Court annuls mortgage rate floor clauses and orders banks to backdate the refunds to 2013

2016-04-20 08:00:00

A judge in Madrid has just taken a decision that could benefit more than 2.5 million people in Spain whose mortgages contain an interest rate floor clause and who have therefore not benefited from important reductions in the Euribor rate in recent years. The Ausbanc association believes that over 100,000 of those affected are in Malaga province.
Judge González has declared this type of clause null and void for a total of 15,000 people who, through the Adicae bank users’ association, took legal action over the terms of their mortgages, which had been taken out with 101 financial entities (they now number 40 after bank mergers). She also ordered the banks to refund the money that had been “unduly paid” by the clients from 9th May 2013 onwards plus the interest that would have been accrued on those amounts.
The Malaga bank Unicaja is one of those affected by this legal decision, but it is not the only one. Almost every bank that operates in Spain has applied interest rate floor clauses to some mortgages and will therefore also be affected.
However, the decision is not yet definitive since those affected have the right to appeal. Several banks have already announced that they plan to do so. If the appeal fails, analysts calculate that the sentence could cost the banks around one billion euros.
Although she did not examine the individual agreements between the mortgage lenders and their clients, nor their personal characteristics or circumstances, the judge referred to consumer law and Spanish civil law to justify her decision. She concluded that the clauses in question “suffer from lack of transparency,” and this is to the obvious detriment of the borrowers because it “alters the financial burden of the contract they originally consented to.”
This is because borrowers believed that they were taking out a loan at a variable rate. In reality, however, there was a fixed minimum rate that they were unaware of.
Adicae had requested that the refunds be backdated to the date each mortgage had been signed, but the judge rejected this, as did the Supreme Court because the banks could claim that until the Supreme Court made its first decision they had been acting in good faith.
“Open eyes and minds”
The judge said that this initial sentence should “open the eyes and minds of contracting parties”. From now on, financial entities and their clients can “check and clarify” whether the interest rate floor clauses, which are legal in principle, lack transparency, “through insufficient information.”
As a result of different legal cases, banks have withdrawn these clauses from about a million mortgages, but many others still remain in force. Removing the interest rate floor could cost financial entities 2.2 billion euros a year in interest payments if the definitive sentence forces them to cancel the clauses.
“It only applies where there has been a lack of transparency”
The Spanish Confederation of Savings Banks (CECA) points out that the recent sentence only applies to banks whose mortgage conditions have a lack of transparency regarding interest rate floor clauses.
“The court sentence and its effects are being carefully studied by CECA and its associates, given their complexity,” a statement from the organisation explained.
The organisation stresses that its associates “will continue to actively collaborate with the authorities in designing and implementing measures that aim to alleviate situations of vulnerability in mortage clients”.
Adicae is holding a meeting for those who could benefit from the sentence today at 6pm at their headquarters in Malaga (Calle Salitre 11, 3rd floor, Offices 9-11). Through the platform (afectadosclausulasuelo.org), the association will request banks apply the court order as soon as possible so that borrowers no longer have to pay the floor rate.
The Spanish Confederation of Savings Banks (CECA) points out that the recent sentence only applies to banks whose mortgage conditions have a lack of transparency regarding interest rate floor clauses.
“The court sentence and its effects are being carefully studied by CECA and its associates, given their complexity,” a statement from the organisation explained.
The organisation stresses that its associates “will continue to actively collaborate with the authorities in designing and implementing measures that aim to alleviate situations of vulnerability in mortage clients”.
Adicae is holding a meeting for those who could benefit from the sentence today at 6pm at their headquarters in Malaga (Calle Salitre 11, 3rd floor, Offices 9-11). Through the platform (afectadosclausulasuelo.org), the association will request banks apply the court order as soon as possible so that borrowers no longer have to pay the floor rate.source surinenglish