Banks in Spain will no longer be exempt from paying court costs in mortgage ‘floor clause’ claims, a recent court ruling has decided.
A modification to the royal decree-law on floor clauses approved in 2017 has now been ruled unconstitutional by the Tribunal Constitucional (Spanish Constitutional Court) because it was “contrary to the principle of equality and protection of consumers’ rights established in the Constitution”.
This regulation was originally approved by the government of Mariano Rajoy with the aim of facilitating an out-of-court settlement mechanism due to the enormous backlog created in the courts. It established that, in the event that the aggrieved party went to court to claim their refund and the bank accepted the conditions, the latter would not assume the legal costs which, on average, cost around 3,500 euros in such cases.
Specifically, Article 4 of the Royal Decree-Law stated that the bank would only be ordered to pay costs when the consumer rejected the calculation of the amount or declined the refund and later decided to go to court because they felt that the settlement would be more favourable than the bank’s offer. However, this has now been declared “null and void”.
The court’s ruling states that the article “clearly favours those who unilaterally imposed the abusive clause and harms those who suffered such imposition […] The consequence is not only unreasonable but also represents an excessive and disproportionate obstacle for consumers”.
Another part of the decree that has been modified is the part that refers to “consumers” as “private individuals”. This has now been amplified to include companies too.
That said, not all companies can claim. According to European Consumer Law and provision 3 of the Spanish Consumers Act, any company acting out of its sphere of trade is acting as a consumer. So now, following this ruling from the Constitutional Court, any company that contracted a mortgage containing a floor clause can claim a refund – as long as they were acting in a different trade sphere.
The rulings, however, cannot be applied retrospectively and will only apply to cases heard after 14 September 2021.
The decree was challenged before the Constitutional Court by the Unidas Podemos political party on the grounds that this regulation violated the principle of equality before the law (enshrined in Article 14 of the Constitution), effective judicial protection (Article 24), and protection due to consumers (Article 51).
What are floor clauses?
These floor clauses (cláusula suelo in Spanish), which were inserted in many mortgages following the financial crash, were ruled illegal by the European Court of Justice in 2016.
The clauses meant that the interest rate on an adjustable-rate mortgage was always held above a predetermined level. That helped preserve bank profit margins but failed to pass rate cuts on to customers beyond a certain level.
Floor clauses in themselves are not illegal but, in this case, the problem was that they were not adequately explained and that clauses in contracts were not “transparent” or “understandable”.
Banks have been ordered to return all overpaid amounts from the outset of the mortgage.
If your mortgage agreement contained an illegal floor clause, then you are owed:
- The difference between the level of the floor rate and the level of interest for the period that it was below.
- Compensatory interest.
So far, Spanish financial institutions have returned more than 2.3 billion euros to more than half a million people affected by floor clauses.
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Maria Luisa Castro
