Countries can give consumers greater protection than EU law, rules ECJ

The European Court of Justice (ECJ) has said that Spain is within its rights in adopting a stronger law on unfair contract terms than that mandated by the EU's Directive on Unfair Terms in Consumer Contracts.

The Directive outlaws unfair terms in consumer contracts unless those terms have been specifically negotiated, because most consumer contracts are presented as a finished article to be accepted or rejected, which creates a power imbalance in favour of a retailer.

Spanish mortgage lender Caja de Ahorros y Monte de Piedad de Madrid (Caja de Madrid) contained a term in its contracts saying that it would round variable interest rate figures upwards to the nearest quarter percentage point.

Bank customer lobby group Asociación de Usuarios de Servicios Bancarios (Ausbanc) said that this was unfair and sued Caja de Madrid. Caja de Madrid lost two court cases and the issue was heard at the Spanish Supreme Court.

That Court said that the interest rate was so central to a mortgage that the rounding-up clause related to an "essential element" of the contract.

Article 4(2) of the Directive on Unfair Terms in Consumer Contracts creates an exemption for such clauses, saying that the Directive should not apply to the main subject-matter of the contract, nor its price, as long as these were written in "plain intelligible language".

Spain had not included this exemption when it transposed the Directive into its national law, though. The Spanish Supreme Court asked the ECJ if Spain was allowed to have a law which would apply the terms of the Directive even to a central, essential element of a contract.

The ECJ said that it was allowed to do this. "The Directive carried out only a partial and minimum harmonisation of national legislation concerning unfair terms, while recognising that Member States have the option of affording consumers a higher level of protection than that for which the Directive provides," said the ECJ ruling

"Member States cannot be prevented from adopting or retaining, throughout the area covered by the Directive, including Article 4(2) thereof, rules which are more stringent than those provided for by the Directive itself, on condition that they are designed to afford consumers a higher level of protection," it said.

The Spanish courts could, then, assess the fairness of a consumer contract term even if it was in plain language and even if it related to the main part of the contract.

"The Spanish legislation at issue in the main proceedings makes it possible for consumers to be afforded … a higher level of protection than that established by that directive," said the ruling.

The Directive is in force in UK law as the Unfair Terms in Consumer Contracts Regulations. These protect consumers against terms that are unreasonable because consumers are not in a position to bargain with suppliers on contract terms like businesses are.

If a term is found to be unfair the contract will be read as if the unfair term did not exist.