Most of us have heard stories of British claimants fighting against the abusive mortgage terms from Spanish banks. Surely, Spain is a very nice country to visit, and of course to retire. However, as in any other country, real state and property negotiations can be fraught with problems. From language barriers to cultural differences, there are so many things that can go wrong.
Floor Clauses, like many other financial products, are sold as a supposed benefit. They guarantee that you will pay a fixed rate on your mortgage; regardless of EURIBOR and other index fluctuations. However, in practice, this fixed rate acts as a “floor” on your interests. This issue was first noted about a decade ago, when many mortgage holders noticed their interest remained fixed even after the EURIBOR reference index fell under historical levels after 2015.
Following tough years of economic adjustment, for many borrowers this abuse added insult to injury. The worst affected felt impotent, as one feels when confronted with such a difficult situation. While this is understandable, the best thing to do in this situation is to rely on professionals who can keep a cold mind and draft a strategy. This is what many lawyers, like those working in Spanish Bank Claims, were able to do against Spanish banks.
The “Floor Clause”/“Cláusula Suelo” story: claiming against Spanish banks
Most Britons with houses in Spain fall into two groups: those who seek a holiday home; and those who seek to move or retire permanently to the country. Both constituencies were affected by unfair clauses. In fact, Floor Clauses (“Cláusulas Suelo”) were not the only abusive term imposed in the last few years. From adding unrequested services like insurance to mortgage contracts, to the imposition of hidden costs and commissions, Spanish banks have often taken advantage of foreign expats.
The story of “Cláusulas Suelo”, in fact, was first noticed due to the hard toll the housing crisis took on many Spaniards. Many of them had contracted variable interest mortgages, without knowing that these unfair clauses were actually preventing their interest payments from decreasing under a set percentage. Many lawyers made the case that this consisted in an unfair practice, as many borrowers lacked the necessary information about this clause. They had been misled. More than 100 financial entities in Spain had used these clauses.
A ruling in 2013 from the Spanish Supreme Court declared these clauses to be void in the cases this lack of transparency was manifest. This meant that many claimants were able to get their money back over the next two years; however, only for those quantities that had been charged since the ruling that same year. This situation was corrected when further legal action before the European Court of Justice established retroactivity for any claims. Finally, a Spanish Royal Decree in 2017 set up an extrajudicial agency to accelerate claims, allowing those affected by the clause to recover their money in three months, if the affected party was able to show they had been misguided.
Seeking justice for British expats with mortgages in Spain
Of course, the fact that many British expats were conducting affairs partly in Spanish made them particularly vulnerable to these practices. There are still many today that do not know that they are actually entitled to interest and other fees paid to their banks. In fact, many have criticised the Royal Decree and its extrajudicial agency, as it frees banks from notifying their clients of their right to reclaim; among other problems. It has also been portrayed as a quick way for foreigners to recover their money. However, without proper guidance, this can be challenging for British expats. The process puts banks in the driving seat, causing frustration and confusion for many claimants.
Let’s quickly review some of the problems with the latest Royal Decree that Brits in Spain could encounter. First, banks can settle through alternative financial products rather than simply the overcharged interest. Second, they are not required to conduct communication directly with the claimant; and claimants cannot request collective compensation. Third, the Decree still recognises the existence of “legitimate” Floor Clauses, challenging the European Court. Finally, banks are not compelled to calculate the quantities owed, so customers must ensure they have examined their terms and conditions carefully. In short: it is not as straightforward as it was intended to be.
In fact, consumer associations in Spain have denounced that it is still very difficult to navigate the process. They recommend affected parties to seek professional legal advice. If it is difficult for Spaniards, imagine the situation for British and other expats!
Spanish lawyers for British expats are not a luxury, but a necessity
While it is understandable that many property buyers and investors would be tired throughout this process, they should not resort to snap decisions. Spanish banks are still doing as much as they can to avoid reimbursement; not just in the case of “Floor Clauses”, but also for other issues like negative equity agreements, swap clauses and preferred shares. They are confident that individual claimants will get tired or simply feel intimidated and stop pursuing their case.
But, if the first affected Spaniards had not undertaken legal action; all subsequent successful cases would have not been successful. In fact, competent lawyers can guarantee a high degree of success. While it is not so common to have a team that includes both Spanish abogados and British solicitors, this is the case for Spanish Bank Claims. If one looks at the team’s track record, and to the sector more generally, there are many reasons to feel confident about future claims. If you feel that the story of the Spanish “Floor Clauses” resonates with your mortgage experience, do not hesitate to contact us and explain your case to one of our specialists in Spanish property and financial law.