Law 5/2019, of 15 March, regulating real estate credit contracts.

OFFICIAL GAZETTE OF THE STATE
No. 65 Saturday, 16 March 2019 Sec. I. Page 26329
I. GENERAL PROVISIONS
HEAD OF STATE
3814 Law 5/2019, of 15 March, regulating real estate credit contracts.
FELIPE VI
KING OF SPAIN
To all who shall see and understand this.
Know ye: That the General Courts have approved and I hereby sanction the following law:
PREAMBLE
I
The regulation of real estate credit contracts plays a significant role in economic stability and is an instrument of social cohesion. The Spanish mortgage system and, in particular, the regime for granting loans and credits secured by real estate mortgages, has made it possible for numerous Spanish families to own their homes, with a proportion higher than in many countries in our vicinity. Guaranteeing a secure, swift, and effective legal regime that protects these types of transactions is a requirement derived not only from the obligations imposed by European Union law, but also from the undeniable benefits it brings to a country's economy. Both the protection of transactions and legal certainty generate credit for individuals, which contributes to economic growth. Likewise, access to property consolidates the freedom and responsibility of individuals as citizens. In this process, access to mortgage credit is a key element in the success of Spain's property regime. II Building on these considerations, this Law aims to transpose Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014. Furthermore, given the experience to date and with the aim of restoring borrowers' confidence, provisions are introduced whose purpose is to enhance legal certainty, transparency, and comprehension of the contracts and their clauses, as well as the fair balance between the parties. Directive 2014/17/EU acknowledges in recital (3) that "the financial crisis has shown that the irresponsible behaviour of market participants can undermine the foundations of the financial system, (...) and can have serious social and economic consequences". In particular, the Directive highlights in recital (4) that "the Commission has identified a number of problems affecting the mortgage markets of the Union in relation to irresponsibility in lending and borrowing, as well as the potential scope for irresponsible behaviour among market participants, including credit intermediaries". Those recitals also highlight the asymmetric position of the lender and the borrower in the contractual relationship, which is not remedied merely by providing the client with information and warnings. Therefore, the party dominating the relationship is required, as a professional, to bear additional responsibility in its conduct towards the borrower. cve: BOE-A-2019-3814 Verifiable at http://www.boe.es

OFFICIAL GAZETTE OF THE STATE
No. 65 Saturday, 16 March 2019 Sec. I. Page 26330 III Directive 2014/17/EU establishes a specific protection regime for consumer persons who are borrowers, guarantors, or holders of guarantees in loans or credits secured by a mortgage on residential real estate, or whose purpose is the acquisition of residential real estate.
In the European Union, whose law enjoys the principle of primacy over national law, housing is recognized as a fundamental right, as expressly acknowledged in paragraph 65 of the Judgment of the Court of Justice of the European Union of 10 September 2014, Case C-34/13, where it is stated unequivocally that "In Union law, the right to housing is a fundamental right guaranteed by Article 7 of the Charter, which the referring court must take into consideration when applying Directive 93/13".
European legislation refers to credits concluded with consumers secured by a mortgage or other type of guarantee in relation to residential real estate, meaning its object is the protection of consumers, understood as natural persons acting outside their professional or business activity. However, it also allows Member States to adopt stricter provisions regarding consumer protection, including the possibility of extending the scope of application to non-consumers.
In this way, this Law extends its legal regime to all natural persons, regardless of whether they are consumers or not. This expansion of the subjective sphere of protection of the Law compared to the Directive follows the traditional line of our legal system to extend protection to groups such as self-employed workers. Thus, the scope of application of the current transparency regulations regarding mortgage credits, regulated in Chapter II of Title III of Order EHA/2899/2011, of 28 October, on transparency and protection of banking services clients, is configured.
The Law regulates three distinct aspects. First, it contains transparency and conduct rules that impose obligations on lenders and credit intermediaries, as well as their designated representatives, completing and improving the existing framework of the aforementioned Order EHA/2899/2011, of 28 October, and Law 2/2009, of 31 March, regulating the contracting with consumers of mortgage loans or credits and intermediary services for the conclusion of loan or credit contracts.
