A judge has ruled that a clause included in 30% of mortgages in Spain is illegal. Ábaco’s legal department explain why and what this might mean for you.
In the past, Spanish banks have not always been transparent when selling their products, particularly when it comes to mortgages. They have taken advantage of people’s lack of knowledge to sell mortgages in Spain and insurances that could never really be of benefit to them. Over the years, indignation has grown and cases have been tried out in court. The latest of these is in relation to the sales of mortgages with floor clauses or ‘cláusulas suelo’.
Many banks offered a mortgage which included a minimum rate of interest that the holder might pay. A clause such as this typically meant that no matter how much interest rates fell, the customer would always pay a base level of anything between 2.5% and 4%. Those without this floor clause would expect to pay around Euribor (0.5%) plus 1%, so a total of 1.5% in comparison to a possible 4% with a floor clause.
Why would people accept a mortgage with such a limiting factor? The fact is that many people did not have the terms and conditions explained properly. They were perhaps also seduced by the protection factor that was offered if interests rates rose. These mortgages would also have had a ‘ceiling’ or cap which would mean that if interest rates increased drammatically the mortgage holder would be protected.
In principle this might sound like a good idea but in practice it was never going to work in the customer’s favour. The ceiling was often set at Euribor + 15% - a height that it was highly unlikely that interest rates would ever reach.
For some time there has been an awareness that banks operated unprofessionally in relation to these clauses and some people had tried taking the bank to court. Others have tried persuading the bank to remove the clause and until recently this was perhaps the preferred option.
However, a judge, Carmen González Suárez, made a groundbreaking ruling in the Supreme Court that these clauses must be terminated and that banks and buildings societies must pay back the extra they have collected since May 9th 2013.
Since then the ruling was taken to the High Court of Justice for the European Union on the 26th April and we are waiting, at the time of writing, for the final conclusion which should be available before the end of the year. However, it would seem that the EU lawyers are also in favour of this action and perhaps even extending the pay back window to before May 2013.
It is estimated that approximately 30% of mortgages were sold with this kind of clause included so the cost to the banks of this potentially huge payout is estimated at 5,269 million euros. However, the exact amount of money involved remains unknown as some banks have already been making arrangements with their customers to remove the floor clause and avoid further court cases.
It’s not just one bank that’s implicated. BBVA, Sabadell, BANCO POPULAR are just some of the big names that are finding themselves challenged and checked by the courts. Altogether there could be as many as 40 banks and building societies that have been involved.
What should you do?
So what happens if you have been paying interest according to one of these clauses? Can you get your money back? Not surprisingly, the banks are not falling over themselves to return the money. If you have been affected don’t expect any little reminders in the post. However, you might be contacted by the bank to remove the floor clause from your mortgage but they are unlikely to offer to return any money wrongfully collected.
If you do feel that you have got a case and that the bank owes you money because of the interest rate you have paid then you will need to do the work yourself. However, the good news is that the outlook is favourable. If you have a clausula suelo (floor clause) and the bank has not removed it you can take the bank to court so they are forced to remove it and so that any additional interest that has been charged can be returned.
If the clause has been removed but the interest hasn’t been repaid you can take them to court for this too. It should not be necessary to cancel the mortgage in its entirety, just to remove the offending clause. Hopefully the banks will get the message that in future, their customers must know and understand what they are being sold.
One word of warning. Be sure in the meantime not to sign any wavers from your bank that will prevent you making a claim. If you do, you will lose your right to apply for a return of the interest paid. If you believe that you might have been paying more than you should, Ábaco’s legal department will be happy to check the details of your mortgage and advise you on whether you do have a claim to make.
If you would like to look at the list of banks affected by this you can on the following link ‘La Lista de entidades afectadas’.