March 4, 2020 / 4:33 PM / a month ago

UPDATE 2-Spanish banks under pressure after WiZink credit card ruling

* Supreme Court says WiZink card interest rate too high

* Profitable part of consumer lending now under pressure

* Shares in Bankinter, Sabadell and Caixabank fall (Adds analyst comment, detail on revolving credit)

By Jesús Aguado

MADRID, March 4 (Reuters) - Spain's Supreme Court ruled on Wednesday that a 27% interest rate applied by online bank WiZink to one of its credit cards was unjustified, a decision that could force other Spanish lenders to cut some of their rates.

Shares in Caixabank, Bankinter and Sabadell fell more than 3% after the much-awaited ruling on the view that it effectively sets guidelines for the sector, even though it was specifically about a WiZink card.

Ultra low rates in the euro zone have pushed Spanish banks to seek returns from more profitable business lines such as so-called revolving credits cards, which have become increasingly popular with Spaniards chasing fast liquidity.

The cards let customers continuously borrow up to certain limits, depending on purchases and payments, and automatically renew credit lines, in return for high interest rates.

The case before the Supreme Court involved WiZink's "Visa City Oro" card, issued to a customer in Santander in 2012 and charging an annual interest rate of 26.82%.

Spain's highest court backed the ruling of a regional court that the WiZink card interest rate was abusive.

"Setting a significantly higher than normal rate of interest on money cannot be justified by the risk arising from the high level of defaults linked to consumer credit operations granted in a swift manner," it said referring to Spain's usury law, which dates back to 1908.

Under the law, there is no specific rate above which a loan is defined as usurious but it states that borrowing costs should not be manifestly above the normal cost of credit.

Holders of revolving credit cards have been arguing in the courts for years that rates of around 20% or above are unfair and that banks should apply rates similar to other types of consumer loans, which tend to charge about 7%.

Over the past five years, the value of revolving credit transactions has jumped 54% to 13.6 billion euros ($14.8 billion) while home loans have fallen 12%.

PRESSURE ON PROFITS

Analysts said Wednesday's Supreme Court ruling could push banks to cut rates on revolving credit cards or change their policies on commissions and fees.

"In the end, this means more pressure on the profitability side of Spanish banks on a product seen as highly profitable," Nuria Alvarez, an analyst at brokerage Renta 4 in Madrid, said.

Other banks are facing hundreds more lawsuits related to revolving credit lending, according to lawsuits seen by Reuters.

WiZink, which manages about 3.4 billion euros in credit cards, said revolving transactions were used by consumers throughout Europe and it did not share the court's conclusions. It did not say what action it might take now.

The revolving credit card in question was originally issued by Citibank Spain but now belongs to online lender WiZink.

Consumer association Asufin, which welcomed the ruling, said the case was not just about usury but also the lack of transparency when banks sell such products, making it hard for the average consumer to understand what they would have to pay.

The ruling came just a day after Europe's top court sent a dispute over mortgages back to Spanish courts.

While the European ruling appears to have shielded banks in Spain from a worst-case scenario that could have meant billions of euros in upfront costs, Tuesday's verdict opens the way for individual claims that could still hit banks' bottom lines. (Reporting By Jesús Aguado; Editing by Ingrid Melander and David Clarke)

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