You refinanced the revolving card and are told you can no longer claim

The case, in five lines

What is brought

Action to void the original revolving credit contract for usury and, in the alternative, to void its interest clause for lack of transparency, extending that nullity to the refinancing document, the novation or the consolidation loan that replaced it, together with a declaration that the waiver of claims is ineffective and a claim for everything charged above the capital drawn.

Before which court

The Civil section of the Tribunal de Instancia (the first instance court) for the consumer's domicile, with appeal to the Audiencia Provincial (the provincial appeal court). If the company has moved first and is claiming the balance of the new loan, the same defence is raised inside those proceedings.

Deadline

Radical nullity does not lapse or prescribe, and the refinancing puts no expiry date on it. What does have a time limit is the money: recovery is a personal action under the five year period of article 1964.2 of the Civil Code and, with revolving credit, it arises in respect of each monthly payment, so you recover what was overpaid in the five years before the claim. Eighty two days are added to that count if it crosses the 2020 suspension of time limits. Signing the refinancing neither restarts that period nor brings back what already fell outside it.

Who can bring it

Whoever signed the original contract, even if the new document was signed by only one of the holders. Also co holders and any guarantor caught up in the consolidation loan, and the heirs of a deceased holder who are answerable for the debt.

Financial risk

The company will raise the signed waiver, confirmation of the contract and the conduct of someone who carried on paying the new instalment. None of those defences cures nullity of full right, but they lengthen the case and are best neutralised in writing from the first demand. The real financial risk is the usual one: pleading usury alone when the margin falls short and exposing yourself to a costs order, which is why lack of transparency always follows behind.

What is void cannot be novated, because there is nothing to replace

The company's argument sounds reasonable and is wrong. It starts by treating the refinancing as a new contract that wipes out the old one, when what the Civil Code governs is something else. Article 1204 requires, for one obligation to be extinguished by another replacing it, that this be expressly declared or that the old and the new be wholly incompatible. In other words, novation presupposes a live obligation that is extinguished and another taking its place.

Article 1208 completes the reasoning: a novation is void if the original obligation was void too. If the revolving credit was usurious, it never existed as a valid obligation, and what they purported to novate was a void. The exception the article itself contemplates, ratification curing acts void from the outset, does not reach nullity of full right: only voidable acts can be confirmed, never radically void ones.

Behind it sits article 6.3 of the Civil Code, which declares void of full right any act contrary to mandatory or prohibitive rules, unless those rules lay down a different consequence. The 1908 statute is mandatory and its consequence is precisely nullity of the contract, not voidability. That is why the passage of time, the later signature and fifty new instalments paid cure nothing.

The waiver of claims slipped inside the agreement

Nearly all of those documents carry the same line: the customer acknowledges the debt, declares himself informed and waives any action relating to the contract. Article 6.2 of the Civil Code sets the first limit, since a waiver of rights granted by law is valid only where it does not run against public interest or public policy and does not harm third parties. Consumer protection against usury is not a right to be given up in a five minute telephone call.

The second limit is that of unfair terms. Article 82.1 of the consolidated consumer statute treats as unfair any term not individually negotiated which, contrary to the requirements of good faith, causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer, and paragraph 4(b) singles out in every case those limiting consumer rights. A blanket waiver of claims the consumer did not even know he had is the textbook example.

The burden of proof runs in your favour. Article 82.2 places on the trader who claims a term was individually negotiated the burden of proving it, and article 3.2 of Directive 93/13 says the same in the same words. Against a pre printed document signed in a branch or accepted with a code sent by text, that burden is not discharged. And if the waiver falls, article 83 treats it as not written and the contract remains binding in the rest if it can stand without it.

Refinancing does not restart the clock on what you claim

This is where money is genuinely lost. Nullity can always be sought, but recovery is a personal action subject to the five year period of article 1964.2 of the Civil Code, running from when performance could be demanded. In a continuing credit that means each instalment has its own due date and its own period, so only what was overpaid in the five years before the claim comes back, plus eighty two days if the count crosses the 2020 suspension of time limits.

