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Spain’s banks must give clients full refund for “abusive” mortgage clauses

Spanish Supreme Court ruling will see lenders having to also repay clients for pre-2013 payments

Spain’s Supreme Court has ordered the country’s banks to refund their customers all the money they earned from applying so-called floor clauses (cláusulas suelo) that set a minimum interest rate borrowers would have to repay on mortgages, even if the benchmark rate – normally the Euribor – dropped below it, as happened sharply from 2009 on, but that customers with these loans were unable to benefit from.

Spain's Supreme Court. EFE

Spanish courts have ruled that references to floor clauses were often hidden deep within contracts and addressed only in small print.

Until now, Spain’s banks were only required to annul these clauses from May 2013, following a Supreme Court ruling that year. They will now have to pay back earnings dating back to 2009, when they first introduced the clauses, an amount estimated at between €3 billion and €5 billion, and affecting some 2.5 million mortgage holders.

The banks will have to pay back up to €5 billion

The Supreme Court has followed the sentence reached in December by the European Court of Justice, which said the Spanish court’s 2013 decision to limit refunds – a ruling made to protect a debt-ridden Spanish banking sector still reeling from the bank bailout – “failed to provide complete protection” to consumers” and “did not constitute an adequate and efficient means of an end to abusive clauses.”

BBVA, La Caixa and Banco Popular are thought to be most exposed in the wake of the ECJ‘s decision, with the main focus on Banco Popular after the departure of long-term chairman Angel Ron in the wake of the institution’s poor performance. Bankia has announced it intends to refund charges to all of its mortgage holders affected by floor clauses.

In mid-January, in the wake of the ECJ ruling, the Spanish government and the main opposition Socialist Party (PSOE) agreed on a mechanism for the refunding of charges owned to bank customers. Among the measures included in the legislation is the requirement for banks to inform all clients who have floor clauses in their mortgage terms that a claims process has been opened, one that will be considered voluntary.

As well as returning the overcharged money due to the floor clause, the banks will also have to pay out interest on the capital. The mechanism will have to be in place a month after it is approved by the government. Once the bank has received the claim from the client, it will have three months to present an offer. If an agreement is not reached in this time, the mediation process will be understood to have concluded, and the client can seek legal recourse.

English version by Nick Lyne.

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