An extract from The Consumer Finance Law Review, 4th Edition
Consumer finance has been one of the business areas most affected in Spain by the economic downturn following the financial crisis. Unemployment increased by over four million, eroding the net wealth of the country and triggering a surge in non-performing loans. The length and severity of the downturn and the discovery of cases of malpractice among financial institutions led to the government's introduction of new legislation to protect the most vulnerable segments of society, and a number of landmark rulings concerning consumer lending.
Spanish financial institutions' balance-sheet problems also contributed to the decrease in credit availability in the system. However, since 2013, this trend has slowly been reversing. Since that time, credit entities have activated growth strategies, particularly in the consumer-lending segment, which has benefited from an increase in household spending on consumer goods. Excluding credit cards, consumer lending is the fastest-growing segment in household lending and, according to Bank of Spain data, it grew in mid-2019 at a rate of 12 per cent. The cumulative growth of consumer lending since 2015 amounts to 61 per cent, the main reason for the increase being the recovery of the Spanish economy.
Still, the positive growth trend of the Spanish economy in recent years may be slowing down as a consequence of the appearance of uncertainties surrounding the global economy. For example, vehicle registrations in November 2018 were 12.5 per cent lower than the same month the previous year, and were just 1.45 per cent higher in November 2019. Additionally, recent figures have shown a surge in the number of non-performing loans in the consumer lending segment, with figures for 2019 estimated to be the highest in the past six years.
With most observers expecting economic growth to be around 2 per cent in 2019, and decreasing just below that figure for 2020, it remains to be seen whether past years' growth can be sustained in the medium term.
Legislative and regulatory frameworki Legislation
Broadly speaking, Spanish consumer finance regulations follow the European rules and are built upon the general consumer law regime.
A number of provisions apply to consumer payment, deposit and lending services. Below is a brief overview of the most significant regulations applicable to the Spanish consumer finance industry, in order of relevance.
Law 16/2011 of 24 June on consumer credit (LCC), which regulates the granting of credit to consumers, transposed Directive 2008/48/EC of 23 April 2008 on credit agreements for consumers into the domestic legal system.
The LCC applies to loans and credit granted to a consumer (defined as a natural person who, in the contractual relationships covered by the LCC, is acting for purposes outside his or her trade, business or profession) by an entity as part of its commercial or business activity. Certain contracts are excluded from the scope of the LCC, namely contracts with a value of less than €200 and credit agreements secured by mortgages, leasing agreements, etc. The LCC deals with various matters related to consumer credit, such as pre-contractual information that must be provided, rights of the consumer, the credit agreement and the calculation of the annual percentage rate. The special consumer protection covered by the LCC focuses on:
- the information and actions required prior to entering the credit agreement – including publicity;
- the information provided to consumers;
- the content, form and events or circumstances under which the agreements become null and void;
- the right of withdrawal; and
- the delimitation of terms, such as the total cost of the credit and the annual percentage rate, specifying the circumstances under which the total cost of the credit may be modified and stipulating the conditions under which the agreement must be amended.
In relation to the agreements expressly linked to credit financing entered into by consumers, failure to provide the credit results in the ineffectiveness of the agreement. This preserves the consumers' rights both against the supplier of the goods and services and against the lender.
Directive 2008/48/EC was modified in 2016 by Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No. 596/2014. Regulation (EU) 2016/1011 primarily establishes a specific obligation of the credit entity to, in a separate document, inform the consumer of the name of the benchmark index, identity of its administrator and potential implications for the consumer. Regulation (EU) 2016/1011 entered into force in June 2016, but started applying as from 1 January 2018. In addition to the above, Directive 2008/48/EC has been amended by Regulation (EU) 2019/1243 of the European Parliament and of the Council of 20 June 2019, adapting a number of legal acts providing for the use of regulatory procedures with particular attention to Articles 290 and 291 of the Treaty on the Functioning of the European Union (TFEU). Such amendment is aimed at empowering the European Commission to adopt certain delegated acts in accordance with Article 290 TFEU.
Law 5/2019 of 15 March on Real Estate Credit (LREC) partially transposes Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property, and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No. 1093/2010, into the Spanish legal system. The main purpose of Directive 2014/17/EU is to harmonise the regulations on consumer protection with regards to the procurement of mortgage loans, as well as to strengthen legal transparency in the granting of real estate financing and decrease the level of litigiousness related to abusive clauses.
Among other things, the LREC:
- hardens the requirements for lenders to accelerate unpaid mortgage loans;
- increases the standards of conduct applicable to creditors;
- defines the amount of information that financial entities have to provide to borrowers and reinforces such entities' transparency obligations;
- establishes an obligation on the banks to evaluate the solvency of potential clients; and
- includes a number of requirements related to the levels of knowledge and competence of borrowers, credit intermediaries or representatives designated to carry out activities regulated in the draft Law.
