The assessment of ‘floor’ clauses in loan agreements

On 4 July 2024, in the case of Caixabank SA and others v Asociación de Usuarios de Bancos, Cajas de Ahorros y Seguros de España (Adicae) and others (C-450/22), the European Court of Justice (ECJ) issued a ruling regarding the legality of so-called ‘floor’ clauses in loan agreements, and whether consumers concerned should be entitled to reimbursement of the sums paid on the basis of such clauses.

Facts of the case‍

On 15 November 2010, the Spanish Association of Users of Banks, Savings Banks and Insurance (ADICAE) brought a collective action against 44 credit institutions, seeking, firstly, an injunction against those credit institutions directed at a so-called ‘floor’ clause in the general conditions of loan agreements used by those credit institutions, and secondly, the reimbursement of the sums paid on the basis of that clause by the consumers concerned. The so-called floor clauses provided for a minimum interest rate below which the variable interest rate could not fall, even if the EURIBOR (or similar reference rate) fell below the interest rate stipulated in the floor clause. The collective action was subsequently extended twice, with proceedings ultimately having been brought by ADICAE against 101 credit institutions operating in Spain.

The Spanish Commercial Court ruled in favour of the action, stating that the floor clauses were to be deemed null and void (while the loan agreements would remain valid), and requiring the relevant credit institutions to reimburse the sums unduly received by them pursuant to the ‘floor’ clauses.

The institutions appealed the judgment of the Spanish Commercial Court before the Madrid Provincial Court (i.e. the Spanish court of appeal), however most appeals brought before the appeals court were dismissed. The credit institutions subsequently brought an exceptional appeal for breach of procedure and point of law before the Spanish Supreme Court.

The Spanish Supreme Court held that the case in the main proceedings raised two legal issues, these being: (1) the question whether a collective action is an appropriate procedural mechanism for examining the transparency of floor clauses (which according to the Spanish Supreme Court would require an assessment of all the circumstances attending the conclusion of the contract and of the pre-contractual information provided to the consumer), especially since the case was brought against a large number of credit institutions, and concerned millions of loan agreements containing different formulations of floor clauses, making it difficult for the Supreme Court to review the transparency of those clauses; and (2) the difficultly of characterising the average consumer (whose level of attention may vary depending on several factors, particularly national or sectoral advertising requirements or even language elements used in the commercial information supplied).

Questions Referred for Preliminary Ruling‍

In view of the above-mentioned legal issues faced by the Spanish Supreme Court, said court decided to stay the proceedings and refer the following questions to the ECJ for a preliminary ruling:

1) Whether an abstract assessment of the terms used by more than 100 financial institutions (i.e. without taking into account the level of pre-contractual information offered on the legal and financial burden of the term or the other circumstances occurring in each case at the time the contract was concluded) was covered by Article 4(1) of the Unfair Terms Directive (93/13/EEC), which refers to the circumstances attending the conclusion of the contract;
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2) Is the conducting of an abstract review of transparency from the perspective of the average consumer, where a number of the contracts are aimed at different specific groups of consumers or where numerous financial institutions having, economically and geographically, very different business areas were using standard terms and conditions over a very long period of time during which public awareness of such terms was developing, compatible with Articles 4(2) and 7(3) of the Unfair Terms Directive?

In relation to the first question referred, the ECJ observed that consumers may assert their rights under the Unfair Terms Directive both by means of an individual action and a collective action. The ECJ furthermore observed that the mechanism provided for in the Unfair Terms Directive allows Member States to introduce a check on unfair terms contained in standard contracts by means of actions for an injunction brought by consumer-protection associations, and that such collective actions may be directed separately or jointly against a number of sellers or suppliers from the same economic sector or their associations which use or recommend the use of the same general contractual terms or similar terms. The ECJ ruled that the requirement of transparency requires not only that a term must be formally and grammatically intelligible to the consumer concerned, but also that an average consumer, who is reasonably well informed and reasonably observant and circumspect, is in a position to understand the specific functioning of that term and thus evaluate, on the basis of clear, intelligible criteria, the potentially significant economic consequences of such a term for his or her financial obligations.

In respect of the second question, the ECJ referred to an opinion of Advocate General Medina, who stated that since, in the context of an individual action, the specific knowledge that a consumer may be deemed to have is not capable of justifying a deviation from the level of knowledge of the average consumer, the individual characteristics of different categories of consumers cannot, a fortiori, be taken into consideration in the context of a collective action. The ECJ ruled, that if, however, during that period, the average consumer’s overall perception of that term has changed as a result of the occurrence of an objective event or a matter of common knowledge, the Unfair Terms Directive does not preclude the national court from carrying out its review by taking into consideration the change in that consumer’s perception at the time of conclusion of the loan agreement.

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in 'The Malta Independent' on 21/08/2024.

Author: Nico Fauser (Advocate, Ganado Advocates)