What to Expect After the IRPH Ruling

This Tuesday, the content of the long-awaited ruling from the Court of Justice of the European Union (CJEU) regarding the preliminary ruling requested by the Court of First Instance No. 38 of Barcelona was made public, concerning the possible abusiveness of a mortgage loan subscribed by a consumer that included a variable interest clause referenced to the IRPH Cajas.

In general terms, the ruling confirms the Conclusions of the Attorney General published on September 10, 2019. Thus, the Court of Justice does not question the legality of using the IRPH Cajas (Reference Index for Mortgage Loans) as a reference in mortgage credit contracts, as it is an official index provided for by Spanish regulations.

However, since it understands that the clause does not reflect mandatory legal or regulatory provisions (which can be exempt from abuse control), it considers that it can be subject to such control.

To determine the possible abusive nature of the clause, it will be necessary to check its transparency, in particular regarding key aspects such as the method of calculating the index and its past evolution.

The objective, according to the European Court, is that “an average consumer, normally informed and reasonably attentive and perceptive,” is able to understand how it works and assess the implications of using this index. To determine the possible abusive nature of the clause, its transparency must be verified.

In this regard, it is important to highlight that the ruling itself indicates that the national regulations in force at the time of contracting the mortgage loan in question met these transparency criteria, since (i) the method of calculation was easily accessible to the borrower (having been incorporated into Circular 8/1990 of the Bank of Spain, published in the Official State Bulletin), and (ii) the regulations required information about the evolution of the index during the previous two calendar years. The Attorney General’s opinion was also favorable to the financial institution, recognizing that in the case in question the transparency requirements were adequately met.

Another particularly relevant aspect incorporated in the preliminary ruling is related to the consequences of a possible consideration of this clause as abusive. For this, the Court of First Instance poses different alternatives, ranging from the annulment of the mortgage loan contract to the application of an alternative index such as Euribor, along with the elimination of the obligation to pay interest.

In this regard, and given the potentially very detrimental impact that the annulment of the contract would have on the borrower, as they would be obliged to return the pending principal immediately, the CJEU considers it compatible with Community law for national courts to substitute the IRPH Cajas clause with another that includes the substitute index provided for in Law 14/2013 of September 27, i.e., the IRPH entities.

Therefore, the ruling establishes that it will be the national courts (both in this litigation and in other cases related to similar clauses) that will conduct the transparency control in each case. In this regard, it should be noted that there is already a ruling from December 14, 2017, in which the Supreme Court concluded that the IRPH exceeded transparency control. There has already been a ruling in 2017 in which the Supreme Court concluded that the IRPH exceeded transparency control.

It should be remembered that the IRPH is one of the official indices provided for in our legal system, the publication of which is carried out by the Bank of Spain. The Spanish mortgage market is one of the most competitive in the EU, having allowed access to housing for large segments of the population, and it is reasonable that it coexists with different alternatives for determining the interest rate, which seek to respond to different needs.

In its conception, the IRPH aimed to provide greater stability to mortgage payments by linking them to a reference specific to the mortgage market, something beneficial for the borrower as it pertains to very long-term loans (often exceeding 30 years). Therefore, the fact that it is positioned above interbank references such as Euribor should not call into question its validity, provided that all the information required by current regulations has been given during the marketing process.