Floor clause

 

The EUCJ decided on the December the 21st of 2016 Ruling on some queries made by Spanish courts regarding the possibility to force the banks which applied abusive floor clauses to customers to pay back to them all the monies that the banks charged as excessive interests rates. The EUCJ has finally ruled in favor of the consumers again forcing the Spanish bank industry to respect consumers’ rights once and for all at least on this subject. So it is easier than ever to claim for your money back from the banks which robbed you.

Sorry, but what is a floor clause?

Yes, let us start from the beginning. A floor clause is a stipulation set on the mortgage variable rate loans which limits the interest rate variability. For instance, if you have a variable interest rate loan based on EURIBOR plus 1% and the bank enforces a condition which sets the minimum interest rate to pay by you at 3% for instance. This means that if the EURIBOR falls under 2% you will be paying anyway 3%. And this is more than EURIBOR plus 1% thus you will be overcharged by your bank if this stipulation is abusive. As the EURIBOR is under 0% currently so you should pay 1% on your mortgage loan. But due to the minimum rate set on the floor clause you will pay 3%. Ant this does not look fair at all, does it?

The majority of the mortgage loans in Spain are variable rate mortgage loans. And the majority of these loans are based on the EURIBOR rate.

It is illegal a floor clause?

The floor clauses are valid if… 

They are valid if agreed according to the law. When enforced to consumers’ contracts such as mortgage loans the relevant issue is that the consumer has to understand how the clause floor works exactly for them.

Fulfiling formal regulations’ requeriments

It is not enough that the bank fulfills all the regulations’ requeriments to enforce the clause floor in the contract. The consumer needs to understand perfectly how the stipulation works for them now and in the future. Also, the consumer ought to understand that this stipulation is an essential part of the contract because affects to the interest rate. And consquently affects to the payment duty of the debtor which is essential in a loan agreement.

Transparency

This understanding requires an information stage to the consumers which in some cases it did not even exist at all. Many of the floor clauses were enforced in consumers’ contract in the good years of the real estate boom when loans were cheap and easy to get. Also the EURIBOR was higer than 5% so comsumers did not take into account as relevant a floor clause setting much lower minimum rates. So it seems that floor clauses were just enforced by banks on their own benefit. The outcome were plenty of unbalanced contracts with the consumers. This lack of balance abusing of the consumers’ good faith is what makes abusive the floor clause.

Rulings on floor clauses

The above mentioned were essentially the reasons of the May the 9th 2015 Spanish Supreme’s Court ruling making void and null the floor clause. The problem is that at the same time the Spanish Supreme Court stated that the banks did not have to return all the monies paid in excess by clients from the beginning but only from the date of its ruling (May the 9th 2015). This was against both the European and the Spanish basic contrat principles. Finally the EUCJ ruled that if a stipulation is abusive it does not exist in the contract and it must not affect the consumer. Therefore, all the monies paid in excess by consumers have to be returned with interests from the very beginning. 

What happens if the floor clause is abusive?

If the floor clause is abusive this cannot affect in any way the consumer. This means that the loan will work as if the floor clause did was not enforced from the very beginning. It means that the floor clause has never existed because is void and null from day one.

And what exactly are the consequences for me if the floor clause is void and null?

The consequences are that following the example shown in point 1 your next mortgate receipt will show an interest rate of 1% and not 3% and you will pay much less in your mortgages receipts from now on.

Great! And what happens with the monies I overpaid so far?

The bank has to pay them back to you in full plus the corresponding legal interest since the day you overpaid until the day you recover those monies.

Is it difficult to claim to the bank?

Not at all.

The procedure is as follows. First of all you have to approach the bank and try to resolve the matter amicably. There is a special claim procedure to the bank that lasts three months maximum. It was set specifically by the government to deal with the thousands of floor clause claims.

If you do not reach a solution a formal claim to the bank should be done. Either if the answer is still no or the bank do not reply a formal claim to the Bank of Spain can be done. We need to take into accout the following. First, the claim to the Bank of Spain is not binding. Second, the Bank of Spain only checks if regulation’s formalities have been met by the bank denounced. So the conclusion is that it is a useless claim. It is a waste of time.

Then the only way left is claim to the court.

But if I need to sue the bank, will this be expensive?

Again not at all. When the banks lose the trial they have to pay the legal fees so the final cost for you is of €0.

Understood. So how do I start the claim?

We advise you to contact specialized banking lawyers to deal with the matter from the beginning until the end. If you are want to whether you are or not a victim of the floor clauses and how much money have you been robbed by your bank, please do not hesitate to contact us and we will advise for free on this issue.

Does the BREXIT affects to my claim possibilities if I am British?

Once more not at all for two reasons. First, so far the UK is still an UE member. We could say that the divorce proceure has started but the divorce decree has not already been issued. Secondly and more important, the EU consumers’ regulations are addressed to the EU member States. This means that these regulations have to be applied by Spain to all consumers regardless of their nationality. Therefore it is not relevant if the UK is still in the EU or not for these purposes.

Alright, I want to claim. What do I do now?

Please contact us find out if your bank is still robbing you and to claim  your money the easiest way.

Thank you

Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it. You could be also interested in the following post.

Warning

Please, note that this is general information. This is not specific legal advice. It is advisable to seek legal advice for any specific legal issue.