On this weblog we’ve got insisted on quite a few events (right here, right here, right here, right here, right here) in regards to the significance for the steadiness of the monetary system that loans are granted responsibly, after an sufficient evaluation of the debtor’s solvency . Failure to take action had loads to do with the 2008 monetary disaster, the implications of that are nonetheless current: simply take a look at the ratio of private and non-private debt, which remains to be excessive.

What occurs in the present day if the lender grants the mortgage to an individual with out appropriately evaluating the creditworthiness or, in doing so, it does so with a unfavorable creditworthiness check? Does the over-indebted shopper have any protection when he’s sued by the lender demanding compliance with the contract?

It’s clear that each events have acted negligently, however the lender has authorized duties for a accountable mortgage as a result of if it’s a financial institution, it lends cash from the depositors and, if it does so incorrectly, it could possibly trigger a solvency disaster for the entity … and that we’ve got already skilled not way back.

Within the European Fee they had been conscious of the significance of this matter and thus, each within the Consumer Credit Directive (artwork. 8) as in that of real estate credit (artwork. 18) a regulation was integrated on the evaluation of solvency by lenders. As is customary in lots of European directives, the regulation was broad, indefinite and leaving a variety of room for maneuver for the Member States, however the goal was clear: to keep away from the debtor’s over-indebtedness. There isn’t any discuss of evaluating the credit score danger, which solely addresses the opportunity of compensation of the debtor, however of evaluating the solvency that It additionally attends to investigate the diploma of effort that the debtor can suppose to pay the mortgage below the anticipated circumstances. Thus, there isn’t any right evaluation of solvency when the debtor will pay the mortgage, however for this they cease assembly primary wants. The target just isn’t solely to forestall default, but additionally over-indebtedness.

Till the disaster of 2008 emerges, failure to adjust to the duty to evaluate solvency is topic to administrative sanctions imposed by the supervisor. There was no impact on the contract with the borrower. The debtor who grew to become bancrupt on account of this over-indebtedness was nonetheless certain to satisfy the contract. The dissuasion to irresponsible lending was minimal and therefore this regulatory mannequin was not able to stopping the monetary disaster.

European regulation each concerning shopper credit score and for real estate credit it didn’t impose sanctions on irresponsible lending, leaving Member States free to ascertain them. In fact, in each circumstances demanded that sanctions be proportionate, efficient and dissuasive.

In lots of international locations, the mannequin modified and civil results had been established for non-compliance with the duty to evaluate solvency, with the civil decide with the ability to order the lack of remunerative curiosity and arrears (Belgium[1] and France, for instance). This technique was supposed to be applied right here when the Regulation on Actual Property Credit score Contracts was debated, however the vote for an modification on this regard (No. 186) within the Congress of Deputies was misplaced -surprisingly and suspiciously- for a single vote, as I defined right here in one of many feedback of the put up. The result’s that, to this present day, issues are as they had been earlier than the 2008 disaster. If the lender doesn’t consider the solvency or, by doing so, grants the mortgage with a unfavorable check and the debtor turns into bancrupt resulting from that irresponsible mortgage, the sanction in Spain it’s the fantastic imposed by the banking supervisor. It’s sufficient that it doesn’t impose it, because it has occurred prior to now, in order that there isn’t any sanction in any respect and therein lies the failure of the system.

Does the Spanish regulation adjust to the necessities of the aforementioned European directives that regulate the duty to evaluate solvency and require dissuasive sanctions? Are administrative penalties actually dissuasive?

Properly, the CJEU has simply dominated on this matter within the judgment of June 10, 2021 (Case C-3030/20)[2].

The dispute arises on the event of the fee of a shopper credit score of a pure individual (KM), of Polish nationality. The quantity to be reimbursed was 1862 euros. When the contract was concluded, the debtor had money owed derived from 23 credit score and mortgage contracts, which amounted to roughly 56,500 euros, the whole quantity of the month-to-month funds ensuing from such money owed being roughly 1,770 euros, and her partner had additionally contracted the money owed derived from 24 credit score and mortgage agreements. The money owed ensuing from all these contracts amounted to roughly € 98,840 and the corresponding month-to-month installments amounted to roughly € 2,153. On the identical date, KM was employed below an employment contract and obtained a wage of roughly 500 euros. His partner, who didn’t work for well being causes, didn’t obtain any revenue.

