IRPH mortgage loan benchmark index in the line of fire

Raymundo LarraĆ­n Nesbitt, September, 11. 2019

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By Raymundo Larraín Nesbitt
Lawyer - Abogado
11th of September 2019

 

 

The ECJ's Attorney General passed yesterday a formal opinion on the latest scandal that engulfs the Spanish banking sector: IRPH index in mortgage-backed loans.

Although his opinion is not binding, the fact is that the ECJ normally follows his legal opinions and acts upon them. The ECJ will rule next January 2020 on this clause which affects over one million mortgage loans in Spain.

His opinion basically was that the elaboration of this index, which dates from 1994, is convoluted and your average layman has no hope in hell in understanding how it is calculated and how it works. Shocking, who would have guessed?

Spanish banks allegedly may exert a ‘certain’ degree of control over the IRPH (which happens to be calculated in Spain), as opposed to the EURIBOR (which is calculated at a supranational level, European-wide). The fact is the IRPH has remained stubbornly higher (significantly so) than the EURIBOR rate by at least 100 basic points, no less. Needless to say, this surprising deviation (given the QE policy of the ECB to flood the money markets with cheap money in an attempt to stave off a severe Great Recession) favours lenders greatly which just may go on to explain why Spanish lenders have proven so very keen over the last decade to push and reference all new mortgage loans to the IRPH index in lieu of the EURIBOR. But that’s just idle speculation on my part, who knows?

As a result of the formal opinion of this ECJ high-ranking lawyer, it is highly likely the ECJ will rule next January against the IRPH, considering it an abusive clause. Needless to say, this will open the floodgates to yet another tidal wave of litigation against the beleaguered Spanish bank sector which already struggles to remain afloat in the wake of hundreds of thousands of lawsuits lost. Experts estimate the compensation due to borrowers starts at 4 billion and may go as high as 44 billion euros, depending on the retroactivity of cases.  

Logically, when the news broke out, it triggered a massive stock slide which resulted in the banking sector being mauled.

Fun fact: Spain’s Supreme Court ruled back in 2018 (in favour of banks, surprise!) that the IRPH index was in fact transparent and legal and quashed all consumer cases on grounds of an abusive clause.

It will be most interesting to read next January the ECJ’s ruling on this matter which, in all likelihood, will neatly overrule Spain’s Supreme Court criteria - yet again - in favour of consumers, borrowers and struggling families at large. Ah, déjà vu.

My heart goes out to lenders, bless their warm hearts.

 

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