“The mortgage ‘floor clauses’ are a fraud.”
Floor Clause News for Spanish Mortgage Holders
A floor clause (or “cláusula suelo” in Spanish), usually entered in a financial agreement in relation to a cap floor, refers to a specific condition generally included in financial contracts, principally loans.
Thursday, April 7, 2016, could go down in history as a great day for Spanish mortgage holders and a very grim one for many Spanish banks, thanks to a new ruling that the so-called mortgage floor-clauses that were unleashed across the whole financial sector in 2009 are abusive (but not illegal) and lack transparency.
These floor clauses set a minimum interest rate — typically of between 3% and 4.5% — for variable-rate mortgages, even if the Euribor drops far below that figure. In other words, the mortgages are only really variable in one direction: upwards!
Following the latest ruling, the banks named in the suit must reimburse clients all the money they’ve surreptitiously overcharged them since May 2013. And if they want to continue applying floor clauses in the future, the banks must do so in an open and transparent manner, which pretty much defeats the purpose, since if banks were completely up front about the inclusion of floor clauses in their contracts and what that actually means to the mortgage holder, no one in their right mind would accept them.
Sabadell, along with 40 other Spanish banks, has good reason to be concerned about the new ruling. According to Fernando Herrero, the general secretary of Adicae, the floor clauses have cost the average user “some €2,000 per year,” meaning the banks will have to pay back “some billions” to customers.
The financial consultancy firm Analistas Financieros Internacionales (AFI) tried to put a more precise figure on it. The amount they came up with was €5.26 billion. But that’s only going back to May 2013, when Spain’s Supreme Court changed the law, effectively banning the current use of floor clauses. At the time, the court argued that the law couldn’t be applied retroactively to 2009, when the banks began introducing the clauses, since it would potentially cripple their finances.
The bank most at risk is Banc de Sabadell, according to analysts at Bankinter. It has apparently done less than most other banks to provision its exposure.