A recent Case Law in Spain has opened the door for claims against banks by self-employed individuals and businesses for floor clause limits in mortgage loans.
The client (a self-employed taxi driver) has now received a refund from the bank of over €20,000 for illegally charged interest.
New Case Law sets a precedent in-floor clauses
Floor clauses are one of the most challenged aspects of mortgage loans in Spain. Banks used to routinely include the clause (setting a bottom limit to the interest rate) in mortgage contracts. While interest rates remained high, this was not a problem for clients. However, as soon as they dropped, clients found themselves paying interest well above the official rate because of the floor clause.
The new confirmed case opens the door for claims against banks by self-employed individuals and small and medium businesses (SMEs) for abusive floor clauses.
For Case Law to set a precedent in Spain, there must be two identical rulings by the Supreme Court.
The first Case Law ruled in the client’s favour in January 2019 and the second (March this year) confirms the initial sentence.
Find out more about claims against floor clauses in mortgages.
The case itself
In the new Case Law, the client, self-employed, had requested a loan from the bank for the acquisition of a Madrid municipal auto-taxi license. The loan was a mortgage guarantee at variable interest, with a limitation to the variability of the interest rate (Floor Clause) of 6.50%.
The client sued the bank and required the declaration of nullity of the clause limiting the variability of the interest rate (floor clause).Besides, he requested that the bank be sentenced to refund the amounts unduly charged because of the clause.
First hearing
The first court hearing ruled that the clause in the original loan contract did not pass the incorporation control. In layman terms, this means that the clause did not have clear, specific and simple wording to allow normal understanding of it.
For a clause to meet incorporation control requirements, the reader must be able to understand its meaning and comprehend its consequences.
The court ruled that the bank had not complied with the administrative obligations of transparency. It also found that the notary had not specifically warned the borrower of the existence of this floor clause.
As a result, the borrower had no real opportunity to find out that the loan was subject to a limitation on the variability of the interest rate.
Consequently, the court declared the non-incorporation of the litigation clause and condemned the bank to refund the amounts charged because of the floor clause.
Bank appeal
As Costaluz Lawyers well know, banks tend to appeal sentences against them as happened in this case. However, the appeal was rejected, confirming that the clause did not pass the incorporation control.
Supreme Court review
Once the Supreme Court reviewed the case, the Civil Chamber dismissed the Supreme Court appeal filed by the bank and forced the entity to return to the client the amounts paid by the application of the clause. In this case, the total amount was in excess of €20,000 euros.
The bank claimed that transparency control is only applicable to contracts with consumers, a requirement that the borrower did not meet because of the loan’s business purpose.
However, the Supreme Court explains that, although it is true that controls of transparency and abuse are not appropriate in contracts made under general conditions where the contractors are not consumers, the incorporation control is.
Incorporation control is pertinent with respect to any adherent, be they a consumer or professional.
Costaluz Lawyers opinion
At Costaluz Lawyers, we welcome this recent decision as we believe that non-transparent clauses in loan contracts are unfair whether the borrower is an individual, self-employed or SME.
We have been fighting successfully for consumers’ rights against Spanish banks for over a decade, and we believe that this latest case will help more people recuperate the money they have paid unnecessarily in loans with floor clauses.
If your loan contract contains a floor clause and you believe you have grounds to claim a refund, get in touch for a free consultation. Our legal team will be only too happy to help.
Maria Luisa Castro
