Introduction
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.
Questions
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.
Conclusion
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.
