WHAT IS THE “CLAUSULA SUELO” (“Floor Clause”)?
It is a small ‘clause’ slipped into the weighty terms and conditions of many ‘tracker’ mortgages & loans provided by over 40 Spanish banks, over the past decade or more.
This ‘clause’ had been judged ‘unlawful’ by the European Court of Justice.
The ‘clause’ placed an arbitrary minimum interest rate (usually a ‘floor’ of 4%) payable by the mortgagee (the Borrower), irrespective of how low its ‘tracker’ interest rate fell (a specified and published ‘interbank’ interest rate).
Most mortgages & loans were/are pegged to the “Euribor” (European Interbank Offered Rate), the same interest mechanism as the “Libor” in the UK.
Over the past decade the Euribor has fallen to very low levels, even into ‘minus’ percentages. A ‘minus’ percentage rate means that the bank lending the money has to pay the bank borrowing the money. (You may think that is crazy, but it makes sense when inflation is taken into account. That is, a sum of ‘cash’ is worth less as time goes on, if it cannot be used to make more profit than its value loss due to inflation).
So because of this ‘floor clause’, the mortgagees were forced to pay unsustainable high monthly payments, which in many cases lead to foreclosures and loss of the property. Although for a different reason, it’s basically the Spanish Banks’ equivalent of the British Banks’ PPI scandal and looks to be just as huge!
Another practice of the Spanish banks, that of charging ‘set-up’ fees, has also been judged as ‘unlawful’.
The Spanish banks are to be forced to pay huge compensation sums to their customers, which may include:
- Repayment of all overpaid interest charges for the full terms of the mortgage/loan.
- Repayment of any ‘set-up’ fee charged.
- Accruing Interest on all overcharges.
- Damages for properties that have been reposed due to unlawful charges.
The Relevant Spanish & European Legislation
In May 2013, Spain’s Supreme Court ruled that mortgages containing the ‘Clausula Suelo’ were “abusive”, but banks were not initially ordered to refund their customers.
In April 2016, a Madrid judge went further and decreed that 40 of Spain’s biggest lenders had to pay back their borrowers the extra interest paid on mortgages, but only dating back to 2013.
In December 2016, the European Court of Justice ordered that there should not be a time limit on how far back a claim could qualify and that all over-payments had to be repaid.
Range & Value of Compensation Claims (and any ‘statute of limitation’ date)
Overcharged monthly interest, mostly for the majority of the life of the mortgage. For example, on an average term mortgage of €150,000 with a ‘floor clause’ of say 4%, the over-payment could be €200 or more per month, so the claim could be as high as €20,000.
Cases where the bank has foreclosed on the property because the mortgagee could not keep up the (unlawful) payments demanded, could include claims for repayment of the deposit and all of the monthly payments. There could also be claims for loss of capital opportunities, consequential damages etc (subject to how the property was repossessed and the contributory factors). And possibly a percentage of punitive damages in cases of extreme hardship and suffering (a test case needed to establish a precedent).
It is estimated that ‘Clausula Suelo’ is responsible for 90% of Spanish housing evictions over the past decade or more!