Second, it regulates the legal regime of real estate credit intermediaries and real estate lenders, and third, it establishes the sanctioning regime for non-compliance with the obligations contained therein.
Furthermore, a series of provisions are introduced throughout the articles that regulate aspects not specifically provided for in European legislation or that go beyond its content, with the aim of reinforcing certain aspects of the legal regime for mortgage contracting and its contractual life, referring to specific situations that may arise in such long-term contracts and must be taken into account, either by requiring greater guarantees, strengthening existing ones, establishing clear and simple regulation to avoid unnecessary interpretative doubts, or establishing mechanisms for resolving conflicts or situations that could vary the borrower's situation from the conditions contracted. The ultimate objective is to strengthen guarantees for borrowers in the contracting process and ultimately avoid the judicial enforcement of this type of loan with the consequent loss of the home. cve: BOE-A-2019-3814 Verifiable at http://www.boe.es

OFFICIAL GAZETTE OF THE STATE
No. 65 Saturday, 16 March 2019 Sec. I. Page 26331 IV The Law is structured into four Chapters, corresponding to the essential lines of regulation, twelve additional provisions, five transitional provisions, one repealing provision, and sixteen final provisions, as well as two Annexes, Annex I concerning the European Standardised Information Sheet (ESIS) and Annex II concerning the Calculation of the Annual Percentage Rate of Charge (APRC).
Chapter I collects the general provisions covering the object, scope of application, the irrenounceable nature of the rights recognized for borrowers, and definitions for the purposes of the Law. In the same terms as the aforementioned Directive 2014/17/EU, the Law will apply both to the professional granting of loans secured by a mortgage on residential real estate and loans for the acquisition of residential real estate, as well as to professional intermediation in either of the two aforementioned activities.
Chapter II establishes transparency and conduct rules aimed, in particular, at the responsible granting of financing affecting real estate, as well as favouring the progressive implementation of a reliable credit market, with homogeneous rules in the European space and a higher degree of client confidence in lending entities; a market in which natural persons seeking mortgage financing can do so with the confidence that lending entities will behave professionally and responsibly. In this regard, the Law contributes to the implementation of a more transparent, competitive, and homogeneous European single market, with credit contracts affecting real estate that are fairer and ensure a high level of protection for natural persons obtaining financing.
This Chapter is in turn structured into three Sections. Section 1 collects, as general provisions, the basic principles of conduct in granting real estate loans, directed at protecting legitimate interests, the general characteristics of pre-contractual information, transparency obligations regarding contracts, the determination of the calculation of the Annual Percentage Rate of Charge (APRC) and the European Standardised Information Sheet (ESIS).
Among the most novel aspects of the Law is the establishment of detailed regulation of the pre-contractual phase. In this regard, it has been decided to go beyond the strict transposition of Directive 2014/17 with the objective of guaranteeing that the borrower has the necessary information available to fully understand the economic and legal burden of the loan they are about to contract, and that, therefore, the principle of transparency in its material aspect can be considered fulfilled.
This measure, intended to reinforce the balance that must exist between the parties in any contractual legal relationship, is complemented by attributing to the notary the function of impartially advising the borrower, clarifying all doubts that the contract might raise, and verifying that both the deadlines and the other requirements that allow the aforementioned principle of material transparency to be considered fulfilled, especially those related to the most complex or relevant contractual clauses, concur at the time of authorizing the loan or mortgage credit contract in a public deed.
In this way, evidence will be established for the benefit of both parties –lender and borrower– that the former has complied with its obligation to deliver the documentation within the stipulated deadlines and the latter may exercise the right, which also presupposes a duty, to know the consequences of what they are committing to.
