Rights and obligations under Consumer Credit Agreements
The Consumer Credit Agreement (CCA) Law includes a number of compulsory rights for consumers and obligations for creditors, which the parties cannot derogate by mutual consent.
The most import rights and obligations are the following:
- Termination of indefinite consumer credit agreements
- Consumer withdrawal rights
- Compensation in the event of voluntary early repayment
- Linked consumer contracts
Early termination of indefinite consumer credit agreements
Consumers will be entitled to unilaterally terminate consumer credit agreements of an indefinite term at no cost to them and without any prior notice, unless otherwise set out in the agreement (and provided that the prior notice does not exceed one month). In this regard, the creditor must provide at least two months’ prior notice.
Consumer withdrawal rights
A consumer is entitled to withdraw from a credit agreement within a specific period, without justification of the termination, and at no cost to him or her (except for the interest accrued where applicable, which shall be reimbursed together with the principal within 30 days from the withdrawal notice).
Under the CCA Law, the withdrawal period is 14 days from the date of execution of the agreement or the receipt of the terms and conditions thereof, if this occurs later. The withdrawal period under the Spanish general consumer protection regulations is 7 working days, unless the creditor and the consumer agree to a longer period.
Compensation in the event of voluntary early repayment
Creditors are allowed to charge compensation in the event that a consumer voluntarily repays all or part of the principal before due, provided that the credit has been granted at a fixed (i.e., not variable) rate. The compensation must represent fair and objective costs incurred by the creditor as a result of the early repayment and cannot exceed 0.5% of the repaid amount (if the period until maturity is less than one year as from repayment date) or 1% (if it exceeds one year).
Compensation in excess of the maximum amount envisaged above or below the compensation contractually provided within the legal limits can be claimed by the creditor and the consumer, respectively, if it is adequately evidenced that actual costs borne by the creditor are higher or lower (as the case may be).
Linked consumer contracts.
Where the parties to a consumer contract have agreed that the payment price for goods or services is conditional upon the total or partial financing of this price by means of a consumer credit agreement:
- The effectiveness of the consumer contract will be conditional upon the consumer obtaining the financing
- The ineffectiveness of the consumer contract will also render the consumer credit agreement ineffective; and,
- Where both consumer and credit agreements can be objectively construed as a single commercial transaction, (1) withdrawal from the consumer agreement automatically terminates the credit agreement at no cost to the consumer, and (2) redress actions can be initiated vis-Ã -vis the creditor where the relevant goods or services have not been delivered pursuant to the consumer agreement and the consumer has previously initiated court or out-of-court actions against the provider.
This article is not considered as legal advice