What are interest floor clauses?
In a tracker mortgage the interest rates on the mortgage loan track the interest rate of the Euribor or European Interbank Offered Rate. The Euribor is a reference rate which takes the average interest rates in the Eurozone and is published daily. The idea of tracking this rate in a mortgage is that if the rate rises you pay more but if it falls then you pay less. However many banks in Spain set in their agreements a minimum rate of 3-4% meaning that if the Euribor falls, the banks have a built in cushion for continuing to make a profit. This is called the “clausa suelo” in Spanish, we know it as the Interest Floor Clause or a Collar Clause.
How much extra is this Interest Floor Clause costing me?
The exact cost of this can only really be determined on a case by case basis. However, as an example, when the Euribor was at the lowest point in its history, 0.18% in April 2015, an interest floor clause of 3% or 4% meant that you would have been paying, on a mortgage with a capital of 150.000€ for twenty years, approximately 150€ more each month adding up to a total of 9.000€ over the fixed period.
How do I know if I have an interest floor clause in my mortgage?
The best advice, if you are not sure about what is included or not in your mortgage agreement, is to seek advice from a professional. Our Law Firm can assist you with a free consultation, if there is an Interest Floor Clause, we will find it and we can assist on a no win, no fee basis.
I have heard that the Supreme Court has declared interest floor clauses as being illegal , is this true?
Not exactly. The Supreme Court has declared that the floor clauses are initially legal, however they must comply with a series of requirements, such as the consumer being given a clear explanation, much like PPI in the United Kingdom. If the clause does not comply it can be considered as abusive. This is why it is best to ask for professional assistance. Martinez Echevarria Abogados has a specialised team from our world famous Banking Law department ready to examine your mortgage. Please do not hesitate to contact us to obtain free and independent legal advice.
If my claim is successful, I would only manage to obtain the removal of the interest floor clause and no compensation?
This is incorrect, there has been some confusion regarding the decision of the Supreme Court. However, European Union regulations demand the full reimbursement of all the amounts overcharged without a time limit. Martinez Echevarria Abogados have been pioneers in promoting the first pre-legal matter before the Court in Luxembourg and it is our belief that the result of this action will be an acknowledgment that those affected should be paid back every penny.
Do I need to make a claim against my bank to remove the floor clause?
Some banks, such as Banco Popular, Banco Pastor or Unicaja defend the legality of the interest floor clauses and do not leave any other option to the clients but to carry out proceedings in Court. Other Banks offer the removal of the floor clauses in return for taking out other products such as Insurances; again this is not acceptable as the cost to the client is re absorbed into the other products. The only way to ensure a fair deal and adequate compensation is to make a claim directly to the courts.
My bank has already removed the floor clause, however they have not returned the amount that they overcharged. Can I ask the Court to make an order?
As soon as it is proved that the floor clause is abusive, the Courts must approve your request for compensation.
I applied for a mortgage in the name of a trading company. Can I still go to Court?
The most recent jurisprudence from the Commercial and Provincial Courts all over Spain confirm that you can go to Court. However, these cases must be studied in detail before reaching a conclusion concerning the viability of the possible Claim.
But a Claim must be expensive and risky, isn’t it?
Not at all. It is essential to have a specialised lawyer to make a successful claim against a bank, but in most cases the claim is risk free. To assist with costs we operate on a no win no fee basis.
Martinez-Echevarría Abogados are an international law firm that provide first class legal services. Established in 1983 on the Costa del Sol, We have a dedicated team of expert lawyers with a huge amount of experience in dealing with consumer mortgages issues. This makes us one of the most prominent Spanish Law firms engaged in defending the interests of bank customers. What’s more we operate on a No Win No Fee basis. That means that you make no upfront payment. At the end of the process the Interest Floor Clause will be removed from your mortgage agreement and you will recover all the excess charges that you have paid. We then charge a percentage of the amount recovered which is usually around 20%.