Nevertheless, it is important to note that, just as occurred with the modifications introduced at the time by Order EHA/2899/2011, of 28 October, on transparency and protection of banking services clients, the innovations in the pre-contractual phase, derived from the application of this Law, will not apply, unless retroactive effect is expressly attributed, to the existing mortgage portfolio. Nor will they apply even as a parameter of comparison, insofar as we are dealing with contracts that were concluded under legislation that entirely determined the transparency requirements to which such contracts were subject. cve: BOE-A-2019-3814 Verifiable at http://www.boe.es

OFFICIAL GAZETTE OF THE STATE
No. 65 Saturday, 16 March 2019 Sec. I. Page 26332
Section 2 collects the conduct rules that lenders, real estate credit intermediaries, and designated representatives must comply with in the process of drafting, promoting, marketing, and contracting real estate loans, both regarding their internal organization and regarding the client. Some of them stand out for their special relevance. Thus, first, it is required that personnel who evaluate solvency and market real estate loans must meet certain training requirements that ensure (Article 16) that the borrower receives adequate and needs-based information from the lender. Second, tied sales, that is, sales of packages integrated by the loan and other products, are generally prohibited, when the loan contract is not also offered to the borrower separately (Article 17). This measure is aimed at favouring the client's choice of the most suitable product and fostering competition among lenders, enabling bundled sales in those cases where it proves more beneficial for them. On the other hand, limits are imposed on the remuneration policy of lender personnel and advisors, avoiding adverse incentives that favour possible excessive contracting to the detriment of adequate risk assessment and the provision of necessary information to the client, specifically establishing that the volume of loans contracted shall not be the predominant factor when remunerating personnel who design, market, or recommend them (Article 18). The activity of advice regarding loans and credits is also limited, with certain exceptions, to being provided only by real estate credit intermediaries and real estate lenders (Article 19), simultaneously establishing rules that ensure the provision of clear, objective, and client-adapted recommendations.
Furthermore, for the first time, our legal system incorporates the consumer's right to convert the loan denominated in foreign currency to the currency in which the borrower receives their income or that of the Member State of residence, as a simple and easy-to-understand mechanism to obtain coverage and protection against exchange rate risk (Article 20). Nevertheless, the professional borrower, who is not a consumer, may substitute this right with another type of alternative mechanism for covering exchange rate risk. The coverage of exchange rate risk is accompanied by the obligation of periodic information from the lender to the borrower regarding the evolution of the debt and the borrower's right to convert, if applicable, the loan to an alternative currency.
Section 3 regulates the form, execution, and termination of contracts. As a novelty, the borrower's right to repay, in general, all or part of the loan without having to bear commissions or compensation for the lender is established. Compensation to the lender for financial loss will only be paid when repayment occurs in the first years of the contract's validity (which differ between variable-rate and fixed-rate contracts), and always provided that this loss does not exceed maximum percentages stipulated by law (Article 23). Also noteworthy is the option to favour subrogation and modifying novation of loans when their purpose is to modify a variable interest rate to a fixed one. The objective pursued is to enable borrowers to know exactly the cost that the financing they contract will entail in the medium and long term, allowing them to carry out long-term financial planning, while also favouring simplicity in contract drafting and consequently transparency with borrowers. In any case, the regulation seeks to establish a balance point between facilitating natural persons' repayment of their loans and not generating adverse scenarios for lenders regarding the offer of fixed-rate loan contracts, where interest rate risk is higher.
Finally, this section addresses the new regulation of the early termination of the loan contract and default interest, replacing the existing regime, which allowed a certain margin for the autonomy of the will of the parties, with strictly mandatory rules. Thus, through the new regime for early termination, it is guaranteed that this may only occur when the debtor's breach is sufficiently significant in relation to the contracted loan. Likewise, it provides greater legal certainty to contracting, and the previous regime for default interest, which only established a maximum limit to quantify them, is replaced by a clear and fixed criterion for their determination. In both cases, the aim is to prevent the inclusion of clauses in the contract that could be abusive and, at the same time, strengthen the necessary economic and financial balance between the parties.
