Is my contract legal?
The Floor Clause is a limitation on your annual percentage rate. Even if your interest value has reduced, it is possible that you can’t still benefit from it because of an entrenched clause. The Floor Clause is a legal agreement that is seen in Spanish mortgages and is seen as unlawful for consumers. Banks are legally responsible to reduce the minimum repayment level even when the interests of the rate go lower than that level but many people continue to pay a higher cost each monthly payment. The contractors should explain to the customers the terms of the mortgage contract and its economic consequences.
Stemming from the floor clause, there is also a roof clause, which is the maximum interest payable and it is usually set very high.
Spanish Floor Clause
In Spain, the floor clause is known as Clausula Suelos. It is said that Spanish Banks can’t reduce the minimum repayment level for consumers and because of this, they continue to wrongfully over charge their customers. With this in place, Spanish Banks can ensure to overcharge costumers with recurring monthly costs paying up to 4 % more than they legally owe. Usually, mortgage loans in Spain have an interest rate based on a reference rate such as Euribor and others, with an added margin that depends on the lender bank. So the floor cause sets a minimum percentage to be charged by the bank, even though the interest that is the total of the reference rate and the margin is lower.
That means, that if the Euribor rate goes down, then the customer should be paying less of a fee, which isn’t always the case. In the case that you believe you entered a floor clause; you could be entitled to compensation. That means you could reclaim partially or all of your initial payments. In May 2013 the Spanish Supreme court ruled that mortgages of this type were abusive however Banks were not initially obligated to refund its customers. Finally, in 2016 it was declared that the Banks had to reimburse the extra interest paid all the way back to 2013. Up to date, Spanish banks have paid out €2.28 billion to borrowers affected by mortgage floor clauses, with an average of €4,527 being paid to each customer.
Floor Clause Mortgage
To identify a floor clause, you will see it defined as titles such as “limits to the application of variable interest” or “floating rate” and it will state that it can never be lower than a specific interest.
It is estimated that there are about two million people affected by the floor clauses, but only 5% actually go to court. That’s the reason Banks don’t withdraw them from their mortgages. Claims have a very high percentage rate (90%). The course of action would be to send your branch a nullification of the abusive floor clause. If no reply is received, you would then need to take legal action in order to force the bank to refund the interest overpaid.