In a landmark decision on May 18th, Spain ushered in a digital era for its housing sector by enacting the Ley de Vivienda. The legislation, which reshapes rental dynamics for tenants and landlords alike, has one clause that stands out—rent can no longer be paid in cash.
This bold move demands in Article 10 of the regulation rent payments to transition exclusively to “electronic means,” like Bizum or bank transfer, effectively ending the age-old tradition of cash-based transactions between tenants and landlords. While bank transfers and digital payments are hailed as the new standard, exemptions exist for cases where the involved parties don’t possess bank accounts or lack digital payment capabilities.
Preventing shady transactions
Spain’s pioneering decision sets it apart as the maiden eurozone country to ban the customary “en metálico” or cash-based rent payments. Advocates of the change emphasise its role in curbing shady transactions. However, naysayers view it as an infringement on consumer rights, with potential ramifications for the elderly and other at-risk demographics.
Concerns about the legislation’s restrictive nature
Alejandro Marín, representing the influential OCU consumer watchdog, has voiced concerns about the legislation’s restrictive nature. Marín underscores the undue challenges the elderly population and certain vulnerable groups may face, particularly with the gradual decline of physical bank branches in favour of digital platforms. He further questions the alignment of this new rule with the Law in Defence of Consumers and Users amendment passed the prior year, which endorsed cash payments.
Reducing fraudulent undertakings
On the other hand, the Spanish government defends its stance by highlighting the merits of digital transactions in significantly reducing fraudulent undertakings. This sentiment resonates with Spain’s consistent efforts to tackle tax evasion and illicit money activities, reflected by the 2021 decision to cap cash payments at €1,000.
Conflicting nature of current legislation
Yet, this recent move has opened up a can of worms. The conflicting nature of the current legislation, which still permits cash payments for rents under €1,000, leaves many pondering the practicality and enforcement of the new rule.
In essence, the advent of Spain’s Housing Law signifies a pivotal turn towards a digital rental landscape. Its potential to hinder fraudulent operations has been met with applause, but the potential setbacks for certain segments of society remain a topic of fervent debate.
What happens if you do pay your rent in cash?
If the Tax Agency detects operations greater than €1,000, the person who disbursed the amount of the amount will have to pay penalties of up to 25% of the amount paid in cash. In short, until now the main affected party was the tenant himself and not the landlord.
The only question is how long this new rule will hold given the recent elections and the likelihood that a centre-right government will take office. Furthermore, the decision by the Government to cap cash transactions between professionals at €1,000 has come under scrutiny from the European Central Bank (ECB). The financial institution has raised concerns about this limit, stating that it “significantly hinders” the execution of legitimate transactions using cash as a payment method, thereby “challenging the principle of legal tender established in the European Union Treaty.”