On 3 March 2020 (yes, we are a bit behind in our commenting on the most recent developments, sorry about that! We are making our way through the news of the past few weeks) the CJEU issued a judgment in the case Gómez del Moral Guasch (C-125/18). We have previously commented on the AG Szpunar's opinion in this Spanish case (Unfairness assessment of variable interest rates...), which brought up two main issues: 1) scope of unfairness testing for terms reflecting mandatory provisions; 2) transparency assessment. Just as a reminder the consumer's mortgage loan contract came with a variable interest rate and the claim raised a possible unfairness of a term referring to an index on the basis of which the rate would be calculated.
Ad 1)
The CJEU agreed with AG Szpunar that unless the index has been prescribed by the national legislation to mandatorily apply to consumer mortgage loan contracts irrespective of the parties' choice or in absence of their choice, a term referring to it falls within the scope of application of the UCTD (paras. 32-34). This means this term could be tested for unfairness (para. 36), as Bankia had the chance to define the interest rate in any way, as long as it was 'clear, specific and comprehensible to the borrower and was consistent with the law' (para. 35).
Ad 2)
The CJEU again stresses the need for both formal and material transparency assessment under the UCTD, observance of which should allow an average consumer to understand the specific method used for calculating the variable interest rate and evaluate potentially significant economic consequences of that term on consumer's financial obligations (para. 51). In reference to the material transparency assessment the CJEU instructs national courts to check whether the essential information relating to the calculation of the variable interest rate was easily accessible to anyone intending to take a mortgage loan, e.g. because the method used for calculating that rate has been published (para. 53). National court should further inquire whether consumers were given the data on past fluctuations of the index (para. 54).
The CJEU emphasises the importance of the principle of transparency in an earlier part of the judgment (paras. 44-46). The emphasis is placed on the weak position of consumers in a transaction, the protection of which requires traders to provide clear and intelligible information to consumers in standard contract terms, regardless of whether these terms are core contractual terms.
In the last part of the judgment (paras. 63-66) the CJEU highlights the fact that if a term, indicating an index on the basis of which the variable interest rate is calculated, is unfair and is nullified, when this would have 'particularly unfavourable' consequences for consumers, the national court may choose to replace this term with a reference to a statutory index.
Comment
This judgment is another in a series of judgments elaborating for national courts mainly how to evaluate the compliance with the principle of transparency. The continued references to the possibility of average consumers to understand complex financial contracts, as long as the data provided to them is complete enough, remain somewhat jarring in light of the behavioural evidence showing the widespread lack of financial illiteracy. It seems past time for the legislators and regulators to intervene and set more guidelines on transparent disclosures/further need for consumer advice services in this area.
The CJEU emphasises the importance of the principle of transparency in an earlier part of the judgment (paras. 44-46). The emphasis is placed on the weak position of consumers in a transaction, the protection of which requires traders to provide clear and intelligible information to consumers in standard contract terms, regardless of whether these terms are core contractual terms.
In the last part of the judgment (paras. 63-66) the CJEU highlights the fact that if a term, indicating an index on the basis of which the variable interest rate is calculated, is unfair and is nullified, when this would have 'particularly unfavourable' consequences for consumers, the national court may choose to replace this term with a reference to a statutory index.
Comment
This judgment is another in a series of judgments elaborating for national courts mainly how to evaluate the compliance with the principle of transparency. The continued references to the possibility of average consumers to understand complex financial contracts, as long as the data provided to them is complete enough, remain somewhat jarring in light of the behavioural evidence showing the widespread lack of financial illiteracy. It seems past time for the legislators and regulators to intervene and set more guidelines on transparent disclosures/further need for consumer advice services in this area.
