On the 20th of March, AG Wahl published his opinion on the Bankia case. The case revolves around the application of Directive 2005/29/EC (The Unfair Commercial Practices Directive) to mortgage enforcement proceedings in Spain. The case is added to the growing case law of the application of consumer law to contracts and illuminates the aim and field of application of the UCPD according to the AG.
Facts of the case
The debtors, Juan Carlos Marí Merino, Juan Pérez Gavilán, María de la Concepción Marí Merino took out a loan, secured by a mortgage in 2006 with the following terms: 166.000 € capital, 25 years repayment and the value of the mortgage was set at 195.900€. In 2009, the loan capital was increased and the repayment term extended. Finally, in 2013, as the debtors were falling behind with payments for more than a year and their outstanding debt had reached 102.750 € there was a final modification of the loan terms. The repayment period was extended to 40 years and the mortgage asset was re-evaluated at 56.689 €, a value far lower than the 2006 one, due to the housing market crisis in Spain.
As the debtors continued to default on payments, the bank initiated mortgage enforcement proceedings in 2015. The bank requested an order for payment and if the debtors were unable to pay the mortgaged asset would be auctioned with a starting price of 57.684,90 €. The starting price for the auction was calculated according to the 2013 re-evaluation and the lower price meant it was unlikely the proceeds from the auction would suffice to cover the amount owed.
The debtors objected to the enforcement proceedings on two grounds. Firstly, arguing for the existence of unfair terms in their contract, as the aim of the modification of the loan terms was to get them to agree to a decreased evaluation of their property. Secondly, that according to the Spanish Code of Good Banking Practice they could be discharged of their debt due to their financial situation. Finally, they also asked for the enforcement proceedings to be stayed.
The following questions were referred to the Court:
( 1) Must Directive 2005/29 be interpreted as meaning that national legislation such as that currently regulating Spanish mortgage enforcement — Article 695 et seq. in conjunction with Article 552(1) of the [Law of Civil Procedure] — which does not provide for the review by the courts, of their own motion or at the request of one of the parties, of unfair commercial practices, is contrary to Article 11 of that directive because that national legislation hinders or prevents review by the courts of contracts or acts which may contain unfair commercial practices?
( 2) Must Directive 2005/29 be interpreted as meaning that national legislation such as the Spanish law which does not ensure actual compliance with the code of conduct if the party seeking enforcement of a debt decides not to apply that code (Articles 5 and 6 of Royal Decree-Law No 6 of 9 March 2012, read in conjunction with Article 15 thereof) is contrary to Article 11 of that directive?
( 3) Must Article 11 of Directive 2005/29 be interpreted as precluding Spanish national legislation which does not allow a consumer, during mortgage enforcement proceedings, to request compliance with a code of conduct, in particular as regards the giving of a property in payment and extinguishment of the debt — Point 3 of the Annex to Royal Decree-Law No 6 of 9 March 2012, Code of Good [Banking] Practice?’
The novelty of the case revolves around whether the UCPD can be applied to halt mortgage enforcement proceedings, in a similar way as the Unfair Contract Terms directive has been applied in the past. The the significance of the Opinion is on the enforcement of the UCPD as per art. 11 UCPD and whether it grants remedies to individual consumers.
Answer to question 1
AG Wahl provides a lengthy answer to the first question. He recognises the main tension of EU consumer law between a high level of consumer protection and encouraging cross-border trade as well as the broad scope of the UCPD (para 35, 38) According to art.11 (1) UCPD, Member States must ensure that ‘adequate and effective means’ exist for the enforcement of the Directive. Is effectiveness of enforcement achieved when unfair commercial practices cannot be reviewed in the context of mortgage enforcement proceedings? The Opinion points out that the UCPD does not provide a right to a contractual remedy for consumers against unfair commercial practices, instead focus is on providing penalties for traders. The Spanish law provides for declaratory proceedings to establish the existence of unfair commercial practices. The next step is to establish whether to satisfy the effectiveness test, declaratory procedure is not enough, and there is also the need to allow for mortgage enforcement proceedings to be stayed.
In the well-known Aziz case it was held that precluding the review of an unfair contract term in mortgage enforcement proceedings was contrary to EU law. The referring court and the Commission wish to draw a parallel between Aziz and Bankia arguing that the same reasoning should be followed and precluding consideration of unfair commercial practices in mortgage enforcement proceedings should be found contrary to EU law.(para 30) Yet, the AG is of another opinion, differentiating between Directive 93/13 (The Unfair Contract Terms Directive) and the UCPD. According to the Opinion, Directive 93/13 does offer a remedy to individual consumers, while Directive 2005/29 only provides for penalties for the trader and therefore cannot prevent the enforcement of the mortgage. Therefore, the lack of suspensory effect of the declaratory proceedings does not influence the effectiveness of the enforcement of the UCPD. (para 61) The AG allows for one exception, in the case where the unfairness of a commercial practice may play a role in assessing the unfairness of a contract term. However, as was found in Pereničová and Perenic, the unfair practice is only a factor for assessing the unfairness of a term. (para 64)
Consequently, the answer to the first question was that national legislation which does not provide for the review of unfair commercial practices during mortgage enforcement proceedings is not contrary to the UCPD.
Answer to questions 2 and 3
The second and third questions focus on codes of conduct and whether a code of conduct can be enforced using the UCPD. According to the AG Opinion, codes of conduct offer an additional means of control to that of the UCPD, and non-compliance with a code of conduct does not automatically amount to an unfair practice. (paras 74-75) In any case, same as for question 1, the AG found that any consequences from the breach of the code of conduct would be for the trader as the UCPD does not offer any individual contractual remedy for the consumer (para77).
Therefore, the answer to the second and third question was the national legislation which does not provide consumers with an individual contractual remedy in the case of breach of code of conduct, is not contrary to the UCPD.
The AG opinion may at first fight appear as one that reduces the level of protection for consumers; as consumers who are at risk of losing their homes as a result of mortgage enforcement proceedings cannot rely on the UCPD in the same way they can rely on the Unfair Contract Terms Directive. Yet the AG opinion accurately reflects the current state of the UCPD and as highlighted by the AG the main issue of the debtors was the re-evaluation of the property rather than the existence of an unfair practice (para 59). This does not mean that it would not be appropriate for consumers to have individual remedies against unfair practices, but rather that this is not the case at the moment. This issue has been highlighted in the Consumer and Marketing Law Fitness Check where one of the suggestions has been to amend the UCPD in order to provide contractual remedies for consumers. It remains to be seen whether the ECJ will follow the AG Opinion or whether they will decide that the UCPD should be considered in the context of mortgage enforcement proceedings, or whether a legislative intervention is the only way to resolve this problem.