If Mohammed Aziz Was Chilean: The Role of Law in Financial Inclusion and Protection of Mortgagors from Europe to Chile
| Autor | Irina Domurath |
| Páginas | 69-110 |
LATIN AMERICAN LEGAL STUDIES Volumen 5 (2019), pp. 229-266
IF MOHAMMED AZIZ WAS CHILEAN: THE ROLE OF
LAW IN FINANCIAL INCLUSION AND PROTECTION OF
MORTGAGORS FROM EUROPE TO CHILE
IrIna Domurath*
Abstract
This article explores the role of law in the expansion of home
ownership and the protection from over-indebtedness through
mortgage loans. We will see that the access-dimension of law,
which deals with broadening nancial inclusion of consumers into
nancial markets, is more developed than its protective dimension,
which is to protect those consumers from over-indebtedness. A
case in point is the seminal Aziz case of the Court of Justice of
the European Union (CJEU). It shows that nancial inclusion
is a fallacious concept, if not accompanied by means to protect
from inherent risks. In the end, the goal of nancial and social
inclusion and the democratization of credit is not achieved and
home ownership is put at risk. While emphasis of this article lies
on the EU legal framework, it concludes with a few comparative
remarks on Chilean law in order to answer the question: what
would have happened to Mohammed Aziz if he was Chilean?
Keywords: nancial inclusion; over-indebtedness; mortgage law; consumer protection;
EU Law; Chile
I. INTRODUCTION
In July 2007, Mohammed Aziz concluded a loan agreement secured by a
mortgage with a Spanish bank. It concer ned an amount of EUR 138.000 to be
reimbursed in close to 400 instalments for a period of more than 30 years. Mr Aziz
had a xed monthly income of EUR 1.341 and the monthly instalments amounted
to more than half of his monthly salary.1 Mr. Aziz paid off the loan for ten months,
until he lost his job. After trying unsuccessfully to make Mr. Aziz continue to repay,
the bank instituted enforcement proceedings. In a judicial auction in July 2010, no
bid was made. The court consented to the vesting of that property at 50 per cent
of its value. Mr Aziz was evicted from his home and, a particularity in Spanish law,
remained liable for the payment of the outstanding credit amount.
* University of Amsterdam, The Netherlands (irina.domurath@posteo.de). Article received on April
18, 2019 and accepted for publication on May 31, 2019.
1 CJEU, 14/03/2013, C-415/11 Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa
(Catalunyacaixa) (2013), ECLI:EU:C:2013:164; facts of the case in paras 18 – 31, and Opinion of
AG Kokott in C-415/11 (Aziz).
Irina Domurath
230
LATIN AMERICAN LEGAL STUDIES Volume 5 (2019)
This case, which has led to one of the most seminal judgments of the European
Court of Justice (CJEU) since the nancial crisis of 2008, illustrates two connected
phenomena of our times: home ownership and nancial inclusion. Nowadays, private
home ownership is probably one of the most widespread social institutions of modern
life. Since the ascent of human and political rights with the French Revolution,
private ownership of real property has been considered a pillar of individual
freedom.2 Supported by the rise of nance, which enables increasing investment
into real property, taking on private debt for the acquisition of a home has become
commonplace. At the same time, the nancial crisis of 2008 and cases such as the
one of Mr. Aziz have reminded us that private home ownership cannot be taken for
granted and is more often than not premised upon the repayment of mortgage credit.
The social repercussions of ‘failed home ownership’ can be hardly underrated.
This article explores the role of law in this development, with an emphasis of
the development in the last decades. It is based on the assumption that law affects the
expansion of mortgage credit. Similarly, against the backdrop of the nancial crisis
of 2008, it is claimed that it must also provide for tools to protect mortgage borrowers
from over-indebtedness. I argue that the legal framework currently in place emphasizes
access to mortgage credit at the expense of protection from over-indebtedness.
