The Provincial Court of Valencia has issued a new ruling favorable to the interests of our client, affected by a “Multi-currency mortgage”. The ruling obliges the financial institution to convert the mortgage originally referenced in Japanese yen to euros, which implies both the recovery of amounts paid in excess and reducing the future face value of the mortgage.
Multi-currency mortgages are financial products whose main objective is to allow clients to finance the acquisition of real estate, normally a home, with a foreign currency. This exposes clients to volatility in exchange rates (rises in foreign currency interest rates) when financing the purchase of real estate. This volatility has come to mean that customers have ended up paying more than they expected due to changes in the exchange rate.
Next, we make a brief summary of the foundations and jurisprudence that the sentence mentions to sustain the nullity of the clause:
- Application of consumer protection regulations
The Bank argued that in accordance with the CJEU ruling dated July 9, case C-81/19 – case NG, OH vs. SC Banca Transilvania, the clauses of the contract that incorporate the obligation to repay the loan in yen cannot be submit to transparency and abusiveness control, which the court rejects with express reference to the Supreme Court Judgment of February 23, 2021.
- Transparency Control:
To analyze the control of transparency, the Chamber assesses three elements: a) Initiative in contracting; b) Profile of the plaintiff c) Pre-contractual information.
According to the initiative in hiringand citing the Judgment of December 9, 2020 of the same Chamber states that “The fact that the initiative to contract could come from the borrower is not decisive for these purposes. This cannot exclude, by itself, the eventual insufficiency and inadequacy of the information.”
As regards the plaintiff profile. In application of what was deliberated in the Judgment of the Supreme Court of November 24, 2017, it rejects the conclusion that the plaintiff was doing an internship at the time of hiring her to infer knowledge about foreign currency: “It wasn’t even about an employee, it was about a student. He neither affirms nor justifies that said practices took place within the framework of the specific activity of offering and managing Multi-Currency loans.
On Pre-contractual information the Chamber attaches importance to the absence of documentary and the lack of reflection of the future effects of the product: “The defendant entity does not refer in the appeal to a single document accompanied in the procedure from which it can be deduced that information was provided (…) it had not been informed of the operation of the loan and, in particular, that it was not presented with future graphs from which it can be deduced that he could not know the functioning of the capital pending expiration”.
Instead, it detracts from the probative value of the bank employee’s statements: “This Chamber has stated that the mere statement of an employee of the defendant bank cannot be sufficient proof to fulfill the burden of proof of the duty of information that is required in these products. In this sense, we have ruled, for example, in a judgment of December 22, 2020 in line with what has already been held by the Supreme Court, for example, in a judgment of January 12, 2015.”
In short, it ends up declaring abusiveness due to the lack of information provided by the bank “which causes a serious imbalance, contrary to the requirements of good faith, since, by ignoring the serious risks involved in contracting the loan, it cannot compare the offer of the Multicurrency mortgage loan with those of other loans in euros.
This lack of transparency also aggravates its legal situation, since it ignores the risk of under-guaranteeing in the event of depreciation of the euro against the currency in which the loan was denominated”.
To the exchange rate risk of Multi-currency mortgages must be added the risk of illiquidity of the foreign currency positionsince clients adopt a strong position in currencies, in this case Japanese yen, which they cannot manage daily in a liquid way.
In short, these are products that should never have been marketed to consumers, as there is a tremendous information asymmetry, technical means and financial knowledge. Because there is also an obvious conflict of interest between the financial institution and its clients and because it incorporates an additional risk to the interest rate: the exchange rate risk, much more volatile than the interest rate risk.
