The Court Of Justice Of The European Union (CJUE) Could Annul 1 Million Mortgages Indexed To The Irph Index

The Court of Justice of the European Union (CJEU) could annul approximately one million mortgages referenced to the IRPH index, which would imply the return of 25,000 million euros. This week is the last chance for more than one million Spanish households seeking to recover the money overcharged by banks for using the IRPH index as a reference in their mortgages.

The European Commission (EC) has filed a written pleading with the CJEU, asking it to reassess whether Spanish banks marketed the index in an abusive manner. The court must determine whether the financial institutions engaged in unfair practices by selling mortgages referenced to the IRPH without applying a negative spread, thus contradicting the stipulations of Bank of Spain Circular 5/1994.

According to this circular, in order to equalise the IRPH with other market indices, the application of a negative spread would be required, which would vary according to the fees and frequency of payments. In general, this indicator is more burdensome for customers than other widely used indices, such as the Euribor.

A magistrate in Palma de Mallorca has presented this new preliminary ruling, the fourth related to this controversial mortgage indicator. She argues that the banks marketed the IRPH in breach of Directive 93/2013 on unfair terms and Directive 2005/29 on unfair competition.

The specific case brought before the European authorities involves a married couple from the Balearic capital who took out a 200,000 euro mortgage loan in 2007, based on the IRPH index, and who would have to repay around 40,000 euros.

It is expected that, after three rulings in different directions, the European courts will rule in favour of consumers due to new regulations. According to it, the Bank of Spain required the IRPH to be sold with a negative spread, which has not been complied with by the Spanish banks, in clear breach of two European directives.

In the event that the CJEU rules in favour of this thesis, the Courts of First Instance could immediately apply the ruling, as these decisions must be complied with from the moment they are published, without the need to wait for the Supreme Court to modify its criteria. In January 2022, the Supreme Court followed the CJEU doctrine and determined that the IRPH was not an abusive index.

According to calculations, a favourable ruling for customers would mean the return of 25 billion euros, double the amount that banks have to repay for floor clauses. However, other sources, such as Barclays, estimate this amount at 3.6 billion euros, while Goldman Sachs puts it at 44 billion euros.

The IRPH is an official index recognised by the Bank of Spain. It is calculated by taking the average of the interest rates at which banks grant mortgages. It is the second most widely used index for home purchase loans, after Euribor, which is used for loans between banks.

In 2013, when the Euribor began to fall to values close to zero, the IRPH remained stable at 2%. This resulted in an increase in the monthly instalments of the mortgages affected, between 200 and 300 euros, according to organisations that defend the interests of those affected, such as Asufin or IRPH Stop Gipuzkoa.

Several associations argue that there was a lack of information in its marketing and consider that the IRPH is misleading for users. They argue that it is difficult to understand its advantages and disadvantages due to its complexity. They claim that it was marketed fraudulently, presenting it as a beneficial clause for the consumer and promising greater protection, which has turned out to be false. According to Asufin, more than one million individuals or families are affected, which represents approximately 20% of the mortgages taken out in the country.

For its part, the banks maintain that the IRPH is an official index drawn up by the Bank of Spain and that the entities do not intervene in its configuration. Furthermore, they stress that it has not been questioned in its 25 years of existence and that this conflict cannot be compared to that of the floor clauses, as it is not a contractual clause and, therefore, cannot be subject to control of transparency or abusiveness, as it was established in accordance with legal provisions.