Law 5/2019, of March 15, regulating real estate credit contracts, in addition to transposing Directive 2014/17/EU, sought to solve the problems of our mortgage legislation revealed by national and European jurisprudence. The rulings of the Supreme Court and the Court of Justice of the European Union, in terms of floor clause, early maturity, default interest or expenses, revealed that the existing regulations were insufficient to seek the protection of the consumer borrower, to the extent that it did not ensure that contracts were fair and transparent.
In the mortgage loan there is a problem of asymmetric information, since the lender has a superior knowledge of the circumstances surrounding the loan and the debtor is affected by a bias of excess confidence that makes him underestimate the possible harmful consequences of the contract. This lack of knowledge and cognitive bias can be used to their advantage by the lender, which justifies the imposition of special duties to provide information.
For this reason, and to guarantee the material transparency of mortgage loans, Law 5/2019, of March 15, regulating real estate credit contracts, imposed a series of obligations to supply pre-contractual information to lenders.
As a fundamental novelty, it established the duty for the natural person guarantor or guarantor borrower to appear twice before a notary: once to sign the loan deed and another prior to execute an act on the occasion of which the notary informs him of the conditions of the offer and checks the lender’s compliance with its duties.
From this perspective, the new Real Estate Credit Law presents a substantial success: attributing to an impartial third party, the notary, the control of the fulfillment of the obligations of the lenders whose information is also complemented with that which the notary can provide. This information supplement is especially useful when it comes to those elements of the contract that normally go unnoticed, such as future costs and consequences of non-compliance.
The experience accumulated in these months of application of the law shows that it is not very difficult to identify the points on which the notary must insist: early expiration and execution costs; the evolution of the interest rate when it is variable; and products combined and linked to the loan, such as insurance, cards and other contracts linked to the granting of the loan. In this regard, it is noteworthy that there are still entities that do not adequately report the voluntary nature of contracting certain insurance policies (life, disability or illness), regardless of whether or not they carry an interest rate discount.
So much for transparency. With regard to justice, remember that the recourse to the sanction of nullity for abusiveness was revealed to be insufficient to protect the debtor, so the new Real Estate Credit Law opted for a broad mandatory regulation regarding the floor clause (prohibiting it) , expenses (imposing almost all of them on the lender), early maturity due to non-payment (setting a minimum number of defaults) and default interest (establishing the result of adding three points to the remuneration as the rate). It also established a mandatory regime in other matters such as linked and combined sales, loans in foreign currency or the right of early repayment.
With the exposed regime, undoubted progress has been achieved in terms of transparency and contractual justice, so it is likely that the state of controversy in which the mortgage loan was found will be overcome.
Certainly, the law cannot absolutely shield the loan contract from any judicial claim, but it opens up the hope of less litigation. The new protocol of articles 14 and 15 ensures material transparency in the vast majority of cases and the mandatory regime provided for the most conflicting clauses notably reduces the inclusion of abusive clauses. But beyond its content, the law must serve to produce a change in behavior: of entities, of consumers and also of notaries.
During the first times of its validity, it is evident that this change has taken place: the borrowers are hungry for information and ask for explanations, the entities offer it and have reduced the complexity of the contracts, and the notaries are vigilant to control the correctness of the procedure and give each borrower the time and attention it deserves.
Let us hope that the passage of time does not produce a relaxation in the application of the law and that imaginative formulas do not appear again, such as amortization systems with abundant shortfalls or final installments, reloadable open credits or new links that cloud what is today a transparent and equitable contract.
John Perez Hereza is a Notary. Notary College of Madrid
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