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Spanish mortgage clause 'null and void'

Mon 21st Mar 2011

The Commercial Court in Seville issued a Judgment on 30 September 2010 that ruled that the “floor clauses” (cláusulas suelo) that several Spanish lenders regularly include in their mortgage loans, are null and void.

Spanish mortgages often include a clause that prevents the interest rate on the loan falling below a certain threshold, even when the benchmark rate used for the calculation falls. The rate used for this calculation is almost always the Euribor

The Consumer Association of Banking Services in Spain (AUSBANK) took action in order to get these clauses annuled in all loans offered by BBVA, LA CAIXA and CAJAMAR, claiming that they were abusives and detrimental to consumers.

The Banks responded that the “floor clauses” are not General Conditions, but are negotiated with each client induvidually and not included in all loan agreements. Furthermore, the contracts also include ceiling clauses that limit any upward change in interest rates, and therefore the rights of the parties are balanced on any contract.

The Court ruled that floor clauses were to be considered as General Conditions, as lenders impose them on all Consumers, who are not offered the option of negotiating or eliminating these terms, and as such have to accept them or not proceed with the loan.

The Court also found that there was a disproportionate difference between the floor and ceilings clauses in place, as the high ceiling levels were unlikely to be reached, with floor clauses in the contracts ranging from 2.75 to 3.50% and ceiling clauses from 12 to 15%. Therefore the clauses only cover the risk of one of the lender, but not the consumer.

The Judgment, which has been appealed, found that floor clauses in the mortgage loans of BBVA, LA CAIXA and CAJAMAR are null and void. It also ordered them to remove these clauses from their contracts and refraining from using them in future. However, if consumers wish to seek the reimbursement of the overpaid amounts in question, the court ruled that they should file new actions against the bank and savings banks induvidually.