Spanish Mortgage Standard Term ruled Unfair and Unreasonable

Spanish court rules that certain clauses included as standard terms in Spanish mortgages are unfair and therefore null and void.

For the second time the Spanish courts have ruled that so-called ‘cláusulas suelo’ or clauses used in variable rate mortgages that set a minimum below which mortgage rates may not fall are unfair and therefore void. Banks and other financial institutions have traditionally included such clauses in their mortgage agreements to protect themselves from exceptionally low interest rates as currently are being experienced.

This time it was the turn of Caja España and Caja Duero to face an action brought by Ausbanc (Association for bank customers) in the Commercial Court in León. The Association argued that such clauses should be considered null and void as they were unreasonable.

The court agreed citing the fact that the fact that there was no identical clause setting an upper limit which interest rates could not exceed was evidence of it’s unreasonableness. In this respect, a ceiling of 12% would be unrealistic. In this case, the financial institutions had set a 3% minimum level under which their clients could not benefit from any further fall in interest rates.

Previously the commercial court in Seville had ruled similarly against BBVA, Caixa Galicía and Cajamar though that judgment is pending an appeal.  In addition a Madrid court recently accepted an action by another association of bank customers against a total of 45 financial entities against the same types of clauses.

In an effort to lobby the Minister of Finance, the Association of Spanish Banks has sent a letter to Elena Salgado requesting that the clauses be maintained as, according to the association, ‘the protect the banks as well as their clients from excessive variations in interest rates’.

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