IRPH Update

Hello Ken,

Thank you for your inquiry. As an economist, I can provide an update on the European Court of Justice’s (ECJ) decision relating to the IRPH mortgage clauses, expected on the 13th of July, 2023.

The preliminary ruling was raised by the Court of First Instance no. 17 of Palma de Mallorca, by order of 19th April 2022, and received at the Court of Justice on the 20th of April 2022. Out of the five questions asked by the Palma de Mallorca Court to the ECJ, only the first part of the fourth question was addressed, as Directive 2005/29 was not applicable at the time the contract was signed (12th May 2006).

The question concerned the interpretation of national jurisprudence in view of the specific regulation of the IRPH as an abusive practice and the application of a negative differential despite the need imposed in the preamble of the Circular 5/1994.

The central issue analysed by the ECJ was whether the borrower was properly informed about the information contained in the preamble of the Circular 5/1994. According to the circular, the chosen reference rates, in the final analysis, are annual equivalent rates (AER), and their direct use as contractual types would place the AER of the mortgage operation above the market rate. To equate the AER of the latter with the market, a negative differential would need to be applied.

The Palma de Mallorca Court noted that the preamble of Circular 5/1994, although lacking normative value, demonstrates that the administrative authority that authored the circular considered that the marketing of products referenced to an IRPH should be accompanied by the application of a negative differential.

Moreover, it considers that not having informed the borrowers about the content of the preamble of Circular 5/1994, and therefore, about the characteristics of the IRPH, may be contrary to good faith and create an imbalance to the detriment of consumers, justifying the clause being classified as abusive.

The ECJ ruling clarified that the articles 3, section 1, 4 and 5 of the Directive 93/13/EEC must be interpreted in the sense that, to assess the transparency and possibly abusive nature of a clause in a variable interest rate mortgage contract that designates, as the reference index for the periodic review of the applicable interest rate, an index established by an officially published circular to which an increase is applied, the content of the information included in another circular from which it follows the need to apply a negative differential to that index is relevant. It is also relevant to determine if that information is sufficiently accessible for an average consumer.

This ruling seems to be a favourable step at the judicial level in Spain for those affected by a poorly marketed IRPH mortgage. However, it now rests on the final interpretation by the Supreme Court on a case-by-case basis. While a favourable ECJ ruling for the interests of those affected should not be undermined, the Supreme Court still has its arguments for interpretation in favour of the bank or the affected consumer.

Regarding your question about new cases, I encourage those affected to consult with a legal expert for guidance, as each situation may vary and needs individual assessment.

I hope this provides a clearer picture of the recent developments in this case. Please feel free to reach out if you need more information.

Best regards.