The Right of Reflection and Comparison in Mortgage Loan Agreements according to Directive 2014/17/UE and Its Recent Implementation in Spanish Legislation

Abstract

Objective : This article analyses and critically assesses the new Spanish rules regarding the consumer’s right of reflection previous to concluding a credit agreement for residential immovable property. It also looks at how it makes consumer protection more effective. Research Design & Methods : The article is based on, first, a critical analysis of the Spanish regulation and the existing literature and, second, on a comparison between the European and the Spanish regulation of this institution. Findings : Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property obliges Member States to specify a time period of at least seven days during which the consumer will have sufficient time to compare offers, assess their implications and make an informed decision before entering into a credit agreement. Following a lengthy delay, the Directive was implemented in Spanish legislation on 15 March, through Law 5/2019 on credit agreements relating to residential immovable property. The Directive admits the right of reflection to be articulated as a period of reflection before a credit agreement is concluded, as a period of withdrawal after the conclusion of the credit agreement or a combination of the two. Spanish legislation has chosen the first option but it does not fully respect all the requirements of the Directive. Implications / Recommendations : A period of reflection prior to the conclusion of a mortgage loan agreement is an essential instrument for consumer self-protection because it allows consumers to analyse pre-contractual information in depth, to compare offers, to assess the implications of each offer, and to make an informed decision. It likewise benefits banks and other lenders because it reduces consumer claims, and even benefits the mortgage loan market itself as it increases overall competence. Adequate regulation of this right is essential to sufficiently protect borrowers. Contribution : This article analyses the deficiencies of the Spanish regulation on the right of reflection and formulates proposals for reform.