Spain’s Supreme Court bringing questions before Europe on IRPH index

Last December 2017, the Supreme Court in Spain declared that material transparency control of the IRPH clause was not due as this was a legal index.

The sentence, naturally, received harsh criticism and raised doubts about its compliance to the doctrine of the European Union regarding the control of material transparency.

Now, two months later, a First Instance Court in Barcelona (number 38) has started the inevitable process for obtaining an opinion from the European Court, seeking what is called a “preliminary ruling”

The question raised by the Barcelona judge is:

i) If this index must be the object of protection by the judge, so that it is understandable to the consumer, being no obstacle for that, the fact that the index is one of the legal indexes.
ii) If for the understanding of the clause, all the data which is necessary for the correct formation of consent need to be provided:

  • Explain how the type of reference was configured, how it had evolved and how it could evolve in the future, specifically to report that this Index includes commissions and other expenses, which is an un-weighted simple average without any correction mechanism before deviations and that is opaque, in comparison with the usual one: the Euribor
  • Relation/ comparison between this index and any of the other legal ones
  • Offer the borrower the possibility of choosing among the different types existing in the market,

All the above according to requirements of clarity and understandability of clauses established by European Directive 93/13 (art 4.2) and corresponding Case Law.

iii) If the consequence, in case of being declared abusive and void for not meeting the control of understandability would be either the integration of the contract, as it is a contract essentially linked to a productive interest in favor of the entity or, once the nullity has been declared, that the interest is left without effect, with the only obligation to return the capital borrowed by the borrower or debtor.

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