Changes to the regulation and the declaration of unfair terms in mortgage agreements: an event study approach to the Spanish Banking Industry

Abstract

This paper investigates how the European Union and Spanish changes to the regulation and the declaration of some unfair terms in mortgage loan agreements have affected the valuation of the Spanish banking industry. This paper has a dual legal and economic focus, and could consequently be of interest not only to financial institutions but also to the administrator of justice, which oversees the correct functioning of the financial system and the protection of consumer rights, in this case, mortgage holders. The empirical analysis was carried out using a sample of Spanish companies composed of 11 financial institutions that are listed, or have been listed, on the Madrid stock exchange and 24 non-financial companies listed on the IBEX-35 index. The period analysed was from December 2009 to March 2019. One of the main conclusions was the observation that, in general, the abnormal negative returns of financial institutions are greater when dealing with a decision from the Court of Justice of the European Union rather than from the Spanish Supreme Court. The events referred to as unfair terms that have had the most impact as a whole on the returns of shareholders were, because of their impact of the valuation of financial institutions, in order of importance, those relating to default interest charges, followed by rounding up, and, in last place, the unfair terms of floor clauses, mortgage constitution expenses and multi-currency loans.