The Supreme Court this Wednesday announced one of the most anticipated decisions by banks and consumers on the Mortgage Reference Index (IRPH), which is used to calculate the installments of about 1 million mortgages and which over the years has proven to be more expensive than loans based on Euribor. The plenary session of the Civil Assembly understood that it is necessary to exclude the declaration of abuse and therefore invalidate the generality of a volatility index of this kind, and to consider it on a case-by-case basis, to check whether the company has provided consumers with all the information that would enable them to understand the operation of this controversial index. In this sense, in two new judgments, High Court judges have updated the guiding parameters used by first-instance judges to conduct a transparency review to determine the legality of clauses.
The Supreme Court resumed this legal argument on October 1, when the 10 judges comprising the Civil Bench began an analysis of the pending appeal on this issue, taking into account the latest judgment of the Court of Justice of the European Union (CJEU) of December 12, 2024. In it, it reiterated that there are circumstances in which Spanish judges can invalidate this provision on the grounds of lack of transparency, echoing a previous judgment handed down on July 13, 2023.
Based on these Supreme Court decisions, many lower courts have begun resolving consumer lawsuits seeking repayment of overpayments from banks. However, Spain’s highest judicial body, the Supreme Court, had not issued a ruling for more than three years. In 2020, banks supported offering mortgages using IRPH as an alternative to Euribor, despite a lack of transparency in their marketing. And in 2022, a new judgment was reaffirmed and issued applying the European principles at the time, confirming his claims and emphasizing that information related to IRPH should be published in the BOE.. The magistrate thus understood that the official publication in question exempts the company from the obligation to provide the client with an information brochure on the operation of the index and from the obligation to provide comparative information on the various official indices and their development.
In two decisions dated Nov. 11, the Supreme Court justices upheld their doctrine and agreed with the court that the information given was accurate and sufficient. However, they point out that “it is not possible to give an unambiguous solution regarding the abuse of the floating rate provisions mentioned in the IRPH, since it depends on the individual investigation in each case, according to the evidence carried out.”
negative differential
One of the most controversial points, which the High Court has not yet decided but which the CJEU has, is whether the mortgage contracts referred to by the IRPH applied negative differentials to increase competitiveness, as set out in a 1994 circular from the Bank of Spain (now no longer in force). The big difference with Euribor is that its calculation is based on the average annual equivalent interest rate (APR) of existing mortgages. Therefore, if this difference does not apply, the new loan will cost more than the market loan, including the costs and fees associated with the APR. In fact, the avalanche of litigation in court over this type of mortgage occurred during the period when Euribor began to fall into negative territory (from February 2016 to April 2022), making mortgages calculated on that basis cheaper. On the other hand, those containing IRPH were maintained, and the price difference between them widened, ranging from 200 to 400 euros per month.
Regarding the Supreme Court, this information is official gazette (BOE) helps consumers calculate their charges and, as European judges have pointed out, is a factor that first-instance judges should take into account when implementing transparency tests. However, if the IRPH mortgage agreement refers to a bank supervisor’s circular, it stipulates that failure to explicitly mention negative differentials is “irrelevant.” It also adds that it does not matter if there is an initial period of fixed interest rate, if the APR applicable to that initial period is indicated, or if there is any other reference to the concept of APR.
As the judgment explains, the CJEU links transparency controls to the fact that consumers have sufficient access to information. “This accessibility can be achieved thanks to the indications given by experts in this regard, but these indications are not the only possible sources of information, or even a priority. Therefore, as long as entities indicate such circumstances to consumers and are presented as accessible, publication of the index at the BOE will satisfy transparency controls.”
Therefore, the Supreme Court reinforced its precedent, emphasizing that the use of IRPH does not reduce the possibility that consumers will compare this loan offer with other offers using other indexes, that is, “so long as the present and past values of such indexes can be communicated or accessed.”
In light of all this, in the guide to be followed in implementing the transparency controls that the Civil Bench of the Supreme Court began to define in its previous judgments on this issue, it recalls that contractual provisions must be understood by a reasonably “astute” average consumer and must explain the specific operation of the method of calculating its interest (IRPH and difference) on “accurate and easy-to-understand criteria, the potentially significant economic impact of remuneration interest clauses on financial obligations”.
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