EU court sides with Spanish consumers on unfair mortgage clauses

BEUC NEWS - 5.01.2017

Last month the Court of Justice of the European Union (CJEU) ruled that consumers who had been affected by mortgage contract ‘floor clauses’ could claim reimbursement for any interest they had unfairly paid from the moment the contract was signed. The judgement referred to clauses found in variable rate mortgage contracts in Spain, which are common in other EU countries too, where the interest rate could not fall below a certain level (the so-called ‘floor clause’). The EU court had been asked to give its opinion on an earlier Spanish Supreme Court ruling which said that any reimbursement could only take effect from its judgement onwards, and that it was not retroactive.

‘Floor clauses’ in mortgage contracts became infamous after the onset of the financial crisis which sent interest rates crashing. As a result banks tried to find creative ways to hold on to their profits. One of these ways was to sign up consumers to a variable interest rate mortgage loan, but without informing them of the ‘floor’ below which interest rates could not fall.

Analysts have said that banks may have to pay back as much as €4.5 billion. The Spanish consumer organisations OCU and CECU have hailed the decision a victory for consumers. According to OCU, borrowers who had signed contracts with floor clauses were overpaying around €1,200 per year. As a European court ruling, the decision is binding in all courts across the European Union.