Supreme Court upholds class action lawsuits against banks' abusive floor clause mortgages in Spain

There has been a new blow to the banks in one of the biggest legal disputes in the history of banking in Spain. The country's Supreme Court has just issued a ruling that allows customers affected by the floor clauses ('suelo hipotecario') in their mortgages to file class action lawsuits.

Specifically, after referring the case to the European Union's Court of Justice (CJEU), the civil court has decided to reject the appeal filed by some 30 banks and savings banks against the decision declaring the clauses for 800 people, represented by the Adicae association, to be unfair in a lawsuit that, combined with all the legal proceedings and deliberations, has dragged on for more than 14 years.

"The court declares admissible the exercise of a class action for injunction against a number of financial institutions despite the fact that the general conditions are not identical, but similar," the Supreme Court said in a statement.

In early June, when this decision was already expected, Adicae estimated that only those affected by the macro-claim could recover more than 190 million euros and that, in total, "the banks will have to compensate with billions of euros the families harmed by the floor clauses throughout Spain."

The ruling marks the culmination of this class action, one of the largest in Europe regarding consumer affairs and, in the association's view, "could lay the groundwork for effectively resolving other banking abuses globally rather than individually."

The real importance of this ruling lies precisely in the fact that, for the first time, the Supreme Court has allowed class action lawsuits to be filed against the entire banking sector as, until now, they could only be filed against a specific bank. In other words, it opens the door to mass claims against the entire financial sector for abusive practices. Banks will thus have to pay those affected not only the overpayments due to the floor clauses, but also the costs and late payment interest for these years of litigation.

Bear in mind that the Supreme Court had referred this case to the CJEU in Europe to clarify precisely whether the case could be dealt with collectively, rather than on a contract-by-contract basis. One of the concerns that existed was that the clauses between the different entities were also different. In July of last year, the European Court of Justice ruled that, using the profile of the average consumer, the control of transparency concerning these clauses could be jointly addressed.

Now the Supreme Court has concluded that the average consumer was unaware of the risks of floor clauses in mortgages signed before the macro-claim was filed in 2010, because it was three years later (May 2013) when the Supreme Court issued a ruling on the lack of transparency regarding these aspects in mortgage contracts.

"The court appreciates the difficulty with identifying a precise moment from which the average consumer could have changed their perception of the real consequences of the application of the floor clause and what its inclusion in the [mortgage] contract meant for them," the judgement states. "Such a date could range from the time of the fall in interest rates in the 2000s, in particular, from 2007-2008 and, at least, until ruling 241/2013 of 9th May." In other words, in view of the fact that the lawsuit was filed in 2010, the court has ruled that the change in the average consumer's perception of the consequences of the floor clause is not of any significance.

Mortgage floor clauses began to be applied by some banks in Spain in 2009, when the Euribor fell considerably compared to the previous year. The Euribor rate is the rate used to set interest rates for variable mortgages. To give some idea of how this works, in a mortgage signed with a 3% floor clause, the customer would pay the bank at least 3% interest, even if the sum of the Euribor and the differential were lower. There was no reciprocating ceiling clause.