Spain’s Supreme Court, in a Judgment of May 9, declared the nullity of the floor clauses in the mortgages of certain banking entities due to lack of transparency.
What is a floor clause?
When you go to a bank to apply for a mortgage loan, you tend to analyse what interest rate (fixed or variable) is the one that may be most convenient when paying the bank for the different instalments.
In the fixed-rate, the same instalment will always be paid from month to month. In the variable rate, the instalments to be paid usually consist of the application of a reference index set by the European Central Bank (normally EURIBOR) plus a relative percentage (the interest that will be applied will be the sum of both.
The floor clause is a type of clause that a certain financial institution can include in a variable interest mortgage loan contract and that establishes the minimum interest rate that the clientele will pay even if the Euribor (reference for most mortgages in Spain ) is lower.
What has happened since the filing of the lawsuit for the incorporation of floor clauses in mortgages until the Supreme Court ruling?
In April 2010, a lawsuit was filed by AUSBANC against the banking entities BBVA, CAJAMAR and CAIXA GALICIA for the incorporation of certain clauses in their mortgage contracts entered into with consumers. AUSBANC brought a collective action for cessation in defence of the interests of consumers and users to declare the nullity, as abusive, of certain general contracting conditions used by the defendant entities in their variable interest mortgage loan contracts, specifically the so-called interest floor clauses that, in essence, prevent them from being lowered from a minimum limit, as well as eliminating them from such types of contracts.
On September 30, 2010, Sentence was issued by the Commercial Court number 2 of Sevilla, following the lawsuit filed by AUSBANC. The ruling contained in the judgment establishes that the claim made by AUSBANC against the entities BBVA, CAJAMAR and CAIXA GALICIA is upheld. Among other aspects, the aforementioned ruling establishes:
NULLITY is declared, as abusive, of the so-called auto floor clauses, in variable interest mortgage loans with consumers, signed by the entities BBVA, CAIXA GALICIA and CAJAMAR.
BBVA, CAJAMAR and CAIXA GALICIA are condemned to the elimination of these general contracting conditions and to refrain from using them from now on in their mortgage loan contracts with consumers and users.
It was established in the Judgment that an appeal could be made against it before the Provincial Court within 5 days of its notification.
This sentence was later appealed before the Sevilla Provincial Court by the defendant entities, which implied its not firmness and therefore could continue to include said clauses until the subsequent resolution of the appeals by the Sevilla Provincial Court.
By virtue of the request for provisional execution of the Judgment by the plaintiff entity, AUSBANC, the provisional execution was agreed (which was agreed on January 27, 2011 in the Order of the same Court). It is understood that in this Provisional Execution Order the three financial entities were obliged not to include the clause in the new contracts that were signed with consumers and users, and granted them a period of 2 months to eliminate it from the rest of their contracts, all this while the Provincial Court of Sevilla resolved the appeal presented by the financial entities against the Sentence issued on September 30, 2010.
On June 21, 2011, the Public Prosecutor filed a document requesting the person to appear in the procedure and requesting that it be held by the intervening party in understanding the corporate interest affected.
On October 7, 2011, the Sentence of the Fifth Section of the Provincial Court of Sevilla was issued, in which the appeals filed by the entities BBVA, CAJAMAR AND CAIXA GALICIA, against the Sentence of September 30, of the Commercial Court number 2 of Seville (it was declared that there was no nullity of the clauses of the variable interest mortgage loan contracts entered into with consumers and users by the defendant entities that allocate a minimum interest rate or a maximum rate of, and the three defendant entities were acquitted of the claims against them deduced in the lawsuit).
From the Prosecutor’s Office a letter dated October 24, 2011 was sent to the Fifth Section of the Provincial Court of Sevilla, considering that the Judgment issued by said Chamber did not sufficiently protect the social interest that was being defended. Therefore, by means of said letter, he prepared an Appeal for Cassation in the Interest of Law. The entity AUSBANC presented an extraordinary appeal for procedural and cassation infringement against the Sentence of the Provincial Court of Sevilla.
