AG Opinion in Bankia: UCPD is not applicable in mortgage enforcement proceedings

Introduction

On the 20^th 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.

Delay to consumer insurance upgrades

On 9 March 2018 the Council has adopted a directive postponing the application date of new rules on consumer insurance products to 1 October 2018, with the deadline for transposition moved to 1 July 2018 (Council delays application of new rules). The new rules are adopted through the Directive 2016/97 on insurance distribution, which originally was supposed to be applicable as of March this year (see our previous post on this directive).

New Report on the Rapid Alert System

On 12^th March, the 2017 Report on the Rapid alert system for dangerous food products was published. The first structure for exchange of information between Member States on dangerous products was set up in 2003, and became fully operational in 2004. Its legislative basis is art.10 of the General Product Directive.

The role of the Rapid alert system is to enhance cooperation between national authorities and assist Member States in fulfilling their obligation to ensure that only safe products are placed in the market.

The latest report illuminates the latest trends in product safety. The most notified type of product has been toys with 29%, closely followed by motor vehicles at 20%. The most notified risks are injuries with 28% and chemical with 22%, while injuries are also the category with the most follow-up actions.

The Member States are required to take follow-up action following the alerts, which is set out in the website. Follow-up in this instance refers to feedback received from the countries as to how they treated the alert, with the most common follow-up action being that of finding the product. There is no formal coordination mechanism in the case where national authorities assess a threat differently. Instead the Commission is meant to act as a mediator. Divergent approaches in product safety, such as a product being identified as dangerous in a Member State but not in another, may be better addressed by a formalised system to resolve such disputes. 

Transparency is a key element to the Rapid alert system as the alerts and the subsequent measures taken by the national authorities are set out in the website. This allows consumers to follow developments and be able to find out whether an unsafe product has been found in their country. The Report points out the different parts of the alert website that are designed to be used also by consumers, such as a layman explanation of the alert system as well as the possibility to subscribe to alerts and even personalise them. Yet, what remains unclear is to what extent consumers are aware of and interested in making use of the Rapid alert website, as the Report does not specify that. It would be interesting to see which groups of consumers are more likely to make use of the website and the services offered. Since toys are the most notified products, perhaps parents of young children are more likely to make use of the alerts.

The Report also notes the most important challenges in the field of product safety for the past year. It notes how the Rapid alert system has allowed the exchange of information on fidget spinners which presented a choking hazard to children, so that dangerous products would be removed from the market or stopped at the borders.

Yet the greatest challenge is that presented by the growing popularity of online shopping. The Member States need to devote a large amount of resources in order to monitor online markets. Yet the actions adopted on an EU level are limited to soft law interventions, such as informational campaigns and cooperation with online retailers for them to take voluntary commitments. As the popularity of online shopping is growing and EU consumers are getting further exposed to products from all over the world which may not adhere to EU standards, it may be time to consider new interventions in the field, as well as further strengthening international cooperation.

Arbitration and effective consumer protection: a field of tension

The judgment of the EU Court of Justice (Grand Chamber) of 6 March 2018 in Slovak Republic v Achmea (C-284/16), a case concerning investor-state arbitration under a bilateral investment treaty (BIT), has raised a dust. The CJEU found that arbitration clauses common to almost 200 BITs between EU Member State violate EU law. The judgment is likely to have far-reaching consequences for intra-EU investment arbitration; it has even been called a "death sentence" for autonomous arbitral tribunals.

For consumer lawyers, the CJEU's findings as regards the relation between arbitral tribunals and State courts will be of special interest. A recurring issue in the context of unfair terms control is whether and to what extent judicial review of arbitral awards - in particular the arbitration clause on which they are based - is still required. Mostaza Claro and Asturcom are two well-known cases in this respect. They both pertain to the scope of the national court's power / obligation to assess of its own motion (i.e. ex officio) the unfairness of the arbitration clause, either in annulment proceedings or at the enforcement stage. Judicial review and ex officio control play a key role in the effective protection of consumers under Directive 93/13.

Source: 24x7newscast.com

In the Netherlands, the discussion about arbitration in consumer cases has recently resurfaced. The modus operandi of e-Court, an online platform offering digital dispute resolution, appeared to be contrary to EU (consumer) law.[*] First, the independence of e-Court was questionable: its main clients were health insurance companies who brought claims against consumer-debtors on a large scale. Secondly, consumers were not given a realistic choice between arbitration or litigation before a State court. Thirdly, the procedure was so short that consumers hardly had any time to defend themselves. Fourthly, undefended claims were automatically awarded by an algorithm (a 'robo-judge'). This 'robo-judge' did not seem to exercise unfair terms control. Fifthly, judicial review of e-Court's awards turned out to be limited, which could be problematic in light of the case law of the CJEU.