The practical consequence is uncomfortable and needs saying: signing the refinancing and waiting another two years does not improve your position, it worsens it. At one end you gain nothing, because the novation opens no fresh period to claim the old payments. At the other you lose twenty four months of the recoverable period. Every month of waiting is a month of payments falling off the bottom of the calculation.

The opposite move does exist and is worth making early. Article 1973 of the Civil Code interrupts prescription through court action and through an out of court demand, so a written and dated demand to the company freezes the recoverable period while the claim is prepared. That same article explains the other side of the board: by acknowledging the debt in the refinancing document, you interrupted prescription of what the company is claiming from you.

The new loan carries the old usurious interest inside it

Look at the principal of the consolidation loan and compare it with what you ever actually drew on the card. They almost never match. That principal was built by taking the balance the revolving card was carrying, and that balance was capital drawn plus interest at twenty four per cent plus arrears fees plus the premium of the linked insurance. The refinancing turns all of that into fresh capital and charges interest on top of it again. It is the same money charged twice.

Article 3 of the Usury Repression Act gives the rule for undoing it, and it is arithmetic rather than rhetoric: once nullity is declared, the borrower hands over only the sum received and, if part of it and the accrued interest have already been paid, the lender returns whatever, counting everything received, exceeds the capital lent. The sum received is the money that went from the card into your pocket or to a shop, never the figure printed in the refinancing contract.

That is where the figure taken into the claim comes from. In one column, every real drawdown from day one. In the other, every payment made to the card and every payment made afterwards to the new loan, which are payments on the same matter even though they carry a different contract number. The difference is what is claimed or the debt that disappears. In contracts of eight or ten years with a refinancing in the middle, the result is usually a balance in the customer's favour.

The comparison is made against the year of the contract, not today

Usury is measured by comparing the agreed annual percentage rate with the average rate the Banco de España (the Spanish central bank) published for deferred payment cards and revolving credit on the date of the contract, and the doctrine of the Tribunal Supremo (the Spanish Supreme Court) treats as usurious a rate exceeding that average by more than six percentage points. There is no fixed threshold and no magic number: there is an average that shifts each year and a six point margin over it.

With a refinancing in the middle, the correct date is that of the original contract, which is the one under attack. Measuring against the average for the year the new document was signed, or worse against today's average, turns a winning case into a losing one, because that average has been falling for years and the margin is then computed the wrong way round. It is the most expensive mistake in this field and it does not show until judgment arrives.

When the margin falls short, the second route comes in, and it stands on its own. Article 83 of the consolidated consumer statute declares void of full right any terms incorporated in a non transparent way to the detriment of consumers, and article 4.2 of Directive 93/13 shields from the fairness review only terms on the main subject matter and the price where they are drafted in plain, intelligible language, while its article 5 requires that clarity in all of them. A mechanism in which the instalment recalculates itself and the capital rebuilds with every drawdown rarely clears that bar.

The two routes travel in the same claim because they do not end the same way. Usury brings down the whole contract and you hand over only the sum received, with article 1208 dragging the refinancing down with it. Lack of transparency does not bring down the contract but its interest clause: the credit survives at no cost, and what remains in dispute is the principal of the new loan, built by capitalising interest that no longer exists. That is why transparency follows usury and never replaces it.

How we run the case, step by step

1. 1

   We obtain both contracts and the document signed in between

   We require the company to produce the original card contract, the pre contractual information, the complete refinancing document with its general conditions and the consolidation loan contract. Without the paper in the middle the waiver cannot be attacked, and it is precisely the one the company tends not to hand over first time.

2. 2

   We date and dismantle the waiver of claims

   We establish how it was signed, on what medium, how long the call lasted and what was explained. If the waiver travels in a pre printed form or in a code received by text, the company will have to show it was individually negotiated and that you knew what you were giving up, and it almost never can.

3. 3

   We rebuild the calculation from the first drawdown

   We add everything drawn on the card against everything paid to the card and to the new loan, separating interest, fees and insurance premiums, and isolate the interest capitalised inside the refinanced principal. That figure is the amount in dispute and the argument that weighs most in any negotiation.

