The author of this post is Carlos Santaló Goris, research fellow at the MPI Luxembourg and Ph.D. candidate at the University of Luxembourg.
Regulation (EC) No 1896/2006 establishing the European Payment Order (‘EPO’) introduced the first EU uniform civil procedure. The EPO Regulation aimed at facilitating the cross-border recovery of debt within the EU.
According to statistics published by the Spanish General Council of the Judiciary, in 2017, Spanish courts issued a total 655 EPOs. In 2018, the number of EPOs increased 898,32%, up to 5.884 EPOs. In 2019, the number of EPOs continued increasing, skyrocketing to the gargantuan number of 29.120 EPOs. In 2020, though there was a decrease with respect to the previous year, Spanish courts still issued 21.636 EPOs.
Just for the sake of comparison: during the same period there were much fewer applications for EPOs. in Germany: 3.706 applications in 2018, 3.577 in 2019, and 3.582 in 2020.
What is the reason behind the abnormal increase in the number of EPOs issued by Spanish courts between 2017 and 2019? In my view, the answer is to be found in the difference between the EPO and the Spanish payment order regarding the courts’ possibility (obligation) to assess the fairness of contractual terms in consumer claims under Directive 93/13 on unfair terms in consumer contracts.
Under the Spanish payment order, a court receiving an application for a payment order involving a consumer party had to evaluate the fairness of the contractual terms of the relation between the creditor and the consumer. Mandatory review was the conequence of the ECJ judgment, C‑618/10, Banco Español de Crédito. According to the ECJ, “Directive 93/13 must be interpreted as precluding legislation of a Member State, such as that at issue in the main proceedings, which does not allow the court before which an application for an order for payment has been brought to assess of its own motion, in limine litis or at any other stage during the proceedings, even though it already has the legal and factual elements necessary for that task available to it, whether a term concerning interest on late payments contained in a contract concluded between a seller or supplier and a consumer is unfair, in the case where that consumer has not lodged an objection” (para. 57).
Unlike the Spanish payment order procedure, the EPO follows a non-documentary procedure. Creditors do not have to provide any documents – only the application standard form. In particular, they do not have to provide the contract on which the claim is based; they are only required to describe “the circumstances invoked as the basis of the claim” and a “description of evidence supporting the claim” (Article 7(2) EPO Regulation). The ECJ had made it clear “that Article 7 of Regulation No 1896/2006 governs the requirements exhaustively to be met by an application for a European order for payment can ensure that the objective of the regulation is attained” (C-215/11, Szyrocka, para. 32). Furthermore, according to the Spanish act implementing the EPO Regulation any documents other than the standard form would be inadmissible when applying for the EPO (23rd final provision of Spanish Code of Civil Procedure). Based on the information that creditors provide in the EPO application, Spanish courts could not examine the fairness of the contractual terms as they would in the national payment order. Aware of this, more creditors started to apply for EPOs, thus provoking the increased number of applications.
Since the EPO Regulation only applies to cross-border claims, many claims which initially had a purely domestic origin had to be “transformed” into cross-border ones. According to Article 3 of the EPO Regulation, the cross-border dimension of a claim is established when “at least one of the parties is domiciled or habitually resident in a Member State other than the Member State of the court seised.” To satisfy this prerequisite, domestic creditors assigned the debt to a new creditor in another Member State (often vulture funds or companies specialized in debt recovery).
The flood of EPO applications in consumer claims did not pass by unnoticed by Spanish judges. Three Spanish courts submitted requests for preliminary rulings to the ECJ asking whether judges could ask the EPO applicant for additional documents in order to conduct an ex officio review of the fairness of the contractual terms. Two of those preliminary references led to the ECJ judgment C‑453/18 and C‑494/18, Bondora. In this decision, the ECJ determined that “a ‘court’, within the meaning of that regulation, seised in the context of a European order for payment procedure, to request from the creditor additional information relating to the terms of the agreement relied on in support of the claim at issue, in order to carry out an ex officio review of the possible unfairness of those terms and, consequently, that they preclude national legislation which declares the additional documents provided for that purpose to be inadmissible” (para. 54).
Bondora opened the door the examination of the fairness of the contractual terms in the context of the EPO procedure. From the creditors’ perspective, this judgment put a virtual end to the comparative advantage that the EPO Regulation had over the Spanish payment order in claims against consumers.
But, has the Bondora decision already impacted the number of EPO applications? Difficult to say. The decision was published in December 2019. In 2020, there was a decrease of 7.515 EPOs rendered by Spanish courts as compared to 2019. However, the number of EPOs still remained highly superior to the average amount of yearly EPOs issued by Spanish courts before 2018. More likely, the COVID-19 pandemic explains the decline. It is only in the coming years where we might see whether Bondora has caused the EPO Regulation to lose its charm among Spanish creditors or not.