Spain: Ten Clauses Considered As Abusing Included In Contracts Of Four Banking Entities Ruled Void

Due to the increase of the number of banking contracts signed in Spain, there has been an important development in the general conditions used in these contracts, specially regarding the protection given to consumers of banking services.

There are two kinds of control over general conditions exercised by the Courts. The first is called Control of Inclusion and refers to the control over the conditions before they are used in a contract, and the second is the Control of Content which refers to the control over the conditions once they are included in a contract. Apart from the possibility for any individual to solicit a decision from a judge regarding whether a clause is abusive, the General Conditions Law also allows collective actions to be exercised by entities such as chambers of Commerce, consumer organizations and professional bodies. These actions are (i) the Action of Cessation, used to obtain a decision that requires the defendant to eliminate the general conditions considered to be void and to abstain from using them in the future; (ii) the Action of Retractation in order to obtain a decision that makes the defendant to retract a recommendation of using the clauses considered void and to abstain from recommending their use in the future; and (iii) the Action of Reconnaissance to obtain a decision that declares the character of "general" for a specific condition in order to make it comply with the provisions of the General Conditions Law.

The Court of First Instance number 44 of Madrid has passed a judgement, in which it declares ten contractual clauses included in banking contracts void. The Decision is not final, because the demanded entities have appealed the judgement. If in the future, the Decision is ratified by the higher courts, the consequences for the consumers will be definitive.

These contractual clauses have been challenged before the Court trough the Action of Cessation by the Consumers and Users Organization (Organización de Consumidores y Usuarios, OCU). If the nullity would be declared by a judge, the claimant can solicit damages from the defendant. If the defendant does not give his consent to the damages, the indemnity can be enforced.

The OCU has sued four of the most important banking entities in Spain (SCH, BBVA, Caja de Madrid and Bankinter) because of seventeen clauses considered as abusive, contained in contracts of current accounts, credit cards, personal loans and mortgage loans.

The content of the Decision favours part of the demand and declares abusive and void ten out of the seventeen clauses, prohibiting their use in the future, ordering the publication of the Decision in an important newspaper and ordering the registration of the Decision in the General Conditions Register. This registration means that no other entity will be able to use these clauses, and that any consumer could object, if his bank wants to apply them.

The object of the demand is to avoid the use of clauses considered as abusive in order to protect the consumer. The only way for the consumers to defend themselves once the contract is signed, is going to court. The client does not usually use this way because the procedure is long and expensive.

Because of the judgement, the entities pursued can not use the following clauses: (i) Clause that does not permit the consumer to know the exact fees that he would have to pay, which are essential to decide on the attractiveness of the offer (ii) Clause that obliges the consumer to go to other courts than the one that would correspond according to the law; (iii) Clause that makes the user pay for all the costs of a trial including the bank’s costs; (iv) Clause that, in case a falisified check is received, transfers the responsibility to the consumer; (v) Clause by which the Bank will not be responsible for the wrong transactions of the cash dispenser when the receipt indicates that the operation has been made but the money is not received; (vi) Clause that entitles the bank to terminate a mortgage loan for any reason; (vii) Clause that deprives the borrower-client from the opportunities that the law gives him in case of a default of payment when the installment is due; (viii) Clause that makes a mortgage loan fall due when the registration of the deed is denied, even though this is caused by the bank; (ix) Clause that allows the bank to transfer the loans of its clients to another entity without notifying the client; (x) Clause that allows the bank to be released from any responsibility for the damages caused because of the failures of a transaction by electronic means.

Regarding the legal reasons given by the Court to declare the nullity of the clauses denounced, we point out the following:

The contractual clauses on administration and maintenance fees, instead of giving directly the rates applicable, refer to the rates of the bank. This remission is forbidden by article 7.4 of the Ministerial Order of 12^th of December of 1989 and by the 6th rule of the Bank of Spain Circular 8/1990 of 7^th of September.

In this sense, not only the Ministerial Order of 12^th of December of 1989, but also the 6th rule of the Bank of Spain Circular 8/1990 of 7^th of September, provide that the contractual documents regarding the active or passive transactions related to time, must include specifically the nominal rate that would be used for the liquidation of interests or the interval of the accrual of interests, the fees and the repercutible costs applicable, with a specific indication of their amount, dates of accrual and liquidation, and any other fact that may be necessary to calculate the total amount of those costs.

This clause is considered as absolutely void because it clearly contradicts article 56 of the Civil Prosecution Law (Ley de Enjuiciamiento Civil). As a result of this clause, the client would have to go to different courts from those that would correspond legally, which would be more difficult for the client and would entail higher costs.

(iii) Clause that makes the client pay for all the costs of a trial including the bank’s costs:

This clause charges the consumer with all the costs arisen from a possible lawsuit. In consequence, it infringes the Civil Prosecution Law which determines in each case, who has to pay the court costs. The Decision considers this clause as abusive because the First Additional Provision of the Defense of Consumers and Users General Law 26/1984 of 19^th of July of 1984 (LGDCU), considers as abusive those clauses imposing renunciations or limits to the consumers rights.

Article 10.3 of the LGDCU provides that the contractual clauses must be made in good faith and must balance the rights and duties of the contracting parties.

This clause has been declared void since, according to the 21^st section of the First Additional Provision of the LGDCU, a clause by which the economical consequences of a bank’s administrative or managing mistakes are transferred to the consumer, is abusive.

As we mentioned above, the clauses that charges the administrative mistakes of the bank to the consumers are considered as abusive by the law. They also breach the European Recommendations regarding the payment means. The correct way to proceed in these cases would be for the bank to assume the consequences of these mistakes, except in case of fault or bad faith of the client.

(vi) Clause in which the bank reserves the right to terminate a mortgage loan for any reason:

The Decision declares this clause void because of its general wording and because it does not state an obligation that has been infringed. It also goes against the principle of reciprocity because it permits the bank to solve the contract unilaterally without extending the same right to the client.

Moreover, the possibility to solve the obligations pursuant to article 1124 of the Civil Code (in reciprocal obligations the parties have an implicit capacity of solving the contract if the other party does not comply with his obligations), has been interpretated by case law upon breach of a "special obligation", and not just of any obligation.

The Decision considers that the anticipated fall due of the loan for the failure to pay one single installment, is a disproportionate measure because it does not give the client the opportunity to make the payment with an increased delay interest, and because it does not take into account the amount of the installment due by the borrower.

This clause would only be justified if there was a pact stating that the borrower is the only person responsible for the registration of the mortgage deed. There is no reciprocity in the duties of each party, as required by section 17^th of the First Additional Regulation of the LGDCU, because the client is in charge of one of the duties.

This notification is a right of the borrower reckoned by article 1526 of the Civil Code.

(x) Clause that allows the bank to release itself from any responsibility for the damages caused because of the failure of a transaction by electronic means:

This clause is void because it transfers the responsibility of the bank for the failures produced in its services and administrative organization to its client. This violates the principle of responsibility for damage caused in which the client had no part, which implies that his rights are limited infringing the 14^th clause of the First Additional Regulation of the LGDCU.

Cuatrecasas. Banking Law and Financial Institutions Practice Group. Madrid.