The Supreme Court gives banks respite by stating that claims must be based on the TAE rate, slightly higher than the TEDR index, which has been used by thousands of affected customers so far
Credit cards with the ‘revolving’ mod (those that build up a debt that is paid very little by little and renew it for years) are framed within the law as long as the interest rate they charge is a maximum of six points higher than the average applied by the financial market . The Supreme Court clarified this in a judgment in which it stated that interest of 23.9%, paid by the claiming clients, is not usurious, as it did not exceed the percentage limit now clarified by the Senate.
The Supreme Court’s ruling coincidentally comes three years after the Supreme Court itself determined that these cards charge usurious interest and thus violate the rules in a first ruling against Wizink. A decisive clarification has now emerged from that first resolution: it is not enough that the interests held by financial institutions are “significantly higher” than those of the market average. It is also necessary that this difference be six percentage points. For example, the latest statistics from the Bank of Spain show that the interest on these credit cards now being launched is around 18%. That is, they would be usurious if a financial institution charged more than 24%.
The case now upheld by the Supreme Court dates back to 2004, when a customer formalized a revolving Visa credit card contract with the now-defunct Barclays Bank with an interest rate of 23.9% APR. The entity transferred its credit to Estrella Receivable and this company later sued the cardholder and claimed the amount owed. The Court of First Instance number 3 of Huelva dismissed the lawsuit, declaring the usury nature of the agreed interest rate because it was “significantly higher” than the average interest rate of consumer loans, according to the criteria of the 2020 Supreme Court. But later, the Provincial Court van Huelva partially upheld the appeal, rejecting the adequacy of average consumer loan rates to make the comparison when dealing with a credit card, as it was proven that the usual interest rate in this type of contract was 20 90% or higher in 2012. However, it did not consider the interest payment usurious because it was not notoriously higher than normally agreed and discounted some amounts for commissions for claims of unpaid installments. The defendant has lodged an appeal against this decision, which has now been rejected by the Supreme Court.
Incidentally, the Supreme Court ruling has also brought another clarification that banks clearly benefit from from legal claims that they have been receiving from their customers for years with this type of card. The High Court points out that the index to be taken into account to determine whether the agreed interest rate is significantly higher than normal, the equivalent annual interest rate (TAE), should be compared to the average interest rate applicable at the time of contracting on the category corresponding to the operation in question. For contracts signed after the Bank of Spain’s statistical bulletin has broken down the type of ‘revolving’ credit since June 2010, the comparison parameter is the average interest rate published at any given time.
This clarification of the obligation to use the TAE as a reference is not trivial. Because a large portion of the lawsuits filed to date by those affected by these cards have been based on supervisor statistics called TEDR (Effective Rate of Limited Definition); an index, for example, that does not include that card’s commissions in the costs it also incurs for the holder. For the court, this difference between the TEDR and the TAE (which exists but is not too high, 0.2% or maximum 0.3%) is not very decisive to assess usury because it requires that the agreed interest rate be significantly higher than the normal market rate, that is, it is not enough that it is merely higher. But indirectly it does provide the bank with a measure of peace of mind, as this criterion would sideline some of the possible demands by directly increasing the rate of interest they can apply to their cards.
In this case, the focus is on determining what the normal market interest rate was for rotation in 2004, a time when there were no detailed statistics from the Bank of Spain. The Supreme Court points out that, in order to identify this legitimate interest, it is generally necessary to use the specific information closest to the time, namely the information broken down in 2010 by the Bank of Spain. “In general, for the prosecution of these cases of credit cards closed in the first decade of this century, it is necessary to refer to the specific information that is closest to the time. This is the one that was offered in 2010. According to the Statistical Bulletin (of the Bank of Spain), the average TEDR rate that year was 19.32%. Logically, when the commissions are added up, the APR would be slightly higher (between 20 and 30 hundredths, at the interest rate levels we are moving). That is why we can use the index of 2010 (19.32%) as a guideline, with the necessary correction to adjust it to the APR”, explains the court.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
