What started out as a stroke of good luck has ended up becoming a catalogue of misfortune for Ernesto Soriano. In 2007, the Madrid regional government’s housing office offered him the chance to buy an apartment at a 40-percent discount. But the 22-year-old, who was living with his 72-year-old grandmother, was turned down by his bank for the €19,000 he needed as a down payment.
His grandmother then saw an advertisement for a company called Punto Financiero that offered small loans that could be paid back in modest installments. All that was required as collateral were the deeds to the property she owned.
Soriano and his grandmother were given an envelope containing €19,000 when they signed for the loan before a notary public. Also present at the signing was César Ibáñez, an intermediary for Punto Financiero. What the grandson and grandmother did not realize was that they had actually agreed to a loan of €37,000, with a 30-percent annual penalty for any delay in repayments.
In total, I was given €19,000, but I am paying a loan for €85,000 that I have never seen” Ernesto Soriano
Hit by the crisis, and overcome by mounting debts, thousands of people in Spain have fallen for the same trap. Prompted by advertisements promising easy money, and sometimes even the advice of their own bank managers, more and more Spaniards have been looking to “private capital” companies to get out of tight financial spots.
The approach taken by these firms is to offer “help” through a loan, which will supposedly allow people to clear their debts until they can apply for a larger loan from a bank and start repaying what they owe in one reasonable monthly sum. The problem is that this is not what most borrowers actually sign up for.
Signing in the presence of a notary gave Soriano the feeling that what had been promised verbally would be respected in the loan agreement, which was full of legal terms, and was not checked by an independent lawyer. As Soriano did, most people sign documents agreeing to repay much larger amounts than they are actually given. The remainder is commission that goes to the loan company or intermediaries.
The usurers’ legal loophole
In 2009 a law was passed aimed at protecting consumers from loans provided by entities other than banks. But some loan sharks have found a way round the legislation.
The law states that anybody lending money on a professional basis, with similar requirements to a bank, must be duly registered as such, as well as providing full disclosure. Notaries and property registrars are responsible for making sure these guarantees have been met. The loophole used by the loan sharks is to pretend they are lending money on a personal basis, as a friend or business partner might. In such cases, there are no legal requirements.
Property registrar Rafael Arnáiz wants the law changed so as to require greater transparency, as well as toughening the punishments for swindling and usury.
In Soriano’s case, the loan he and his grandmother took soon became a millstone round their necks. By the time they realized the trouble they were in, it was too late, and they could not meet their repayments. “One day, somebody from Punto Financiero arrived at our house with an employee from Bancaja telling me I had to sign a loan for €85,000 or risk losing the property. I agreed to repay €450 a month until 2038. In 2011 I lost my job and couldn’t repay. They were going to take my grandmother’s home from her and so I had to refinance it with Bankia [which had absorbed Bancaja]. I have to pay €261 a month until 2060, which is when I will have repaid more than €40,000. In total, I was given €19,000, but I am paying a loan for €85,000 that I have never seen. Paying that back means, among other things, that I can’t have children because I couldn’t afford to bring them up,” says Soriano.
Soriano’s case is far from unique, and such loan companies continue to operate with impunity. The scam is simple: they require a property as collateral, and then they provide a loan at such exorbitant interest rates, with such excessive penalty clauses for delay in repayment, that it is almost guaranteed that the people taking out the loan will never be able to pay. The result is they end up losing the roof over their heads.
The offices of Spain’s notary publics are filled with victims like Soriano who most of the time need to borrow only a small amount. For the moment, he has managed to keep the property, but many others have found themselves homeless, sometimes as a result of borrowing as little as €10,000.
In a bid to tackle this growing problem, as well as to raise awareness of the dangers loan sharks present, law firm Alberche, headed by Carlos J. Galán, is working with the association Stop Estafadores (Stop Swindlers), set up by Juan Puche.
Puche uses a blog to write about one well-known loan company that has seized around 4,000 homes from vulnerable people who took out small loans under onerous conditions of which they were unaware.
“These are conspiracies, so why is it not possible to do anything about them through the courts?” asks Antonio Garrido, whose mother risks losing her home.
“It is very difficult to prove the facts when it is the word of a victim against that of a notary,” says Galán.
Rafael Arnaíz, a property registrar, explains that usury can be punished under the civil code: the loan shark can be made to return the money and interest payments. “But it is difficult to show that the amount on the contract was not handed over and that a public document has been falsified. People rarely bring the matter before the police,” he says.