in Swiss francs or Japanese yen – even though it in fact works like a loan pegged to a foreign currency.

Clients who purchased these mortgages were never given sufficient information about this: these clients thought they paid less interest on their mortgages than if they had taken out a mortgage in euros, until the euro crisis hit and the increase in interest rates in Switzerland and Japan reversed the situation.

The CJEU has enormous repercussions on Spanish case law, so much so that said judgement transfers the duty to examine each case onto national courts and the publication of this judgement saw the Supreme Court, which had aimed to hand down its judgement on the same day as the CJEU, postpone its decision on this matter.

The European court establishes a transparency criterion that forces banks to confirm that the clause has been correctly described, both in terms of form and grammatical accuracy, and that the client is clearly aware of the financial consequences of the multi-currency mortgage and fluctuations in exchange rates, and of the risks inherent to a foreign-currency loan. It has repeated its calls for transparency and understandability, preventing the bank from imposing conditions that are imbalanced for the parties.

It is a judgement that, according to Benjamín Prieto, sets out the path for the Supreme Court, which is expected to pronounce along the same lines, thus bringing an end to the bad practice of some financial institutions, endorsing the good conduct of others and protecting the consumer, so that everyone involved in banking negotiations is on equal terms when negotiating and entering into a contract. 

 

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