On the 21 December 2016, the European Court of Justice produced a Judgment, in relation to mortgage loans and the limitations set by the Spanish Supreme Court, regarding the unfair practice of clauses relating to minimum interest rates.
The Bank of Spain has estimated that it will cost the banks about 4 billion euros to repay sums from this practice, known as “floor clauses.”
The Judgement of the Court of Justice of the European Union which comes into immediate effect, is final and cannot be appealed.
On the 9 May 2013, the Spanish Supreme Court in Judgment No 241/2013, ruled against the BBVA, Caixa Galicia (NCG BANCO), and Cajamar in respect of the clauses establishing a minimum rate below which, the variable rate of interest could not fall (floor clauses/clausula suelo) contained in the conditions of their mortgages agreements.
The Spanish Judgment declared that floor clauses were illegal when they were included in the contract without sufficient transparency, so that the consumer knew its importance and relevance as an essential element of the contract. Therefore, any mortgage agreement that included a floor clause vitiated by a problem of transparency will be affected by the Judgment regardless of which was the responsible financial institution.
The Supreme Court of Spain stated in 2013 that its judgment would not have retroactive effects, in other words, that it would not proceed to claim refunds of the improperly charged floor clauses.
According to the new Judgement from the Court of Justice of the European Union, the Judgment ruled by Spanish Supreme Court in 2013 is unfair because itensures only limited protection for consumers who have concluded a mortgage loan contract containing a ‘floor clause’ before the date of the judgment (9/5/2013).
It is understood that the protection is incomplete and does not constitute either an adequate or effective means of preventing the continued use of that type of term. The conditions stipulated by their national laws concerning unfair terms contained in a contract concluded between the consumer and a professional shall not be binding on the consumer.
The EU Directive imposes on the Member States an obligation to provide adequate and effective means for the cessation of the use of unfair terms in contracts concluded between professionals and consumers.
Consequently, while it is for the Member States, by means of their national legislation, to define the detailed rules under which the unfairness of a contractual clause is established and the actual legal effects of that finding are produced, the fact remains that such a finding must allow the restoration of the legal and factual situation that the consumer would have been in if that unfair term had not existed.
In that regard, it is true that the Court has also recognised that consumer protection is not absolute. In particular, it has ruled to the effect that EU law does not require a national court to disapply domestic rules of procedure conferring finality on a decision, even if to do so would make it possible to remedy an infringement of a provision, regardless of its nature, contained in Directive 93/13.
What to do if this affects you ?
The first thing to do is try to negotiate directly with the branch where you applied for the mortgage. They can remove the clause and return the overcharged payments, without the limitation of time based in the Judgement from 9 May 2013.
Some financial institutions have proposed to their customers in a private agreement, to eliminate the clause, temporarily or definitively, in exchange for moving the mortgage to a fixed rate instead of euribor + a differential, and in many cases to delay the collection of the clause, fix a new ground zero clause (to prevent the mortgaged from benefiting from the negative euribor), and ask the customers to contract life insurances and other products.
If it doesn’t work you can also file a complaint to the Customer Service of the bank. The claim should be based on lack of transparency and lack of mutual benefit to all parties involved in the mortgage contract (lack of reciprocity in the max and min rates applied in the binding offer,), and that the terms and conditions were not explained clearly, so the bank failed to fulfil the Law 41/2007 SAC.
If the customer service of the bank decides against your interests, you can file a claim to the Bank of Spain, and if there is no positive answer, our advice is to go to court.
What if you have signed a document with the bank not to claim?
A disadvantage arises for this type of revision because some clients may have signed with the bank that they waive any other claim and, therefore, cannot demand the return of interest deemed unfair by the European court. In these cases, it will be necessary to consider whether the clause signed with the bank can also be unfair.