The new Law 16/2011 of June24th on Consumer Credit Contracts (hereinafter, “LCCC”), which became effective last September as a result of the implementation of Community legislation, has notably strengthened the level of consumer protection and introduced new elements.

On an international level, the imperative of the Spanish standard has been strengthened since, under certain circumstances, Spanish Law may be applicable even in cases where the law chosen to govern the contract is that of a non-member State Space EEA.

Furthermore, new cases have been included in the scope of the LCCC (for example, credit agreements secured by real estate mortgage). Along with this, partial application of the LCCC has been introduced in certain cases. Among them, are the credit agreements which modify the conditions of the initial contract when the consumer is in default.

As for the regulation of the parties to the consumer credit contract, the LCCC has created a new figure: the intermediary between the lender and the borrower of the consumer credit. His work can involve both acting as representative of the lender offering or entering into contracts, and assisting the borrower before the execution of the contract. This may seem peculiar because it could create a conflict of interest for the intermediary. Nevertheless, the new LCCC tries to mitigate this issue by introducing transparency in the relationship between intermediaries and consumers.

Regarding the binding offer on the credit terms that the consumer may request, the period has been extended from ten to fourteen days.

As for advertising, there has been a considerable regulation development. In particular, it has been increased the compulsory information concerning the credit to be included in all advertising, whereas previously what was basically required was the annual equivalent rate (“TAE”), so that new legislation is considerably tougher.

In addition to that, as a new prerequisite for executing the consumer credit contract, there is an obligation to provide prior information to the consumer that must be provided in a standardized format. However, there are some exceptions to such regulation on pre-contractual information requirements.

Along with this, an obligation of the lender is introduced to assess the creditworthiness of the borrower prior to the signing of the credit, allowing him to check databases out or require information from the potential borrower.

In relation to the form and content of contracts, it has been considerably increased the minimum content of consumer credit contracts. Particularly, noteworthy are the new requirements in the credit agreements in the form of an overdraft.

Moreover, it has been incorporated the obligation of the lender to inform consumers of any change in the borrowing rate before the change takes effect, as well as the possibility to forward such information to the debtor periodically (every three months), when there is a change in the reference rate.

Additionally, a new regulation on contracts of indefinite duration has been incorporated.
Similarly, the consumer’s right to liquidate the obligations of the credit agreement in advance (early repayment) is regulated in more detail and the maximum rates applicable in relation to possible compensation to the lender have been substantially reduced (previously the maximum interest rate applicable was 3% now reduced to 1%).

Furthermore, the time to exercise the right to revoke the consumer credit contract by the consumer has been extended to fourteen days, therefore strengthening consumer protection.

On the other hand, regarding the disciplinary regime for credit institutions, it has been set forth that the Law on Discipline and Intervention of Credit Institutions shall apply, leaving the rest of natural and legal persons subject to the disciplinary regime provided on the General Law for the Protection of Consumers and Users and its complementary regulations.

Lastly, under the contesting regime, it is established the possibility of submitting disputes between the parties, to consumer arbitration, by adherence of the lender and the intermediary to the Consumer Arbitration System, among other extrajudicial systems of dispute resolution.

Cristina Fisac and Ruth Cortés