File image of protesters
File image of protesters / SUR

Banks told to fast track payouts to customers with mortgage 'floor clauses'

  • Government sets out clear steps for financial institutions to follow, although homeowners could still take a bank to court if they wish

The national government has reached a deal with the Socialist and Ciudadanos parties that lays down a process and timetable for banks to refund money overcharged to mortgage holders with 'floor clauses' (cláusulas suelo) in their contracts.

The plan, which banks must follow, was approved by the Cabinet on Friday. It sets out a process that avoids an estimated 1.7 million mortgage holders, including many homeowners from abroad, having to take drawn-out legal action and overloading Spanish courts.

The plan does not, however, oblige banks to contact all their affected clients individually to inform them of their rights to claim back funds paid as a result of the banks not applying low interest rates due to the 'floor clause'.

From now on, however, a borrower can claim a refund directly from the bank without having to go to the courts. Customers can still take legal action though, if they choose to.

The move comes after the European Court of Justice (ECJ) ordered Spanish banks to refund customers whose mortgages contained clauses that prevented their repayments being reduced below a base or 'floor' level as euro interest rates plummeted after 2009. The ECJ said that banks had to refund all overpayments, not just those from 2013 as Spanish courts had originally decreed. A bank is only liable to refund if the 'floor clause' wasn't properly explained when the mortgage was taken out.

Banks are required to make a refund offer which also includes interest for the time they have held on to the money. Where a bank wishes to offer a non-cash refund, for example by reducing future mortgage payments, the offer must be at least the same as the cash amount. The customer then has two weeks to decide.

Financial institutions should inform all their customers with 'floor clauses' about the newly-approved process, although not all banks had these clauses in contracts. A government-led commission will be set up to check the rules are being followed.

Government can't do more

It's expected that some banks will argue that their customers were aware of the clauses when they signed their original mortgage deals and so will not offer compensation.

Minister for the Economy, Luis de Guindos, pointed out that the new process was "complementary" to a legal route and that "it was still an option to go to court".

He added that once the compensation offer was made, there would be "negotiation between bank and customer", saying that as this was between private parties, the government could do no more.

Mortgage holders will have to declare any windfalls to the taxman.