EU commission rules on floor clauses

Banks must return the extra money they charged

Spanish Law Thursday, December 22, 2016
EU commission rules on floor clauses

The EU Court of Justice has ruled that banks in Spain must return all the interest on mortgages that they have over-charged prior to 2013 as well as after. During the property boom, many Spanish banks got their customers to sign mortgage agreements that included a floor clause. This floor clause meant that the amount of interest to pay could not drop below a specified level, no matter how low interest rates fell in the market. The EU considers that this practice was ‘abusive’ and that customer protection requires the banks to rectify the abuse.   

Originally it was determined by the Supreme Courts in Spain that banks would have to pay back the extra interest charged only since 2013. The decision to limit the length of time for which customers could be recompensed was justified by the impact it would have upon the nation’s banks and an economy that was still recovering.

However, the High Court in Luxembourg sees it differently.  They consider that to only pay back money from 2013 onwards is insufficient for the protection of consumer rights. In other words, if Spanish banks were wrong to charge this extra in 2013, they were also wrong to charge it in 2012 and the years proceeding. To only pay back within a set window does not sufficiently address the issue. Those who have paid higher levels of interest than they should, must not be short changed.   

This will come as a major blow to banks in Spain as the estimated cost of paying back the additional interest is between 5,000 and 7,000 million euros. This is in addition to the 2,500 million euros that has already been paid out. A very significant sum of money.    

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