Law 2/2009 of 31 March on the contracting of mortgage loans and credit with consumers and the brokering of execution of loans and credit, regulates the granting to consumers of real-property-backed loans and the rendering of brokerage services for the granting of consumer loans. Under this regulation, entities (other than credit entities or financial credit establishments) granting real estate loans or rendering brokerage services for the granting of real-property loans to consumers must be registered with the public registry of the region where they maintain their corporate address. Foreign entities must be registered with the national registry maintained by the National Consumers' Institution in accordance with Royal Decree 106/2011 of 28 January.
Legislative Royal Decree 1/2007 of 16 November approves the revised text of the general law for the protection of consumers and users and other supplementary laws (as amended by Law 3/2014 of 27 March), which regulates the general terms and conditions that must apply to the relationship between companies (including credit entities) and consumers (i.e., the rights of consumers, contracts executed with consumers, rights of withdrawal, clauses deemed abusive and the vendor's liability). The Legislative Royal Decree was recently modified by Law 7/2017 of 2 November, which transposes into Spanish law Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No. 2006/2004 and Directive 2009/22/EC. It was also modified by Royal Decree-Law 9/2017 of 26 May, which transposes EU directives on the finance, corporate and health sectors and on the displacement of employees into the Spanish legal system.
Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent financial measures, partially incorporates into the Spanish legal system Directive 2015/2366/EU of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, together with Regulation 2015/751/EU of the European Parliament and of the Council of 29 April 2015 on interchange fees for card payment transactions. The main objectives of this new European framework and of Royal Decree-Law 19/2018 are to facilitate the use of online payment systems while improving their security, to strengthen the level of protection of users against fraud and potential abuses, as well as to promote innovation in payment services through mobile phones and the internet.
Law 7/1998 of 13 April governs contracting with consumers through the adherence to general terms in contracts (the Law on General Terms in Contracts), which regulates standard terms in contracts.
Law 22/2007 of 11 July, on distance marketing of consumer financial services, applies to contracts for financial services entered into by regulated entities (such as credit entities and branches of credit entities in Spain) and consumers, where the services are rendered and the contract has been formalised by distance. It contains a set of rules that govern the provision of pre-contractual information, communications, rights of withdrawal, payment and unsolicited services and communications.
Law 10/2014 of 26 June on organisation, supervision and solvency of credit entities, the related Order EHA/2899/2011 of 28 October on transparency and protection of banking services consumers and the Bank of Spain Circular 5/2012 of 27 June are addressed to credit entities and payment services providers, on transparency of banking services and lending responsibility.
Law 5/2015 of 27 April on promoting corporate financing (Law 5/2015) deals with crowdfunding for the first time in Spain, and lays out the requirements with which platforms providing these services must comply.
All these regulations aim at protecting consumers and impose several obligations on the lenders contracting with them, including exhaustive duties of information and transparency. Furthermore, Law 7/1998 of 13 April, as amended, Law 22/2007 of 11 July and Legislative Royal Decree 1/2007 of 16 November contain provisions whereby abusive clauses or misleading or obscure provisions that are detrimental to consumers should be considered void.
In addition to the aforementioned general regulations, certain regional provisions also apply.ii Regulation
The Bank of Spain is the main body in charge of implementing and enforcing regulation of consumer finance services in Spain.
In addition to executing the guidance and instructions of the Eurosystem's monetary policy in Spain, the Bank of Spain promotes the general economic policy of the Spanish government and the stability of the financial system. To execute these functions, the Bank of Spain also has legislative powers and may issue circulars.
Order ECC/2502/2012 of 16 November regulates, among others, the procedure for filing claims before the Bank of Spain's Complaints Service. In particular, the Order sets out:
- financial services users' right to submit complaints and enquiries;
- the medium and content of such complaints and enquiries;
- other procedural aspects such as the need to file a prior complaint or claim with the credit entity's customer service or, where applicable, with the consumer ombudsman;
- the filing of collective complaints;
- the conditions and procedure for the rejection of complaints; and
- the handling of complaints.
Notwithstanding the above, consumers may raise their complaints and submit suggestions through Spain's regional consumer associations. Once the relevant form has been filed, the Complaints and Suggestions Unit will inform the consumer within the next 20 business days of the actions to be taken. If there is no reply, the consumer may address his or her complaint to the General Services Inspectorate of the Ministry of Health, Consumption and Social Welfare. Because of the structure of regional governments, there are 17 different consumer protection bodies in Spain, one per region. Some municipalities and cities have also created their own bodies.
All clauses considered abusive by a court ruling are filed in Spain's General Terms in Contracts Registry, created by the Law on General Terms in Contracts. Citizens may check this registry to verify whether the clauses included in their contracts are abusive.