EU wants banks to refund all money earned from mortgage ‘floor clauses’

Spanish lenders face bill of billions if forced to return funds from abusive loan terms

Íñigo de Barrón
A protest against “floor clauses” in Madrid.
A protest against “floor clauses” in Madrid.zIPI (EFE)

The European Commission has issued a damaging report for Spanish banks that for many years introduced so-called “floor clauses” into their home loan contracts.

These clauses, which not all banks include, set a “floor” or minimum interest rate that clients have to pay the bank, even if the benchmark rate – normally the Euribor – drops below that figure.

Spain’s Supreme Court had found the practice abusive and sentenced three banks to return the difference to borrowers, but only on payments made since May 2013.

If the Commission says all the money has to be returned, sooner or later I’m afraid that we will be refunding all the money charged through floor clauses” Banking sector source

But the European executive disagrees with this date, and says that the refunds should extend all the way back to the first mortgage payments. The rationale is that if a clause is declared void, “it is so from its origin.”

The three lenders involved in the case are BBVA, Cajamar and Abanca, but the industry is afraid that it will end up affecting all banks.

Ever since the Supreme Court ruling came out in May 2013, thousands of borrowers have turned to the courts to demand a refund of the money they were forced to pay above the Euribor rate.

Until now, most courts have ruled in favor of the homeowners, but never in a retroactive manner.

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The matter is of great significance to the banking sector because there are 2.5 million mortgages with floor clauses in Spain. If refunds were to be mandated retroactively, it would mean billions of euros in payments.

The European Commission has sent its report to the Court of Justice of the European Union, which is overseeing a related case involving CajaSur, a subsidiary of Kutxabank. Its final decision will hold the key to what happens next.

But legal sources in financial circles said that the issue was already affecting the banking sector’s reputation.

“If the Commission says all the money has to be returned, sooner or later I’m afraid that we will be refunding all the money charged through floor clauses,” said one source.

Other legal sources added that the Brussels report could influence the outcome of a class action suit filed by an association representing 15,000 people with floor clauses. The case began in 2010 and a decision is expected shortly.

English version by Susana Urra.

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