If you have taken out a mortgage loan, you have probably already come across, or had to deal with, a floor clause. In this regard, many battles have been fought in the courts, along with the intervention of the State and the European Union to ensure that the money consumers overpaid is returned to them.
At BBMabogados we have the greatest experience in dealing with this type of clause, so please do not hesitate to contact us to obtain financial redress for any unfair situation you may have been subjected to as a result of these provisions.
What are floor clauses?
In mortgage contracts, as remuneration for the loan, banks set a percentage of the amount provided which they call interest. Floor clauses impose a minimum cap on the interest, which will not go down even if the reference index does. In addition, when the mortgage is set up there are costs that fall to the bank that the consumer can reclaim.
This limit applies where the reference index does not reach the value set in the clause. That is why, if the benchmark falls below the point set as the floor, the bank charges the interest fixed in the contract, ignoring the fall in the loan rate and thereby obtaining additional enrichment.
Floor clauses arise as a guarantee for the bank to secure the loan’s minimum profitability. For this very reason, they protect the interest percentage against falls in the index that serves as a benchmark. For example, if the index that determines the interest reaches zero, the clause prevents that zero interest from being passed on to the monthly instalment.
In this way, they prevent consumers from paying extremely low or non-existent interest or even receiving money for having taken out the mortgage.
Are floor clauses legal in Santander?
Floor clauses came about as a mechanism to protect the bank’s profitability. However, many of these financial institutions were not transparent in explaining their implications to their customers.
Soon, complaints shook the courts, arising from claims brought by users to whom no one had explained the consequences of a floor on their mortgage. That is how, in 2013, the Spanish Supreme Court declared them void for lack of transparency. Even so, the banks were not obliged to return the amounts paid up to that point.
In 2016 the Court of Justice of the European Union allowed the earlier ruling (the nullity of the clauses) to be applied retroactively. As a result, they established that clauses must be declared void when they are unfair. In other words, they are legal, provided they do not give rise to unfair situations for the consumer.
When is a floor clause unfair and therefore void?
There are several scenarios, but let us look at the most notable ones:
THE CONSUMER HAS NOT BEEN PROPERLY INFORMED
When banks do not explain the consequences of these clauses to the user, they are regarded as unfair. In this regard, for a long time it was common practice to insert clauses drafted in excessively technical language, lost among a large number of provisions that disguised them.
In this type of case, the clause becomes void. Let us look at each scenario in more depth:
NO CEILING CLAUSES ARE SET TO BALANCE THE CONTRACTUAL RISK
Floor and ceiling clauses on rates seek to protect the consumer and the bank respectively from a loan that becomes unpayable or unprofitable. As changes in the reference index may vary beyond what was foreseen, it is accepted that these limits may be set to keep the risks in check.
But when the limit is set solely for the benefit of the bank and not the user, or is set for both but not in a proportionate way, the clause is unfair.
WHERE THE PARTIES HAVE AGREED BUT THE NOTARY DOES NOT WARN OF ITS EXISTENCE
Floors on interest are not contrary to Community law if they are the result of agreements between the parties. However, they will not be valid if they have not been presented before the notary. In such a case, it is the notary’s duty to warn the borrower of the existence of the clause in the contract.
THE CLAUSE DOES NOT APPEAR IN THE OFFER BUT DOES IN THE FINAL CONTRACT
If the bank, when presenting the binding offer, does not inform the consumer that a floor clause would be set in the final contract, that clause is regarded as unfair.
How to challenge a floor clause
When the courts settled their position on floor clauses, claims were brought exclusively before the courts. However, in 2017 an out-of-court mechanism was introduced, in order to reduce costs for borrowers.
So, today we have both the out-of-court route and the court route.
OUT-OF-COURT ROUTE
Under this mechanism, the consumer approaches the bank directly to make their claim free of charge. For this purpose, the banks will have an office dedicated exclusively to processing these claims.
Once the request is accepted, the bank will present a refund offer or propose a reduction of the outstanding capital, among other options. If an agreement is reached, what is agreed will be carried out within three months of the start of the procedure. If no agreement is reached or the bank does not comply within that period, the process will be deemed concluded.
COURT ROUTE
To bring a claim before the courts, you must engage a firm of lawyers to provide proper representation. In any case, do not hesitate to contact us if this is your situation. Only then can we assess your documentation and design the correct procedural strategy for your best defence.
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