Recover Mortgage Interest.
Article provided by Costa Luz Lawyers
What is a Floor clause?
Floor clauses are included in mortgage loan deeds to set by a minimum limit for the interest rates.
Are floor clauses illegal?
Floor clauses are not illegal in principle, but they can be considered null, (which means they can be ignored) if they have not been agreed according to the standards that the Consumer Law establishes.
According to the Supreme Court of Spain and the Court of Justice of the European Union, there are different reasons for declaring the null character of these clauses:
Spain’s Court Decision of May 9th, 2013: declared the nullity of those floor clauses in the mortgage contracts, because they were not transparent. These were the reasons stated –
- The appearance of a variable interest loan contract, in which the reduction of the index will decrease in the price of money.
- Lack of sufficient information that the floor clause is a defining element of the contract.
- The appearance that the floor clause always comes with a ceiling clause.
- 'Masking’ it within an overwhelming amount of data, which dilutes the consumer’s attention.
- Absence of various examples in the pre-contractual phase, related to the reasonably foreseeable behaviour of the interest rate at the time of contracting.
- Absence of clear and understandable prior illustrations of the costs compared to other types of mortgage.
How much interest should be repaid?
The Supreme Court, in a Judgment of March 25, 2015, after much controversy, decided that interest should only be repaid from the date of publication of the judgment of May 9, 2013. This was then appealed to the Court of Justice of the European Union, which in its Judgment of December 21st, 2016, C-154/2015, decided it wasn’t possible to limit the repayment if the clause was to be ignored from the start. Therefore, all the 'unfair’ part of the interest paid by the borrower should be repaid.
What is the procedure for the return of the interest?
Royal Decree-Law 1/2017 of January 20 establishes a voluntary procedure through which consumers can submit their claims without going to court. Lenders have had to adopt the necessary measures to comply with the Royal Decree.
A later addition to the Royal Decree, dated May 26th, creates and regulates the Commission for the monitoring, control and evaluation of the procedures.
The General Council of Judicial Power created 54 Courts specialising in floor clauses on May 27th, 2017: one per province of Spain. These courts now hear various matters related to Bank Consumer Law: floor clauses, early maturity, default interest, mortgage formalization expenses, IRPH index or multi-currency mortgages.
How were Floor Clauses regulated in the Law regulating real estate credit contracts?
This Law definitively eliminated the possibility of the existence of floor clauses in mortgage loan contracts. However, the Law also establishes a safeguard in favour of the lenders, by stating that the interest may not be negative. That means however low the interest index may be, it shall not entail an obligation for the lender to pay interest to the debtor.
Floor clauses are clauses included in mortgage loan deeds by which a minimum limit is set for the lowering of the interest rates.
Together with claims on, Abusive Clauses of Mortgage Deeds it is now a vital moment to try to negotiate a settlement with the bank if you no longer can pay your current mortgage instalments.