As could be seen, the debtor was a “e book” bancrupt. It’s confirmed that the lender didn’t assess the solvency or take into consideration their monetary state of affairs, since within the interview held “no query was raised about stated state of affairs or in regards to the quantity of revenue of the affected household.” I imply, they do not even ask you about your revenue …

The debtor is sued by the creditor (who was a credit score assignee) and when the decide asks the creditor for details about the solvency analysis operations, he doesn’t obtain any response. Confronted with this example, the decide raised a preliminary ruling earlier than the CJEU on the compatibility of Polish regulation with the Client Credit score Directive (DCC) because it solely expressly offered for the imposition of a fantastic that prescribed after one yr. The decide wonders if such a sanction is efficient, proportionate and dissuasive, as required by European rules.

What does the CJEU say?

  • Whereas it’s true {that a} fantastic might represent a dissuasive sanction, its small quantity might make such a sanction inadequate.
  • For a sanction to be efficient and dissuasive, offenders should be disadvantaged of the financial advantages derived from the offenses they dedicated.
  • In an effort to decide whether or not a nationwide regulation sufficiently applies the obligations derived from a particular directive, not solely the rules particularly adopted for the transposition of stated directive should be taken into consideration, but additionally the set of obtainable and relevant authorized rules.
  • The courts should even have an influence of appreciation that enables them to decide on, relying on the circumstances of the particular case, the measure proportionate to the seriousness of the breach of the established obligation.

Within the case prosecuted, the CJEU takes into consideration that in Polish regulation there are additionally civil regulation sanctions that may profit the patron: lack of curiosity and splitting of the efficiency of the contract into tranches that don’t generate curiosity. Specifically, for the CJEU that there are sanctions below non-public regulation is related for the dissuasive nature of the sanctioning regime. Because of this, it doesn’t take into account that Polish regulation is opposite to European rules.

What if this case had occurred in Spain?

The difficulty is of curiosity to Spanish regulation by which the penalty for irresponsible mortgage can be a distinct fantastic relying on whether or not it’s real estate credit (artwork. 46 LCCCI) o Consumer credit (artwork. 34 LCC) and whether or not or not it’s credit institution (art. 98 LOSSEC) If the case that has been introduced earlier than the CJEU had occurred in Spain if we apply the sanctions offered in TRLCU (art. 51), the penalty can be severe and the fantastic of three,0005.07-15,025.30 euros. If the breach of the duty to evaluate solvency had been occasional or remoted, it might be a minor offense and the penalty might quantity to three,005 euros.

These sanctions are imposed by the banking supervisor and, the place applicable, the competent authority on shopper issues. Theoretically, the patron ought to report a apply and the implications of such a report don’t have an effect on their contract, which they need to proceed to adjust to. What curiosity will the patron have in such a report? The supervisor will hardly discover such a state of affairs, particularly whether it is remoted. The outcome shall be clear: impunity. Issues can be very completely different if such a sanction was imposed by itself initiative or after a easy criticism from the patron to a particular supervisor who would defend the monetary shopper as I defined right here. That method every thing can be simpler. Though a strong administrative sanction may very well be dissuasive, in apply in Spain it’s not because the supervisory regime is organized.

The large actuality is that In Spain, a civil decide can’t do something when he encounters an irresponsible lender who claims his proper to credit score from an over-indebted shopper, past decreeing the seizure of the debtor’s belongings.. There aren’t any particular sanctions below non-public regulation. Nor do I point out the opportunity of suing the lender for damages: it’s an method, for my part, inefficient once we are defending an bancrupt shopper who just isn’t going to get into that backyard of suing a monetary establishment. A special factor is that we had a public authority that may train the motion for the patron, which occurs in superior international locations as I defined right here.

Because of this, I imagine that this civil decide in Spain can and can be fascinating to take action, elevate a preliminary ruling earlier than the CJEU and denounce the dearth of compatibility between Spanish and European regulation in issues of solvency evaluation. I imagine that there’s a authorized foundation for this and the sentence that I remark factors in that route. And it’s that – additionally in Spain – it’s the lenders who should undergo the implications of the irresponsible mortgage, as ordered by European rules.

[1] Within the case of actual property credit score, the decide can sanction the lender to compensate the borrower for damages of as much as 40% of the whole quantity of curiosity on the mortgage, if the whole quantity of the mortgage is the same as or lower than 20,000 euros. Whether it is larger, stated most restrict is lowered to 30%.

[2] Ultimo Portfolio Funding (luxembourg) SA y KM.

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