THE OPERATION OF REVOLVING CREDIT CARDS

Banks have received harsh judgments in recent years regarding null clauses in their mortgages, among others. Today, we talk about revolving credit cards.

Interest rates on revolving credit cards are a fundamental aspect to consider. They operate dynamically, calculated on the outstanding balance each month. Additionally, once interest is added to what you owe, the next month’s calculation will be based on the principal plus the previous interest, and so on, increasing the debt rapidly even if payments are made. This is known as compound interest, and it can accumulate quickly if the full balance is not paid at the end of the billing period.

Here’s the catch: Consumers are told they can use the money however they like and then pay it back over extended periods with a very small installment. The remaining balance not covered by the installment generates interest, which in turn generates more interest on the sum of everything, and it’s barely covered by the “comfortable installment” offered. The debt increases, rendering payments ineffective. There are cases where the debt continued to grow even with monthly payments!

Thus trapping the borrower in this manner is what jurisprudence knows as a “captive debtor.”

REVOLVING CREDIT CARDS CAN BE NULL DUE TO USURY OR LACK OF TRANSPARENCY

1. Nullity Due to Usury

The Law of July 23, 1908, on the nullity of usurious loan contracts, known as the “Azcárate Law,” states: “Any loan contract stipulating an interest notably higher than the normal interest rate and manifestly disproportionate shall be void.”

The usury figures were set by the Supreme Court in its judgment 317/2023 of February 28: “It shall be considered usurious if the interest exceeds by six percentage points the Average Rate that can be considered as the normal interest rate, which shall be the average interest rate for credit and revolving cards in the Bank of Spain’s statistics.”

In summary, the interest on the revolving card will be void if it exceeds by 6% the average interest rate for revolving credit cards of that year. These averages are published by the Bank of Spain and can be consulted.

2. Nullity Due to Lack of Transparency

It is common to sign a contract that explains the APR interest but not the revolving operation that traps the borrower. Contracting that fails to explain this special revolving operation regarding the installment and the possibility of extending the loan is null due to lack of transparency. This is clearly explained in SAP OURENSE 102/2024 of 07/02/2024:

“It is not informed, for example, as it is shown, without the desirable clarity, in the extracts subsequent to the contract, that of the 39.99 euros paid in installments in the billing period from August 17 to September 15, 2020, only 9.32 euros are allocated to capital amortization. […]

the contractual clause does not explain with the required clarity that, even if the holder pays the agreed installment, the capital to be amortized may be minimal, which will result in the extension of the amortization period.”

IN CONCLUSION: REVOLVING INTERESTS THAT ARE NOTICEABLY HIGHER THAN AVERAGE AND/OR THAT DO NOT EXPLAIN THE REVOLVING OPERATION AND ITS EFFECTS ON LOAN AMORTIZATION WITH THE DESIRED CLARITY ARE NULL.