WHAT IS A FLOOR CLAUSE?
It is a clause stated in Mortgage Loan Deeds, which establishes a minimum payment in mortgage instalments although the interests agreed with the bank are lower. In general, mortgage loans subscribed in Spain have an interest based on a reference rate, such as Euribor (though there are others) plus a margin (diferencial) that varies depending on the lender bank. Therefore, the floor clause (or ground clause) sets a minimum percentage to be charged by the bank, although interest emerged from the sum of the reference rate plus the margin (diferencial) is lower. There are many examples and many simulators mortgages, but as a general idea, having decreased the Euribor, the absence of the floor clause, would mean that the customer would be paying an average of 200 euros less per month (according to information given by many associations of people affected by mortgages). It is also known as floor clause the one that states a minimum Euribor rate (although the value of Euribor is another one, for example, fixing an Euribor 2% being the real Euribor rate lower). In return for the floor clause, there is a clause called roof clause which is a maximum interest payable, normally much more higher than the usual values. In other words, a maximum of 12% rate, considering that the banks know that the Euribor in Spain never exceeded 5%. Consequently, there is no proportionality between the floor and the roof (as stated, among others, by an Oviedo Court, as stated below).
LEGALITY OF FLOOR CLAUSE
In principle, this type of clauses are not in breach of law, although they are in cases in which such clauses are abusive and when the bank does not inform about the existence of such clauses in the loan. We may recall that lenders entities are required to explain the terms of the mortgage contract in a way that can be understood by the customer. For example, such entities must submit an informative brochure which clearly explains the loan terms. This is expressed in various Bank of Spain Orders, like Order EHA /2899/2011 which states that, before signing the mortgage, the bank should provide specific personalized information, making special mention of the floor and roof clauses indicating the minimum and maximum applied rate and the maximum and minimum instalment to be paid as a result of the application of such floors and roofs. In addition, after the enactment of Law 1/2013, the public notary will warn the borrower about this risk requiring a handwritten agreement term.
HOW TO IDENTIFY IT
The floor clause is identified in the Mortgage Deed under titles like "limits to the application of variable interest" or "floating rate" , and within that section states that the interest may never be less than a certain percentage (in roof case would be the opposite situation).
HOW TO ACT BEFORE A FLOOR CLAUSE
Firstly, send a letter to the bank branch asking for nullification of the abusive floor clause. It is convenient to have proof of reception of the letter, so it is advisable to make the bank to seal a copy of it and if the entity refuses, send a burofax. Secondly, if there is no answer, the second step is to present an application complaint to the bank (in some cases it can be done online, using a form to be addressed to the Customer Office), indicating that there is no response to the request regarding removal of floor clause. Thirdly, if no response, then address a complaint to the Bank of Spain reporting all proceedings. If no solution in this way, sue the bank.
WHAT DOES JURISPRUDENCE SAY?
There are several judgments that have nullified the floor clause, including the Supreme Court judgment of 9 May 2013. However, in February 2015, the said Court ruled that the condemned banks should return retroactively only the interests charged from the date of its first judgment, this is, from 9 May 2013. This means, the retroactive limit was fixed in such date and cannot be extended further back. Nevertheless, an Oviedo Court put aside this doctrine, condemning the bank to return "with absolute retroactivity" all "exceeded payment" plus interest collected as a result of the application of the floor clause (the mortgage was signed 2008). The judge held that the clause floor "has no reciprocity because the roof of 12.50% has obviously not been reached or achieved and it was only included to create a false appearance of consideration". He also said that if the clause is declared void, it is null from the very beginning and cannot be limited in time.
In a judgment known few weeks ago, Mercantile Court 11 of Madrid (sentence of 7 April 2011) ruled that the “floor clauses” are “abusive”. In this class action, many customers (including one association of customers called ADICAE) sued more than forty banks (among them BBVA, Caixabank) for nullification of floor clause due to the lack of transparency. Madrid Mercantile Court 11 partially accepted the claim and condemned the banks to eliminate the said clause and to refund the overpaid sums plus interests since 9 May 2013, which is the date of the first judgment of the Supreme Court (see above).
The main question is not the nullification of the cláusula suelo (floor clause) but its retroactivity. The matter of limiting the retroactivity of the nullity of the floor clause has been questioned before the European Court, in order to determine whether it is possible or not to limit the annulment to a date after the signature of the mortgage loan (contracts signed before 9 May 2015 ) which could be incompatible with Directive 93/13 / EEC of 5 April 1993 . The European Court should have considered this matter on the preliminary hearing of 26 April 2016 (at the time of writing this lines the outcome of the judgment is not known, as the conclusions of the General Advocate of EU will take place on 12 July 2016). In any case, it seems that the ECJ could take into account the European Commission report that states that there should be a full retroactivity (not a partial one back to May 2013 as referred by Supreme Court judgment). The allegations of European Commission say: “it is no possible for the domestic Courts to moderate the devolution of sums paid by the customer due to the application of a clause that has been declared null and void from the origin due to the lack of information and transparency”.
CONSEQUENCES OF THE EUROPEAN COURT DECISION
The decision will affect, firstly those processes still pending of judgment, as the European Court judgment will be binding for domestic judges who will rule according to such decision. But secondly, it will be necessary to reconsider the final judgments. It is not clear what could happen in these cases, although I understand they should be subject to a “revision appeal”. As a matter of fact, in April 2016, the Supreme Court decided to suspend the proceeding of an appeal enacted by a bank regarding floor clause until the European Court final verdict.
We have to wait until July 2016 to know about the decision with special transcendence for Spanish banks as they could be forced to refund up to 7,600 million Euro.
Surely, there will be news about it we'll be back to this topic.