Keys to the nullity of a multicurrency mortgage

Introduction

Some time ago we talked about abusive clauses and the double control of transparency in banking contracts concluded with consumers. Specifically, about the so-called “floor clause” and “charges to be paid by the borrower”.

As is already known, there was (and still is) a trend of massive claims for the insertion of these clauses in loans with mortgage guarantee. Being key for the resolution of these claims, the STS No. 147/2018, on mortgage expenses. And the STJUE of December 21, 2016 and the STS of May 9, 2013, in matters of floor clauses.

However, we have never talked about multi-currency mortgages. That, even if there is not such a high percentage of claims, there is a relevant number of affected consumers. We are going to talk about the guidelines that lead to declare the nullity of a multi-currency clause. And also, of the recent Supreme Court Ruling No. 975/2021 that declares its nullity, being the borrowers, practicing lawyers.

Requirements for declaring the nullity of a multi-currency clause by doctrine and jurisprudence.

Judgment of the Court of Justice of the European Union of 20/09/2017.

One of the most important Judgments that exists on this matter is that of the CJEU of 20/09/2017. In it, it establishes the obligation to communicate to the consumer all the information necessary to assess the economic consequences of the product. In other words, that he is in a position to assess them, based on precise and intelligible criteria.

That information should not only refer to the appreciation or depreciation of the currency of the loan. It should also explain the effects of exchange rate variations on the installments. And the effects of an appreciation of the interest rate of the currency of the loan. It should be borne in mind that the currency implies a constant recalculation of the loan capital. This means that there are two harmful scenarios for the borrower:

• That the borrower owes a capital in euros greater than that which was given to him when he subscribed the loan.
• That the bank will terminate the loan in advance if the euro devalues, above certain limits, in relation to the foreign currency.

Judgment of the Supreme Court of 15/11/2017

Another relevant Judgment is that of the SC of November 15, 2017. Since it declares the partial nullity of the multi-currency mortgage due to lack of transparency.

Said Judgment, established that the multi-currency clause is the one that defines the main object of the contract. This implies that there is a special duty of transparency on the part of the predisposer, when the other Party is a consumer. It should be noted that the fact that these loans are excluded from MiFID regulations does not imply that they are not a complex product. Therefore, they must also be subject to a transparency control.

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Foreclosure Opposition

In procedures for the execution of mortgaged or pledged assets, only the grounds for opposition set forth in art.696 LEC can be included. They are four

Timing and content of the judgment of abusivity by the Court of Justice of the European Union and the Supreme Court.

Both Courts pronounce themselves in similar terms. They agree that:

On the one hand, the circumstances existing at the time of the conclusion of the contract must be taken into account. Later events cannot be taken into account.

Non-compliance with the duty to provide information (unless there is a total absence) is not enough to declare unfairness. It is necessary a plus of the professional’s reproach and disloyalty in his/her performance. That is to say, to evaluate the good or bad faith of the entity with all the circumstances of the litigation. In particular, the professional’s experience and knowledge of exchange rates and inherent risks. And once analyzed, it must be determined whether the consumer conformed properly, accepting all the risks. This is a process called “judgment of relevance”.

For this purpose, the relevant circumstances that must be followed to assess the good faith of the professional and the imbalance are:

1. The evolution of the currency in the months immediately preceding and following the subscription of the loan.
2. The profile of the consumer. Specifically, his education in general and, in particular, his financial education. If he is previously informed about this type of loan. And the currency in which he/she receives his/her salary.
3. The initiative at the time of contracting the loan. If it starts from the consumer, it could be presumed that he has knowledge about this product.  And, therefore, that the entity has not been disloyal.
4. The reasons that have led the consumer to contract this mortgage. (For example, to acquire a habitual dwelling).
5. If there is a total absence of information. That as we said before, can determine by itself the abusive character of the multi-currency clauses.

Finally, it should be noted that the burden of proving all these circumstances is on the bank.

New Supreme Court Ruling No. 975/2021 dated March 16, 2021

Finally, we would like to highlight in this article this recent Supreme Court Ruling. And that we consider to be of great interest because the borrowers are practicing lawyers.

Thus, the High Court, after analyzing the “judgment of relevance” rules the nullity of the multi-currency clause based on the following criteria:

• Even if borrowers have external advice, the Bank is not relieved of its duty to inform.
• The client is not presumed to be aware of the specific risks of multicurrency loans.
• The university education (in this case lawyers) allows the presumption that they had the capacity to understand the information. However, there is no evidence that the Bank provided them with sufficient and adequate pre-contractual information.
• The mere fact of knowing the risks of fluctuation of the exchange rate of the currency does not allow knowing the risks of this loan. Such as the significant increase in both the amortization installments and the financial balance of the debt in its equivalent in euros. Or that the mortgage constituted may be insufficient collateral. This could lead to an early maturity of the loan if the guarantee is not extended.

Therefore, in view of these circumstances, it concludes that the disputed clauses do not pass the transparency control. The borrowers have not received adequate information on the risks associated with these clauses.

Conclusions

There are currently a significant number of consumers affected by the contracting of a multi-currency loan.

Although these products are not subject to MiFID regulations, this does not mean that they are not a complex product. Therefore, they must also be subject to a transparency control.

In order to declare the nullity, it will be necessary to consider the circumstances existing at the time of the conclusion of the contract.

Unless there is a total absence of information, the breach of the duty of information is not enough to declare the abusivity. It is necessary a plus of reproach and disloyalty in the performance of the professional.

Case law establishes the relevant circumstances that must be followed to assess the good faith of the professional and the imbalance. (Judgment of relevance).

Recently the Supreme Court has declared that professional training does not presume the client’s knowledge of the specific risks of these loans.

If this article has been of interest, we also suggest you to read the following article published on our website:

The recent Supreme Court ruling regarding mortgage loan expenses

Abusive Clauses and Double Transparency Control