MOREANA⏐ Lawyers and Economists
WHAT ARE INTEREST–RATE “FLOOR” CLAUSES 1. What are and what is the effect on consumers of the presence of so–called “floor” clauses in mortgage deeds? Interest–rate “floor” clauses included in mortgage deeds with variable interest rates prevent those interest rates go below a predetermined rate, even if the reference rate (in Spain, generally Euribor) goes below the floor. Floor clauses have been one of the main sources of conflict between Banks and consumers in the last years. The conflict is widespread: in Spain only, floor clauses are present in hundreds of thousands of mortgage deeds. In a time when Euribor is at a historical low (0,54% as of Sept 2013), a floor clause that keeps the interest rate fixed in 3%, 4% or 4,5% may result in monthly overpayments of around 250 € (for an average mortgage for 150.000 €, to be reimbursed in 20 years, subject to Euribor +1 and with a floor clause of 4%). If a mortgage has been in force for a few years (e.g., a mortgage signed before the historical drop of Euribor that took place in the 4th quarter of 2008), by now the client may have already paid an accumulated excess of 10.000 € or more.1 Consumers normally consider abusive the fact that their Banks included floor clauses in their mortgages at the time of signing the deed, without providing the adequate information to guarantee full consent by the client. Banks assert not only that they acted according to the law (carefully observing all the requirements imposed to commercialization of mortgages) but also that floor clauses are an essential element of modern banking because, since those clauses allow them to foresee more accurately their future income, they also allow them to adjust their margins more tightly thus making it possible for them to offer better and more affordable financial products. 2. Litigation concerning floor clauses. Some well–known consumers´ associations have long fought and recently won significant victories over the cause of striking down floor clauses as abusive and misbalanced. The main milestone in that process is Spain´s Supreme Court Decision 241/2013 dated March 19th, that established the standards that floor clauses have to meet not to be considered abusive, and opened the way for individuals suing their Banks to strike down interest–rate floor clauses. 1 The figures are taken from actual cases that have been entrusted to our Firm in the past. Avenida de la Borbolla, nº 43
41013 Sevilla (España)
Tel. (34) 954 600 008
[email protected]
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MOREANA⏐ Lawyers and Economists
Among Spanish Banks, some have decided to cease to apply floor clauses, at the same time denying their clients reimbursement of past overpayments (mainly BBVA Bank). Some other Banks staunchly assert the legality of their floor clauses, and thus leave their clients no choice but to sue in Court to get the clauses struck down and to get their overpayments reimbursed (among these are CaixaBank, Banco Popular, Banco Pastor, Cajasol or Unicaja). Others yet offer the possibility of ceasing to apply floor clauses, in exchange for the client signing some other products (such as insurance policies or money deposits). In this case, however, the cost of the new products is often near, equal, or even higher than the reduction of the monthly payments consequent to the elimination of the floor clause. It also has to be remarked the fact that, in this area of the Law, there exists a high level of confusion regarding the precise rights awarded to consumers against floor clauses. There are conflicting opinions regarding the actual possibilities of prevailing against Banks in Court; regarding whether Courts may award not only protection against floor clauses but also reimbursement of past overpayments; or regarding the costs associated with suing a Bank (taxes, attorney´s fees, etc.). On the other hand, Banks usually oppose a staunch and high – level defense that may easily break a claim not crafted according the best legal expertise available. 3. Where can I get appropriate advice regarding floor clauses? The high quality of the defense opposed by Banks against Court claims to strike down floor clauses, makes it necessary by all means to hire a specialized lawyer to raise the odds of prevailing at Trial. Banking Law, and more precisely interest–rate floor clause litigation is one of our areas of expertise at MOREANA | Lawyers and Economists. Our Firm is thus the ideal choice to get top–quality yet affordable legal services. We offer our clients the possibility, either of hiring our services at affordable rates, or of entering a success–fee agreement in which case our Firm only collects fees when the case is closed and the Bank reimburses the client his or her money. If you have or think you might have an interest–rate floor clause in your mortgage deed and are looking for legal advice, do not hesitate to contact our Firm at [email protected] or at any of our phone numbers. We will provide you a study of your case free of charge. For more information: www.moreana.es [email protected] Tel. (34) 954 600 008 © MOREANA | Lawyers and Economists. Distribution permitted, on the condition of always citing the source and keeping the document unaltered. Avenida de la Borbolla, nº 43
41013 Sevilla (España)
Tel. (34) 954 600 008
[email protected]
www.moreana.es