4. 4

   We compare the original rate with that year's average

   We identify the annual percentage rate of the original contract and set it against the Banco de España statistics for that product and that period, not today's. That comparison decides whether the case runs on usury, on lack of transparency, or on both, which is the usual outcome.

5. 5

   We demand in writing and freeze the recoverable period

   We put a reasoned claim to the customer service department, leaving a record of the date, and give notice that the debt is disputed. That interrupts prescription of what you are claiming, slows the collection pressure and allows us to object to entry in a credit reference file while the matter is contested.

6. 6

   We sue for nullity in sequence, the old contract first

   The claim seeks nullity of the original contract for usury, in the alternative nullity of its interest clause for lack of transparency, and drags down the refinancing under article 1208 of the Civil Code, with repayment of the excess and removal of any default entry arising from that debt.

The law that applies

• Art. 6 CC. Its paragraph 2 allows waiver of rights granted by law only where it does not run against public interest or public policy and does not harm third parties, and its paragraph 3 declares void of full right any act contrary to mandatory or prohibitive rules, unless those rules lay down a different consequence. BOE-A-1889-4763
• Art. 1204 CC. For one obligation to be extinguished by another replacing it, this must be expressly declared or the old and the new must be wholly incompatible, so that novation presupposes a valid earlier obligation. BOE-A-1889-4763
• Art. 1208 CC. A novation is void if the original obligation was void too, unless the ground of nullity can be invoked only by the debtor or ratification cures acts void from the outset. This is the article that stops a refinancing from curing a usurious credit. BOE-A-1889-4763
• Art. 1964.2 CC. Personal actions with no special period prescribe after five years from the moment performance can be demanded, and in continuing obligations to do or not to do the period starts each time they are breached. This is the limit on how much money comes back, because each monthly payment became demandable on its own date. BOE-A-1889-4763
• Art. 1973 CC. Prescription is interrupted by court action, by an out of court demand from the creditor and by any acknowledgment of the debt by the debtor, which is what signing a refinancing document amounts to. BOE-A-1889-4763
• Art. 1 de la Ley de Represión de la Usura. Declares void any loan contract stipulating interest notably higher than the normal price of money and manifestly disproportionate to the circumstances of the case, and equally void any contract stating a larger sum received than the sum actually handed over. BOE-A-1908-5579
• Art. 3 de la Ley de Represión de la Usura. Once nullity is declared, the borrower is bound to hand over only the sum received, and if part of it and the accrued interest have been paid, the lender returns whatever, counting the total received, exceeds the capital lent. BOE-A-1908-5579
• Art. 9 de la Ley de Represión de la Usura. Applies the statute to every operation substantially equivalent to a loan of money, whatever form the contract takes and whatever security is offered, which covers both the revolving card and the consolidation loan replacing it. BOE-A-1908-5579
• Art. 82 TRLGDCU. Treats as unfair any term not individually negotiated which, contrary to good faith, causes a significant imbalance to the consumer's detriment, places on the trader the burden of proving individual negotiation, and singles out in every case terms limiting consumer rights. BOE-A-2007-20555
• Art. 83 TRLGDCU. Unfair terms are void of full right and treated as not written, the contract surviving on the same terms if it can stand without them, and its second paragraph declares void of full right any terms incorporated in a non transparent way to the detriment of consumers. BOE-A-2007-20555
• Art. 85 TRLGDCU. Terms tying any aspect of the contract to the trader's will are unfair, and in every case those reserving powers of interpretation or unilateral variation, unless on valid grounds specified in the contract, with special rules for financial services. BOE-A-2007-20555
• Arts. 4.2 y 5 de la Directiva 93/13/CEE. Article 4.2 excludes terms on the main subject matter and the price from the fairness review only where they are drafted in plain, intelligible language, and article 5 requires that plain, intelligible drafting in all of them, with the reading most favourable to the consumer in case of doubt. 31993L0013

Each article checked against the consolidated text published in the BOE (the Spanish official gazette).

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