Chapter III, titled "Legal Regime of Real Estate Credit Intermediaries, Their Designated Representatives, and Real Estate Lenders", is structured into four Sections. Section 1 describes the sources of the legal regime for these figures (Article 26). Sections 2, 3, and 4 refer to real estate credit intermediaries, the designated representatives of intermediaries, and real estate lenders, respectively. They regulate the access requirements to the activity and the supervision regime thereof. Those operators wishing to professionally carry out these activities must be duly registered in the corresponding public register and possess, among other aspects, recognized prestige and adequate knowledge and competence.
Chapter IV is dedicated to regulating the sanctioning regime. For these purposes, the obligations established in this Law have the character of ordering and discipline rules for real estate credit intermediaries and real estate lenders, which will be applied by the Bank of Spain or the body designated by each Autonomous Community, depending on the geographical area in which the intermediary or real estate lender operates, with a range of infractions and sanctions proportional to the size of the addressees.
The additional provisions, twelve in total, regulate specific areas linked to the legal regime of real estate credit contracts in areas such as dispute resolution through out-of-court claims regarding the Independent Authority for the protection and transparency in real estate contracting provided for in the First Additional Provision of Law 7/2017, of 2 November, cooperation between competent authorities, financial education, the regime for preserving pre-contractual documentation, autonomous development aspects, scenarios of debtor subrogation and modifying novation of the loan contract, the obligations of the business owner upon the transfer of the mortgaged property, the obligations of notaries and registrars upon the authorization and registration of the mortgage loan, notarial and registration fees in case of subrogation or modifying novation of loans due to a change from variable to fixed interest rate, the regime for the valuation of real estate, and adherence to the Code of Good Practice for the viable restructuring of debts secured by a mortgage on the primary residence. The First Transitional Provision establishes as a general rule the non-retroactive application of its provisions, with the exceptions regulated in paragraphs two to four. Regarding the latter, it is determined that early termination of contracts that takes place from the entry into force of this Law will be regulated under the terms of this Law, even if the contracts had been concluded earlier and even if they contained some stipulation regarding this, unless the debtor alleges that the provision contained is more favourable to them. Therefore, this regulation does not apply to the early termination of contracts that had occurred before the entry into force of the Law, whether or not a mortgage enforcement procedure had been initiated to make it effective, and whether or not this was suspended. For its part, the Second Transitional Provision foresees the obligation of adaptation to the new regime by pre-existing real estate credit intermediaries and real estate lenders. The Third Transitional Provision establishes a special regime in ongoing enforcement processes at the entry into force of Law 1/2013, of 14 May, on measures to strengthen protection for mortgage debtors, debt restructuring, and social rental to comply with the judgments of 29 October 2015 and 26 January 2017 issued by the Court of Justice of the European Union. With this, mortgage debtors contemplated in the Fourth Transitional Provision of the aforementioned Law are granted a new ten-day period to file an opposition based on the possible existence of unfair terms when certain circumstances arise. This new period will be counted from the notification to the debtor of their possibility to raise the opposition. Such notification must be made within 15 natural days from the entry into force of this Law. The circumstances that exclude the granting of a new period reside in reasons of legal certainty and
coherence. Therefore, the provision will not apply to scenarios where the judge has of their own motion analysed the existence of unfair terms; when the executed party has been personally notified of the possibility of filing the extraordinary opposition incident based on the existence of the opposition causes provided for in paragraph 7 of Article 557.1 and paragraph 4 of Article 695.1 of the Civil Procedure Act; when the executed party has filed the aforementioned extraordinary opposition incident, in accordance with the aforementioned Fourth Transitional Provision of Law 1/2013, of 14 May, or when, based on the CJEU judgment of 29 October 2016, the executed party's opposition has been admitted. Pursuant to the Fourth Transitional Provision, lenders may continue to use the Personalized Information Sheet provided for in Article 22 and Annex II of Order EHA/2899/2011, of 28 October, on transparency and protection of banking services clients, until 21 March 2019. The Fifth Transitional Provision establishes the transitional regime for the resolution of complaints and claims until the Independent Authority referred to in the First Additional Provision of this Law is created. V The Law contains 16 final provisions. The first modifies the Mortgage Law with the purpose of