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Update 23/10/13

First ruling on mortgage minimum interest rates in favour of a bank

The Provincial Court of Badajoz has ruled that the minimum interest rate clause in the mortgage contracts of Extremadura Saving Bank, which forms part of Liberbank, is legal. It decided that there had been no lack of transparency, as the clause in question was clear and the information in the mortgage contract was “sufficient and comprehensible.”

This ruling upholds the sentence handed down by Commercial Court Number 1 of Badajoz, which dismissed the action filed by the bank customer. This ruling is the first ruling that has found in favour of a bank since the ruling of the Supreme Court of 9th May.

In this regard, the clarification of its earlier ruling issued by the Supreme Court has forced several banks, including BBVA, to remove the minimum interest rate clause from their mortgage loan contacts.

Spanish Mortgages are at an all time low as a result of on going low interest rates, are you benefitting from this or do you have a clause in your mortgage agreement which means your mortgage can’t go below a certain interest level (Floor Clause) if so read on.
Steps for removing a floor clause without going to court

A ruling from the Supreme Court on floor clauses has set a precedent by declaring such clauses void in cases showing a lack of transparency for the customers. A large number of people have been affected by this type of clause and have been unable to benefit from the historic fall of the Euribor. There are free alternatives to court action, although they do not always guarantee a result.

1) It is possible to ask the bank manager to remove this type of clause
The first step that someone affected by a floor clause should take is to pay a visit to the bank and speak with the branch manager to try and have the clause removed.

2) If such a meeting proves fruitless, the mortgage holder can ask for the clause to be removed by the banking customer watchdog
This body is obliged to reply within a maximum of two months and its response must be supported by the law.

3) If the response is negative, the affected party can turn to the Bank of Spain
If the response from the bank is negative, the affective party can turn to the Commissioner for the Defence of Banking Service Customers of the Bank of Spain, a body responsible for resolving complaints, claims and queries related to banks. It must issue a report in four months. If that report is in favour of the affected party, the financial entity should remove the pertinent clauses from the contract. It is not obliged to do so however because the report is not binding, but the bank will run the risk of the customer taking that report into the legal system.

Mortgage holders can remove floor clauses from their contract at no cost to them within an average period of six months. Javier Sevillano recalls that the removal of clauses is not automatically accompanied by economic compensation resulting from the inability to benefit from a low Euribor.

4) As a last resort, court action is always a possibility

Banks not required to return money from floor clauses by order of the Supreme Court
The Supreme Court has reiterated the nullity of floor clauses in cases lacking the contractually required level of transparency for the consumers, not because they are illegal. However, it adds that the nullity does not affect the mortgage contracts nor amounts already paid, meaning that the banks are not required to return any money charged under this type of clause.

The First Chamber of the Supreme Court has set a precedent on the validity and possibility for legal control of the abusive nature of floor clauses included in loan contracts between banks and consumers with a mortgage guarantee and variable interest rate loans signed with consumers and users.

The court accepts the validity of such clauses when they meet the special transparency requirements needed in contracts signed with consumers. Furthermore, consumers must be informed that when the interest rate falls below certain levels, the mortgage holders will not benefit from any further fall in the baseline rate (usually the Euribor).

The high court also states that they must be informed in a clear and unambiguous manner, without the possibility of the clauses passing unnoticed by the consumer among the many other clauses contained in such a complicated contract.

Moreover, the consumer must be informed of other products so they can make a comparison and choice after receiving sufficient information to do so. However, in the corresponding legal proceedings, the Supreme Court declares the removal of floor clauses on grounds of a lack of transparency and information to the consumer.