The example of e-Court shows tension between the 'efficiency' of alternative (out-of-court) dispute settlement and the effective (judicial) protection of consumers. In Achmea, the CJEU emphasised the importance of State courts in ensuring the full application of EU law and the judicial protection of the EU rights (and freedoms) of individuals. Insofar as an arbitral tribunal may be called on to interpret or to apply EU law, while it is not a court or tribunal of a Member State and thus not part of the judicial system, its awards must be subject to judicial review in order to ensure that questions of EU law which the tribunal may have to address can be submitted to the CJEU for a preliminary ruling. The CJEU also recalled that requirements of efficient arbitration proceedings may justify the judicial review of arbitral awards being limited in scope, provided that the fundamental provisions of EU law can be examined in the course of that review. The right to an effective remedy before a court of law (Article 47 of the EU Charter of Fundamental Rights), which includes the right of access to court, is such a provision.

Achmea may not be a "death sentence" for commercial arbitration in general, but as far as the application of EU law is concerned State courts - and, through preliminary references, the CJEU - have the final say. This could have implications for the assessment of arbitration clauses in consumer contracts as well.


[*] For our Dutch readers, click here for more background information. A debate about the 'robo-judge' of e-Court is organised at the University of Amsterdam on 22 March 2018 (programme in Dutch). 

Reminder: 'Consumer Law in the Data Economy' conference

A quick reminder: if you are thinking of attending the conference 'Consumer Law in the Data Economy' on 13 April in Amsterdam, there are only a few places left, so please do register through this website.

Facebook and Twitter continue to defy EU consumer protection rules

With the increasing popularity of often American-based social media companies in Europe, consumer organisations and consumer authorities started paying more attention to their compliance with European consumer protection rules. BEUC, motivated by complaints and reports from national consumer organisations, conducted a study in 2014 on the compliance of Google, Facebook, Twitter, Dropbox (see the article by M. Loos and J. Luzak, Wanted a bigger stick...), which showed that many of the then-used standard terms and conditions could be questioned as to their fairness. In March 2017 a dialogue took place between social media companies and European legislator, in which the Commission asked for certain changes to be introduced to terms and conditions of these companies, to make them more compliant with EU law (see our previous post on Commission provides a bigger stick...).

Whilst certain T&Cs have been adjusted, eg. consumers are no longer asked to waive their mandatory EU consumer rights (which waiver would not have been valid anyways, but could mislead consumers into thinking that they had lost these rights, like the right of withdrawal) or they can file a claim with a court of their domicile rather than in California (again, term that would not be upheld), the changes are still deemed insufficient (Social media companies need to do more to fully comply with EU consumer rules). The European Commission specifically identifies only partial compliance by Facebook and Twitter with the need to properly inform consumers about content removal or contract termination, and how they regulate their liability. For the full table with compliance assessment see here.

This enforcement action has already lasted a long time, considering that online T&Cs can be changed with a click of a few keys, don't need to be reprinted, etc. There is, therefore, no excuse for social media companies as to the need to prepare these changes administratively. The Commission has been patient, but, perhaps, it is time to stop being lenient and providing these companies with additional opportunities for remedial action and instead to start issuing some incentivizing penalties, instead.

International conference: The Responsible Consumer in the Digital Age - International and Nordic Perspectives on Consumer Financial Protection

The conference is an exciting opportunity for everyone interested in consumer financial protection. It aims to provide a forum where leading academics and practitioners, researchers, and enforcement officials from multiple jurisdictions join to present and discuss the most recent trends and challenges related to consumer financial protection in the digital age, as they stem from the latest normative developments and court cases. Discussions take place within the following panels:

• consumer financial protection in digital space


• consumer debtor protection- debt relief mechanisms and abusive debt collection practices


• consumer financial protection in the mortgage sector


• consumer financial protection enforcement


• consumer protection on financial markets


• consumer financial protection and liability issues: trends, challenges, solutions.
  

  
  

  
  

For more information click here. The conference will take place at the Faculty of Law, University of Copenhagen on Thursday 31 May - Friday 1 June 2018.

Paper proposals should be submitted with a suggested title, author’s name and affiliation, an abstract not exceeding 500 words and the intended panel by email to Dr. Catalin Gabriel Stanescu (catalin-gabriel.stanescu@jur.ku.dk) by 25 February 2018.