This post is going to be a Spanish one. A while back, Angie Littwin reminded us about the importance of the U.S. Supreme Court decision in Marquette vs. First Omaha Service Corp. on usury law, a decision Bob told me before when he was in Madrid. I thought it would be interesting to show how our Spanish usury law works. I should confess that this is the part of the course I typically skip in my classes, thinking that our law, dating from 1908 (here it is usually known as "Ley Azcárate") was one of those useless ancient rules. I was very reckless as I found later. Contrary to what I thought, it is frequently applied in our courts, and every year there are several cases involving its application in the appellate courts (Audiencias Provinciales) and in our Supreme Court. Our Spanish example could be of interest, mainly for how the scope of application is defined, in a very broad way that makes it a powerful instrument in the hands of the courts. I would change the quiz today, for a spoonful of sugar to help this medicine of my own country’s situation go down.

The purpose of the law is crystal clear: avoid usury. And the solution is very powerful: the nullity of the contract and the loss of any interest for the creditor, as the debtor must only give back what was received (as a natural consequence of the nullity of the contract, of course, see an alternative solution in France, here, article L313-4). To get to that result, the contract should be usurious or "leonino" (i.e. onerous in such a manner that the debtor agreed just because of the distressing circumstances, lack of expertise or limited mental capacities).

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Consumer protection in the credit market is not a new trend in EU law, as we have seen in the previous post. The main goal to be achieved was to offer a proper protection in this kind of contract to the consumer. This starting point posits different main questions: (1) what do we mean when talking about "consumer" (which is not an easy question, in fact) and (2) how extensively do we use the term "credit market." But I will not focus on these two issues right now. Rather, I will focus on the main innovations in consumer credit regulation in the EU. First, I will outline the present situation. Once again, there is a new quiz available for anybody feeling already bored.

The Directive 87/102/EEC of 22 December 1986 had, in theory, several goals (avoiding distortions of competition between grantors of credit in the common market, deriving different mandatory rules in this field in the Member States, and setting up a common market of consumer credit, among others), but it is obvious that the primary one was to grant an appropriate protection to the consumers in the credit market. The main rules were dedicated to mandatory information in advertising (art. 3), the obligation of contract disclosure and form with minimum content requirements (art. 4), the right for the consumer to discharge his obligations with a reduction on the amount of the credit already pending to be paid (art. 8), and specific rules for the (very common) cases of a financing agreement tied to another contract (mainly, acquisition of goods, art. 11). It could be said that the goals were more or less achieved, but as it often happens with EU Directives, the Member States retained the right to adopt more stringent rules, as the Directive was intended to set only a minimum level of protection. The consequence has been a different protections for consumers in the different countries.

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In the next posts, I will try to give an overview of several issues
that I hope American readers will find useful. It is difficult to find a proper balance in
these posts, making them interesting for both (us) the geeks and the
people without this kind of mental disease. That is why this first post
will be dedicated to give an overview of how I see the way we deal with consumer credit in Europe, advancing some ideas that I will develop later. Those versed in this topic will probably find nothing new
in it and can have a rest relaxing doing a very special quiz.

The first point to be noted is quite obvious: the difference
between consumer bankruptcy and consumer overindebtedness. Also obvious
is that a difference does not mean absence of a connection. In fact, at
least in Europe, the need of an adequate instrument for consumer
bankruptcies, similar or equivalent to the American fresh start, is
strictly connected to the massive recourse of consumers to credit.
Historically, the natural environment of insolvency proceedings was an activity for merchants due to their usual access to credit. Individuals
(i.e., people having no professional or business activity) did not use
it until very recent times. In Spain, for example, a few years ago it was
really uncommon to ask for credit, and now, it´s an everyday practice.
It is not very scientific to use personal anecdote, but I could say that my grandparents didn’t
even ask for credit to buy their own house, my parents used a mortgage
to buy their house and a personal credit for the car, and a few weeks
ago my brother decided to change his TV for a flat one that will be
paid in 10 months via credit card, needing nothing to get it but to
show his ID.

As soon as individuals became indebted, the problem of overindebtedness appeared, and a proper solution
for the hard cases (bankruptcies) was needed. But, should that justify
a unified legal treatment? Answering in a "Gershwinish" way: no, it ain’t necessarily so. This connection does not mean that both subjects
should be afforded by the legislators as one. In Europe, in fact, they
are not. And, in my opinion, it is the right way to do it. The law faces
different problems that need different solutions and, probably,
different policies, even if we think that consumer bankruptcy is the
final stage for overindebtedness and consumers should receive blanket protection, stretching from the legal mechanisms of protection for consumers
in the market of credit to the specific provisions for those debtors in
case of insolvency.

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