The Supreme Court, as expected, has definitively established its judgement on multi-currency mortgages, following the way already laid down by the Court of Justice of the European Union.

The judgment of 15 November 2017 rectifies the jurisprudential doctrine of the First Chamber established in its resolution of 30 June 2015 and concludes that the mortgage loan in foreign currency is not a financial instrument regulated by the Securities Market Law, accepting the thesis maintained by the European Union Court of Justice (ECJ), of 3 December of the same year.

Notwithstanding, the Supreme Court maintains that this does not exclude the subjection of banking institutions to the rules of transparency, when they offer and grant this type of loans to consumers, which it qualifies as complex products, applying the appeal case to the criteria established in the judgment issued by Luxembourg on 20th September 2017. It considers that the multi-currency clauses in question are general terms and conditions of the contract, since they have not been individually negotiated, which define the main object of the contract and for which there is a special duty of transparency on the part of the banking institution.

The ruling highlights the bank's failure to fulfil its obligation to inform consumers by failing to explain to them that currency fluctuations - in this case the Japanese yen - vis-à-vis the euro affected both the amount of the loan instalments and the capital outstanding.

Failure to warn that the amount of the accrued instalments could be so high as to jeopardize the ability to pay them, prevents the consumer borrower from making an informed and prudent decision on contracting the multi-currency. In the same sense, the judgment states that, without such information, the average consumer could not foresee that currency fluctuation could lead to a constant recalculation of the borrowed capital, which could be greater than that which was delivered to them at the time, despite the timely payment of the repayment instalments.

The ruling expressly emphasizes that the possibility of currency exchange and its conversion to the euro, the borrower's income currency, does not eliminate the risk associated with the foreign currency loan, nor does it relieve the bank of its obligation to inform of this before contracting.

Thus, the Supreme Court ruled that the multi-currency clauses analysed do not go beyond the control of transparency, since they are not drafted in a clear and comprehensible manner so that the informed consumer can foresee the consequences of contracting this type of loan, furthermore maintaining that the bank did not adequately explain the nature and risks associated with said mortgage to borrowers before contracting it.

Finally, the judgment acknowledges that this lack of transparency in multi-currency clauses causes a serious imbalance for consumers, contrary to the requirements of good faith which must also govern banking practice, thus giving a new blow to financial institutions. Unaware of the risks involved in taking out a multi-currency mortgage, the affected consumers were unable to compare the offer of the mortgage loan in question with others or simply choose not to take out such a mortgage loan.

The decision of the High Court, in its new judgment, opens the way for an avalanche of judgments, partially annulling these contracts, which until now has been at least controversial.

It is estimated that there are some 70,000 multi-currency mortgages in Spain, of which it is estimated that only 8% of those affected have already initiated legal actions, as stated by the Association of Financial Users (Asufin).

It will have to be examined whether the resolution of the ruling implies an increase in judicial claims in favour of the partial nullity of multi-currency mortgages, or on the contrary, banking institutions will opt for out-of-court negotiations, to avoid new pronouncements that reveal the breach of their obligation to inform consumers and the duty of banking transparency.

For further information, please contact:

Vanesa Fernández Escudero

vanesa.fernandez@AndersenTaxLegal.es