Spain’s highest court has put an end to years of disputes over the IRPH mortgage benchmark, declining to declare its use universally illegal. Instead of a blanket decision that could have canceled thousands of mortgage contracts, the court shifted the responsibility to the lower courts. Now, the fate of each borrower will be determined individually, paving the way for lengthy and expensive legal battles.
The court ruled that there is no universal answer regarding the legality of IRPH. The decision on whether the cláusula (clause) in the contract was unfair will depend on the specific circumstances of each case and the evidence presented by the parties. In practice, this means the burden of proving a lack of transparency in the terms now falls on the consumer.
Nevertheless, to guide the work of the courts, certain criteria have been outlined. The key aspect will be assessing ‘transparency’—in other words, how fully and clearly the bank informed the client when finalizing the deal. Judges will have to determine whether an average consumer, without specialized financial knowledge, could understand the complex mechanism of calculating the IRPH rate with the differential, and evaluate all the potential economic risks involved in such a contract.
Several criteria will be used for the analysis. First, it is necessary to determine whether a specific loan agreement was subject to special consumer protection regulations and lending conditions. This is especially relevant for loans issued before December 9, 2007 for amounts over 150,000 euros, which were not covered by the 1994 order.
Second, the court noted that publishing the interest rate information in the Official State Gazette (BOE) generally ensures borrower awareness. However, simply referencing the Bank of Spain’s 1990 circular, which was not published in the BOE, is insufficient to consider the conditions transparent. The court will also check whether the bank provided the required informational leaflet to the client and how the negative differential, established by the 1994 circular, was presented. Nonetheless, the court clarified that the absence of mention of this differential may be considered insignificant if the client was informed of the annual percentage rate (TAE) or given other relevant information. Ultimately, the high court upheld the validity of the index itself, stating that its use does not prevent consumers from comparing different credit offers on the market.