The Supreme Court declared on May 9, 2013 the nullity of the floor clauses of mortgages in cases of lack of transparency to consumers. This is a ruling that partially upholds the claims of the plaintiff entity. Likewise, and afterwards, he clarified the judgment handed down.
What are the effects of the Supreme Court judgment?
The nullity of the floor clauses used by these three financial entities (BBVA, Cajamar and Novacaixagalicia Banco) is determined in cases of lack of transparency. Therefore, the floor clauses are not considered illegal and these entities can continue to use them in the future, of course, conveniently informing the consumer.
The Judgment bases this nullity on the occurrence of a series of circumstances:
The creation of the appearance of a variable interest loan contract in which the downward oscillations of the benchmark will result in a decrease in the price of money.
Lack of sufficient information that it is a defining element of the main object of the contract.
The creation of the appearance that the floor has as an essential consideration the fixing of a ceiling.
Its location among an overwhelming amount of data among which is masked and that dilutes the attention of the consumer in the case of those used by BBVA.
The absence of simulations of various scenarios, related to the reasonably foreseeable behaviour of the interest rate at the time of contracting, in the pre-contractual phase.
Lack of clear and understandable prior warning about the comparative cost with other products of the entity itself.
The Supreme Court clarified that the fact that at least one of the above circumstances occurred was sufficient for the floor clause of these financial entities to be void.
The banks affected by the judgment of the Supreme Court must eliminate these floor clauses from the contracts in which they are inserted and cease their use.
However, the mortgage loan contracts (in which there were those clauses declared invalid by the Supreme Court) that are in force and signed by the affected entities, will continue to exist.
The effects of the Judgment are not retroactive, that is, the amounts already paid previously will not be returned.
How to act if the consumer finds that their mortgage contains floor clauses?
– If you are a client of any of the three financial entities affected by the Supreme Court Judgment (BBVA, Cajamar and Novacaixagalicia Banco), these banks automatically proceed to their elimination, which will imply a reduction in the monthly instalments to be paid, since there will be an adaptation of the mortgage to the current levels of Euribor.
– If you are not a client of any of the entities affected by the Supreme Court Judgment, the floor clauses, if they exist, are perfectly legal (legally said financial entities are not obliged to eliminate these clauses) but the Supreme Court Judgment creates jurisprudence which means that, if the requirements of the Supreme Court Judgment are met, its nullity may be demanded before the Courts. In this case, it is recommended to follow the steps below:
- Review the mortgage in order to check if it contains a floor clause and that the provisions of the Supreme Court Judgment are complied with so that this clause could be declared void at the time.
- If the existence of this floor clause is proven, you can claim your claims or make a request to the bank branch in writing.
- If, after the foregoing, a satisfactory solution is not achieved, a claim or complaint may be submitted to the customer service of the financial institution in question, which must be answered within 2 months from its presentation.
- If you are dissatisfied with the response from the customer service or if 2 months go by without a reply from the entity, you may submit your claim to the Bank of Spain’s Claims Service (http: //www.bde.es/clientebanca/home.htm), being an essential requirement to claim before the Bank of Spain having previously claimed before the entity. The processing by the Bank of Spain will end with a report that, although not binding, its meaning can be used in a hypothetical subsequent judicial procedure.
- If, by virtue of the previous Report, the situation with the Bank continues to be unsatisfactory for the consumer, it is possible to go to court and file the appropriate claim, since the Supreme Court Judgment creates jurisprudence. Justice can be pronounced at the time in a way that gives or does not agree with the consumer.
Fairway Lawyers work on a NO WIN NO FEE basis so you don’t have to pay any fee to us.
All we need is a copy of your last mortgage payment and a copy of the mortgage deeds so we can check if you have a ‘floor clause’ included in the deeds – and if you do we can calculate the amount of the claim.
Contact diego@fairwaylawyers.com for more information or call 00 34 952 771 150 or 00 34 606 307 885
