In November 2017, the Supreme Court once again ruled on a multi-currency mortgage entered into by borrowers with Barclays Bank, S.A. (now Caixabank, S.A.).
Key aspects of the agreement entered into by the borrowers with the bank include:
(i) the bank did not provide the borrowers with any written information prior to the execution of the contract; it did not provide an information leaflet nor a binding offer, and
(ii) the bank representative responsible for handling the transaction with the borrowers lacked knowledge about multi-currency mortgages.
On these two grounds, the Supreme Court based its decision to declare the nullity of the multi-currency mortgage. However, such nullity was partial, not total, due to the prejudice that full nullity would cause to the borrowers.
Unlike the previous Supreme Court ruling on this matter, dated 30 June 2015, which considered multi-currency mortgages as financial instruments, the judgment of 15 November 2017 established that multi-currency mortgages are not financial instruments regulated under the Securities Market Law, for several reasons:
(i) their purpose is not to make an investment by the consumer, but rather to obtain funds for the purchase of a consumer good, and
(ii) in the multi-currency mortgage contract, no distinction is made between the loan agreement and a forward foreign exchange transaction.
This jurisprudential change means that financial institutions granting such loans are not required to assess the customer or to provide the information foreseen in the Securities Market Law.
However, the non-application of the Securities Market Law to multi-currency mortgage loan contracts does not exempt banks from compliance with transparency controls. This transparency obligation requires banks to inform clients about the product being contracted, explicitly informing them of the financial burden of such a product and providing an assessment of the economic benefit in relation to the financial risks borne by the client (e.g., currency fluctuation forecasts, variations in loan amortisation, possible depreciation of the euro against the foreign currency, possibility of early maturity, etc.), allowing the consumer to carry out a detailed analysis of the contract.
It is necessary not only to inform the consumer in advance of each and every term of the contract, but also that the clauses of the contract are drafted in a clear and comprehensible manner.
Multi-currency mortgages carry particular risks due to interest rate changes and currency fluctuations, involving constant recalculation of the loan capital, which obliges the bank to provide the consumer with more detailed information about this product, since an average consumer, with basic information, cannot foresee the future performance of the product and make a well-informed, deliberate decision on entering into the contract.
It is important to note that the reading of the multi-currency mortgage deed by the notary does not imply that the bank has complied with the transparency requirement in the conclusion of this product.
The Supreme Court declared the partial nullity of the multi-currency mortgage loan contract, justifying its decision on the grounds that full nullity would cause serious prejudice to the borrower, who would be forced to repay in a single payment the outstanding loan balance, whereas partial nullity was possible under the contractual framework of the mortgage loan.