EUCJ General Attorney conclusions on the IRPH official mortgage rate in Spanish mortgages.
IRPH. What is that?
IRPH stands for “Índice de Referencia de Préstamos Hipotecarios” and it is one of the official interest rates applicable by banks to mortgages after the most used which is the EURIBOR.
There were several IRPH rates depending on the kind of entities participating in its making many years ago when the construction boom was on. Nowadays there is just one left.
Is the IRPH abusive?
This is the question that it is going on since many years and there is plenty of opinions. The Supreme Court ruled in 2017 that it was not abusive because it was an official rate so transparent enough. And later on the issue reached the EUCJ and everybody is expecting anxiously its ruling.
The European Commission thinks that IRPH could be abusive.
And the EUCJ General Attorney thinks the same.
The core points of the ruling to come are the following:
1.- Being the interest rate an essential issue of the loan contract and being the IRPH an official rate is it possible to assess its abusiveness or not? The answer is yes because IRPH in Spain regulations it has not been set an exception about the court’s possibility to assess the abusiveness of all the consumers’ contracts stipulations. So there is no exception in Spain to assess the stipulations which refers to the price of the goods and services provided. On the other hand, this limit to assess the essential clauses of the contract (to allow the market freedom and avoid price control from the courts) has one limit. And this limitat is that the stipulations must be clear and transparent. Otherwise, it is a duty to assess on their abusiveness. With regards to the point that IRPH is an official rate it is not a issue to assess its abusiveness. This is because the IRPH it is just one of the official rates. But there are more. So, the bank could use many others and was not compelled to use just that one. And all of them are official. What the Consumers’ protection regulations do not allow is to assess the abusiveness of stipulations which are imperative (for instance, a water service contract it is subject to a public contract with the town hall as it is a public service. Those stipulations are imperative. However, the General Attorney makes a comment about that its abusiveness could be assessed even in those cases if there were absolute abusive and disproportionate anyway. And this opens another door wide open to many claims).
2.- What kind of information must offer the bank to consumers to allow them to make a wise and transparent decision? I would like to stress two points here. There is no need for the bank to offer and compare several and different interest rates. The bank sells money but it is not an independent financial advisor. The other one is that the IRPH it is a complex interest rate difficult to understand. To begin with it is not made with the average of only interest rates applied by the entities affected but with interest rates, plus commissions and expenses which makes the final outcome higher compared with the EURIBOR calculation method for instance. The Bank of Spain instructed that when using the IRPH the entities should apply a negative percentage to compensate the commissions and expenses which makes more expensive the final rate. This was almost never done by the banks. Also, the IRPH is the average of the rates used by several entities but all of them have the same weight on its composition. It is not a weighted average but a simple average. So the courts will have to assess case by case on the abusiveness of the use of the IRPH. This will lead obviously to a wild increase of the litigation. Which is a usual practice from the banks anyway. But will produce even more delays on the procedures. And we are talking of years I am afraid.
3.- Consequences of the abusiveness of the IRPH stipulation. The general rule is that the null stipulation disappears completely and the court cannot substitute the stipulation by another one if the contract can survive. The scenarios here are several. In the case that the mortgage foresee a valid substitute of the IRPH the this will apply normally and the loan will be recalculated and the interests overpaid should be repaid to the consumer. If there is no substitute valid to the IRPH the question is if the loan could survive without interest. My feeling here is that the EUCJ will say that this is not possible allowing the courts to substitute the IRPH to the main interest rate applied, this is the EURIBOR. Otherwise, the option will be leave the loan without interest.
Because of the huge scope that this ruling will have an important economic impact on the bank industry I presume the ruling will be balanceD and will allow the substitution of the IRPH by the court. Even if there is no specific agreement in the loan contract this would be allowed. This is just my feeling. We will see when the ruling is published.
Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it.
Please, note that this is general information. This is not specific legal advice. It is advisable to seek legal advice for any specific legal issue.