DP Abogados reacts to the Supreme Court's decision on revolving contracts

The Supreme Court has established the criteria to determine when a revolving card can be considered abusive due to a lack of transparency. The Civil Chamber of the high court has guided Spanish courts and judges on how to assess whether a contract of this type should be annulled, even if it has previously passed the usury test.

In these rulings, the high court examines for the first time the lack of transparency and the abusive nature of the clause that sets the interest in credit card contracts, analyzing this aspect alongside the clauses that regulate the revolving amortization system.

The law firm dP Abogados, specialized in consumer law, has been fighting against these financial products for years. Its director, Xaime da Pena, is available to offer explanations to the media on the subject and on how consumers can claim the nullity of these contracts without any risk. The firm has been claiming the nullity of thousands of products due to the high interests and fees associated.

These cards are lines of credit with a very high interest that are automatically renewed, making it difficult to amortize the principal debt. Now, the Supreme Court has decided that revolving contracts can be abusive when they are not clear and transparent, especially regarding the interest rate and how it affects the consumer. A key aspect is the lack of transparency in the information about the applied interests and the complexity for the consumer to understand the real cost of the credit.

The Civil Chamber adds that before signing the contract, the consumer must receive clear and understandable information about how the capital recomposition system works and its impact on the calculation of the interests and the amortization of the used credit, especially when the risk increases significantly.

It is necessary to inform about the relationship between the high Annual Percentage Rate (APR), the capital recomposition mechanism, and other clauses that may increase the risks, so that the consumer can evaluate, with clear criteria, the economic consequences they might face. The information must be accessible and allow the consumer to understand the product and the risks it entails, such as indefinite or automatically renewable duration, high interest rate, constant credit recomposition, limitations on capital amortization if the installments are low, and compound interest. Additionally, this information must allow clear comparisons between different offers, detailing the characteristics, costs, and risks of the three financing modalities generally offered, although in many cases the revolving modality is the default.

This could cause a significant imbalance for the consumer, contravening the principles of good faith, since, by not knowing the risks associated with this amortization system, the consumer could not compare this offer with other options, becoming trapped in a contract that could have serious consequences, as the Court calls it: a "captive debtor." This phenomenon is also known by the Bank of Spain as the "snowball effect."

Given the possibility of falling into perpetual debt, it is crucial that the consumer receives clear information about these risks in a timely manner.

The Supreme Court has established that banks and financial entities must provide clients with detailed information about what a revolving financing system is, the applicable interest rate, the monthly installment to be paid (with examples if necessary), and the duration of the contract. Additionally, they must explain that if the consumer chooses to pay a low installment, thus extending the loan amortization time, the interests will increase.

These rulings open the door to the annulment of revolving cards due to lack of transparency, which could lead to an increase in consumer claims seeking the nullity of these contracts and, consequently, the return of what was overpaid.