Courts clash over late mortgage repayments

By Mariano Zunino

THE lack of legal criteria, establishing when the clauses on late-payment interest in mortgage loans are abusive, has led the Spanish First and High Courts to apply different decisions.

Consequently, it has led to legal uncertainty, and an arbitrary difference of treatment for consumers.

To end this disparity, and also end the differences in determining the consequences of the abusive nature of the clauses, the Supreme Court referred the question to the European Court.

It ruled by judgement of 7th August 2018, and many High Courts, among them, Tenerife’s High Court,) decided to suspend their final decisions until its pronouncement. Now, the situation has ended.

Determining the abusive clause of delayed interest

In the cases raised, the abusive nature of the following clauses, relating to interest on late loan-contracts. were questioned:

*Variable, annual interest rate of 4.75%, and default interest of 25% per annum

*Ordinary interests between 8.50% and 11.20% and interests on delayed payment between 18.50% and 23.70%.

The Supreme Court ruled that, under article 85 of the Consumers and Users Defence Law, the clauses imposing a disproportionately-high compensation to the consumer, which does not comply with their obligations, are abusive.

Also, the non-negotiated clauses of the loan agreements, relating to interest for delayed payment, should be declared abusive when such clauses fix an interest of delay, higher than two points on the ordinary interest agreed between the parties to the contract.

Consequences of the abusive nature of the clauses

The Supreme Court considered that, once the abusive nature of the delayed-payment interest clause is declared, the ordinary interest will continue to be applied, which fulfils its function of repaying the refunds. And the European court supports this position.

So, once the clause that includes the delayed-interest payment rate is declared abusive, those interests are not applicable. That means, in many cases, a substantial sum does not have to be paid.

The European Court has also decided this matter. Two consumers signed two loan agreements with Banco Santander, with different interest rates, both ordinary and those of delay.

The contract did not contemplate the possibility of ceding the credit, but Banco Santander transferred this credit to a third party (during the foreclosing proceeding).

The claimants object the cession, and The Court 38 of Barcelona sat in the case and sent it to the ECJ.

The ECJ stated that giving up or buying credits without the consumer being able to wipe out the debt by paying the assignee the price of the assignment, plus interest, costs and expenses, is not against European law. This means it is valid because this type of practice is not included within the European Directive.

Mariano Zunino Siri is a lawyer, registered at the Tenerife Bar Association since 1991. Web: Email:



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Posted by on Sep 7 2018. Filed under Business & Finance. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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