Economy chief wants all banks to follow floor clause ruling

Reforms of small print in contracts could cost banks €1bn a year

Alejandro Bolaños

Economy Minister Luis de Guindos announced on Tuesday that he has asked the Bank of Spain to ensure that all lenders across the country strip their so-called interest-rate floor clauses from outstanding mortgages to fall in line with last month's decision by the Supreme Court, which declared them illegal.

Only three banks - BBVA, Cajamar and Novagalicia - have so far removed the clauses as they were directly affected by the court's May 9 ruling, which stated that such small-print conditions lacked transparency.

"The Economy Ministry has asked the Bank of Spain to pay special attention to ensure that the Supreme Court's ruling on floor clauses on mortgages is being complied with," said De Guindos during an economic forum organized by the International University Menéndez Pelayo and held in Santander's Palacio de la Magdalena.

De Guindos said that under the new Mortgage Debtors Law banks and clients must sign their contracts before a notary, which is an additional guarantee for the customer to make sure he understands the terms of his mortgage.

"The Supreme Court's ruling was handed down so that it could be obeyed," the minister said, adding that there have been many problems concerning the transparency of clauses listed in mortgage contracts.

Floor clauses limit the extent to which borrowers can benefit from drops in the benchmark used to set variable-interest mortgages, which in the case of Spain is usually the one-year Euribor rate.

The minister also clarified that the Supreme Court ruling would not mean that lenders would have to pay out any retroactive compensation to their clients because that wasn't the issue in the case, nor was it touched on in the decision.

Nationalized banks

Some consultants believe that if the rest of the banks are ordered to follow the ruling, Spain's financial sector could lose between 750 million and 1.2 billion euros annually, depending on the Euribor.

Some banks, such as Sabadell and Banco Popular, have issued statements saying that they are not going to instigate an across-the-board suppression of the floor contract clauses as BBVA, Cajamar and the nationalized NGC did. Even though he was asked about this, De Guindos didn't mention whether banks in the government's hands would also eliminate the clauses.

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