On 4 March 2020, the Spanish Supreme Court issued a ruling that partially reviews its previous position regarding the usurious interest rates for revolving credit cards. In particular, in judgement 149/2020, the Supreme Court set out which reference has to be taken into account to assess whether an interest rate in a revolving credit card is usurious (the Judgement). The consequence of an interest under a revolving credit being "usurious" is that it will be considered null and void and, consequently, the consumer will only have to repay the principal amount. The consumer will also be entitled to request the lender to pay back any amounts in excess of that sum, including any interest paid.
In a previous judgement rendered in November 2015, the Spanish Supreme Court considered that interest rates for revolving credit cards that are twice the "normal interest rate", which is the standard reference set forth in in the Law of Repression of Usury, are usurious. It has also ruled that the "normal interest rate" must be determined by reference to the statistics published by the Bank of Spain related to consumer loans. However, those statistics were not specific for revolving credit cards and comprised a wide range of consumer products, including personal loans, which have a different risk cost.
In this Judgement, the Supreme Court changes the reference to determine the normal interest of money and goes for a "case-by-case basis" formula to determine what can be considered "significantly above” the market reference and, therefore, usurious. In particular, the Supreme Court has ruled that:
- The Bank of Spain' statistics that have to be considered as the "normal interest" of money are those specific on the revolving credit card segment since revolving credit cards are distinct products that have different characteristics from other credit instruments. In this case, the reference must be the average rate applied to credit operations through revolving credit cards published in the official statistics of the Bank of Spain.
- This new reference sets the average revolving credit rate at around 20%, which applies as a reference to the "normal interest" of money. Therefore, nominal interest rate should be disregarded in favour of the average revolving credit rate, which means the annual percentage rate (APR or TAE in Spanish).
- An APR of 20% or above is regarded as very high by the Supreme Court. Any deviation upwards will make the interest rate as "significantly above" the market reference unless it is minimal. In the case examined in the Judgement, the APR of the revolving credit card was, at least, a 26,82%.
- Although specific circumstances may also be considered (such as the solvency of the borrowers or the unsecured condition of the credit), it is not possible to justify an interest higher than the normal interest of money due to the risk derived from the level of default tied to credit operations via revolving credit cards.
- Finally, the Supreme Court reminds that when consumers subscribe revolving credit card agreements, the interest rate clause can also be controlled through incorporation and transparency tests.
Considering the above, financial entities will have to assess the specific risks arising from the revolving credit card agreements entered into with consumers on a case-by-case basis. It is expected to trigger a substantial number of litigation proceedings with respect to existing revolving credit cards portfolios, with a variety of outcomes depending on the circumstances that are considered to be duly evidence in each dispute. At the same time, this doctrine will need to be taken into account by the sector for setting interest rate applied to new revolving credit cards.