Ex-post fairness controls and contract design: the Spanish experience

Abstract

The application of the ex post unfairness controls of the Directive 93/13 in consumer financial contracts in Spain has resulted in a litigation wave that has had a significant impact in terms of financial as well as judicial costs. The terms involved in this litigation range from those allocating risks among the contracting parties to terms setting between the parties their share of the mandatory taxes and fees accompanying a mortgage loan. Spanish courts and the Court of Justice of the European Union (CJEU) have held many of these standard terms as unfair and hence, non-binding on consumers. A collateral effect of this litigation has touched contract design. Some of the cost impact of these terms are now included -without specification- as part of the overall contract price. Directive 93/13 on unfair contract terms arguably aimed at maximizing consumer welfare through, among others, enhancing transparency in consumer contracts. This chapter analyzes whether the litigation on consumer mortgage contracts and its impact in contract design has resulted in an increase of contract transparency and discusses whether the resulting contract design regarding some contract dimensions -such as exogenous costs in mortgage financing- has actually served the interests of consumers.