Most Spanish banks are looking at huge fines and restitution to mortgage borrowers for failing to inform them that their mortgages were a heads-we-win-tails-you-lose-proposition for the banks, and consequently they were overcharged. From Don Quijones at wolfstreet.com:
The European Court of Justice just delivered a landmark ruling that could cost Spanish banks – or Spanish taxpayers, in case of another bailout – billions of euros: 40 out of Spain’s 42 banks will have to refund all the money they surreptitiously overcharged borrowers as a result of the so-called “mortgage floor-clauses” that were unleashed across the whole home mortgage sector in 2009.
These floor clauses set a minimum interest rate, typically of between 3% and 4.5%, for variable-rate mortgages, which are a very common mortgage in Spain, even if the Euribor dropped far below that figure. In other words, the mortgages were only really variable in one direction: upwards!
This, in and of itself, was not illegal. The problem is that most banks failed to properly inform their customers that the mortgage contract included such a clause. Those that did, often told their customers that the clause was an extreme precautionary measure and would almost certainly never be activated. After all, they argued, what are the chances of the Euribor ever dropping below 3.5% for any length of time?
In its original ruling from 2013, Spain’s Supreme Court argued against applying the law against floor clauses retroactively to 2009 on the grounds that it would potentially cripple the banks’ finances. The EU’s advocate general, Paolo Mengozzi, echoed that sentiment in July when he proposed putting Spain’s “macroeconomic considerations” (legalese for “what is best for the banks”) before the microeconomic needs of consumers.
To continue reading: Nightmare Before Christmas for Spanish Banks