The argument proceeds in two main steps. First, the article describes the
development of the political economy of home ownership and expansion of
mortgage credit and explains the fallacy of its basic assumptions (II). Second, it
examines in more detail the role of law in this development with a focus on the
rules in place in EU law (III), both regulatory and contract law (3.1). Here, we will
see that, while the EU legal framework clearly emphasizes the supply-side driven
access to mortgage credit for consumers (3.2), it neglects the protective elements
necessary to protect mortgage borrowers from over-indebtedness (3.3). The most
prominent causes for over-indebtedness – the lack of nancial means and unforeseen
adverse events – are not taken into account in the design of the main legal provisions
concerning the supervision of nancial markets, creditworthiness assessments
(CWAs), and the control of standard contracts. As a result, they cannot guarantee
private homeownership. This article ends with a few remarks comparing the EU legal
framework with the most pertinent Chilean rules, painting a differentiated picture of
mortgagor protection in Chile (IV).
II. THE POLITICAL ECONOMY OF HOME OWNERSHIP AND
MORTGAGE CREDIT
2.1 Retreat of the welfare states: the case of housing
In the last decades, states all over the world have retreated from the direct
provision of welfare to their citizens. Older populations and high unemployment
rates put pressure on public health and pension systems as well as social security
2 For a forceful rebuttal of this assumption, see
matteI
(2014).
If Mohammed Aziz was chilean: The role of law in nancial inclusion and protection of...
Volume 5 (2019) LATIN AMERICAN LEGAL STUDIES
231
budgets. With spreading neo-liberal ideas, states attempted to cut public budgets for
social policy retrenchment. Now we live in a political economy with underdeveloped
welfare states, in which governments rely more and more on means-tested benets,
major transfers of responsibilities to the private sector, and changes in eligibility
rules.3 Policies increasingly emphasize individual agency, for example with regard to
employment and job search as qualications for unemployment benets.
Broadly in line with the German-Austrian ordoliberal school of thought, the
state role in this privatization process lies in putting into place institutional and legal
regulations that free the market from distortions.4 In this tradition, the Chicago School
advocates for minimal state interventions in markets.5 In this view, state intervention
into markets must be reduced and former public-sector industries privatised and
subjected to market forces.6 In order to legitimize the retrenchment of social policies,
governments persuade their voters that the losses inicted on some of them can
still appear as an electorally attractive proposition.7 To this end, they use economic
theory as a kind of ‘prop’ that helps them to convince voters that retrenchment in the
present will lead to future pay-offs.8
Finance is the “driver” of privatisation efforts.9 Relying on nancial markets,
governments provide nancial resources to beneciaries on the top of the social
pyramid and then sell them public assets in exchange for these resources, thus turning
public welfare into private wealth.10 The narrative is that accumulation of private
assets then creates pressure to nd investment opportunities, offering relief for public
budgets while providing opportunities for private asset owners. The expansion of
credit is the major factor in the nancialization of citizens.11
Home ownership is a particular point in case. The developments of housing
sectors, varying in their details between states, have followed the same trend of
increasing privatization and commodication worldwide. While the US housing
sector was largely dominated by private home ownership, large-scale social housing
3
Castles
et al. (2010).
4
rose
(1999).
5 Most prominently advocated by
FrIeDman
(2002). The connection between the tightly connected
Austrian and Freiburg Schools is brought about by, not only but most prominently, Friedrich Hayek
who worked not only in Freiburg and Vienna, but also Chicago. He later also met Chilean dictator
Augusto Pinochet.
6
FulCher
(2004), pp. 49-50.
7
PIerson
(1996), p. 242.
8 Classical economic choice theor y and principal-agent theory are the most used, which both claim
that private companies operate more efciently than publicly run companies,
Parker
(1998), pp.
30-31. In this sense, economic theory is a powerful means to support the establishment of “ctional
expectations” with regard to a narrative of an imagined future,
BeCkert
(2016),
BeCkert
(2019).
9
huFFsChmID
(2009).
10
huFFsChmID
(2009), pp. 49, 53-54.
11
ComParato
(2018).
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