Clifford Chance

Can Transparency Actions Be Combined in a Collective Suit Against an Entire Sector? CJEU Responds to the Spanish Supreme Court

On July 4, 2024, the CJEU issued its ruling in case C-450/22, addressing the feasibility of a large-scale collective action brought by a Spanish consumer association against over one hundred financial entities concerning "floor clauses" in consumer mortgage loans.

The CJEU confirmed that collective actions can be brought against multiple companies simultaneously, and that the transparency of pre-drafted clauses can be assessed within those actions. However, it introduced a set of stringent requirements that may be challenging to meet in practice.

In 2010, a Spanish consumer association (ADICAE) filed a cessation action based on lack of transparency against numerous financial institutions to eliminate floor clauses (clauses that set a minimum limit below which the variable interest rate cannot fall) from consumer mortgage contracts entered from 1989 (affecting, therefore, millions of positions). This action included a restitution claim for amounts paid by consumers involved in the lawsuit.

Fourteen years later, the case has finally reached the Spanish Supreme Court.

The Spanish Supreme Court raised two key concerns to the CJEU about ADICAE’s litigation strategy:

• Abstract analysis of transparency: Whether it is possible to conduct an abstract analysis, typical in collective actions, to determine the invalidity of clauses due to lack of transparency, particularly in cases involving most financial market participants in a Member State.
• Heterogeneous group of affected individuals: The difficulty of applying the "average consumer" standard to a diverse group of consumers with different profiles.

The concerns of the Spanish Supreme Court are understandable. Traditionally, assessing the transparency of pre-drafted clauses has required a detailed examination of the financial institution's behaviour towards the specific consumer seeking declare a clause in their standard-form contract null.

ADICAE's approach makes such an analysis impossible. The CJEU seeks to address this challenge by attempting to balance the interests of both parties.

Transparency Analysis in Collective Actions

The CJEU confirmed that the transparency of pre-drafted clauses can be evaluated in both individual and collective actions. However, the focus and scope of these evaluations must necessarily differ.

Collective actions should concentrate on "standardised practices" of professionals rather than individual situations. Therefore, the national judge must focus on "the entirety of the standard contractual and pre-contractual practices followed by each professional in question."

Based on the judgment's wording, if a financial entity can substantiate that it has implemented clear and effective transparency policies and conducts regular compliance audits, the collective claim should be dismissed.

Furthermore, in collective actions, it is not appropriate to evaluate individual cases, as this analysis is reserved for individual actions. Consequently, any potential deviations from the policies occurring in individual cases should not be subject to analysis nor influence the collective lawsuit's outcome.

This approach once again highlights the importance of compliance programmes as a crucial part of the defense strategy for financial entities.

It remains to be seen how Spanish courts will respond to this approach from the CJEU. Considering national trends in consumer cases, they will find it challenging not to delve into the specifics of individual cases, despite the clarity of the CJEU’s guidelines in this last judgement.

Accumulation of actions in collective suits

The CJEU allows for the accumulation of actions against multiple entities within the same economic sector, provided that those entities are using or recommending similar contractual clauses, with no limit on the number of defendants.

However, each entity's standardised practices must be assessed individually to ensure that the concrete aspects of each business are not overlooked in broad generalisations. This requirement significantly complicates the task for national courts and raises questions about the practicality of such mass lawsuits.

It is worth noting that few clauses are truly similar across different entities. In other words, the standardization tend to be a rare occurrence in banking contracts, and what happens in floor clauses would be an exceptional case.

The "Average Consumer" Concept and his learning capacity

The Supreme Court’s concern about applying the "average consumer" concept to a heterogeneous group was addressed by the CJEU, which emphasised that this legal fiction sets a universal standard, making individual situations irrelevant.

Notably, the CJEU acknowledged the learning capacity of the "average consumer" suggesting that significant developments, along with the widespread awareness they bring, could influence the understanding of this hypothetical individual over time.

With this approach, the CJEU appears to be encouraging greater individual responsibility among consumers while aiming to reduce the need for extensive judicial intervention, which has become a challenge in mass litigation across many Member States. This shift could mark a significant change in jurisdictions that traditionally take a highly pro-consumer view.

Conclusion

This decision from the CJEU highlights the complexities of large-scale collective actions and the complex balance required between consumer protection and judicial efficiency.

Although there has been plenty of pro-consumer talk suggesting that consumers won the case, we believe the final outcome is still undecided.

Given the limitations on reassessing evidence and facts at this third level of appeal, the Supreme Court must now determine whether there are sufficient grounds to find a lack of transparency in the standard practices of each financial entity involved in this litigation.

Another issue in this case, though not directly addressed by the CJEU, is the operability of the reimbursement action combined with the collective action and how it applies to the associations involved. This is especially relevant given that Spain has yet to implement a regime for representative actions.