Spain adopts decree on mortgage floor clauses in favor of mortgage buyers

Spain passed a decree on Friday to help mortgage buyers get their money back from "abusive" mortgage floor clauses.

The decree, announced by the government after a cabinet meeting, followed a ruling of the European Court of Justice in December of 2016, which ordered Spanish banks to hand back their clients all the money they made on "unfair" mortgage floor clauses.

The mortgage floor clauses impose a minimum interest rate on floating-rate mortgages by establishing a limit on how far mortgage rates could fall in accordance with the benchmark rate.

In reality, however, Spanish mortgage buyers did not profit fully from the record-low interest rate environment in recent years under the floor clauses.

Luis de Guindos, Spanish Minister of Economy and Competitiveness, told reporters after the cabinet meeting that the decree was to prevent Spanish courts from being flooded with lawsuits.

He also said the decree would help citizens to have their money back through an extrajudicial mechanism that was free.

The procedure orders that Spanish banks must contact their clients to inform them if they are affected by abusive mortgage floor clauses and then, offer an agreement within three months.

If there is no agreement, customers can file a lawsuit in order to have their money back, which in principle would be returned in cash.

The Bank of Spain, the central bank, had predicted that the European Court of Justice ruling would have an impact of 4 billion euros (4.3 billion U.S. dollars) on Spanish commercial banks.

Jose Maria Roldan, president of the Spanish Banking Association, said Spanish banks would pay back clients between 2 billion euros and 3 billion euros.

Such a payback would have an impact on the banks' financial results, but would not cause a problem for the entities' solvency, according to Roldan. Endit