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Eduardo María Valpuesta, Full Professor of Commercial Law of the University of Navarra

The nullity of "floor clauses" if there is "lack of transparency": A toast to the sun?

Fri, 22 Mar 2013 14:02:00 +0000 Published in Newspapers and websites of group Vocento

The Supreme Court has published a brief statement, in which it informs that the plenary session of the Executive Council of the court has decided to declare the nullity of the "floor clauses" of mortgages when there is "lack of transparency". A resource filed by a association of bank users against the floor clauses marketed by three financial institutions is thus upheld. Floor clauses are those according to which, when a client has a loan at a variable interest rate plus a differential (e.g. Euribor+1), it is agreed that the real price to be paid will never go below a minimum (a "floor"), even if the result of that sum is lower than the minimum. In 2008 the Euribor reached 5%, and now it is 0.55%. Let's think that someone who in 2008 agreed a mortgage with a floor of 3% (something normal at that time), today is paying a price of 3% even if Euribor+1 gives as result 1.55.

Floor clauses are completely legal. Moreover, the Spanish rules and regulations requires credit entities to explain to customers, including consumers, that these clauses exist and to offer their contracting, because they allow lowering the price of the mortgage, and even combined with others (the "ceiling clauses"), they prevent the interest to be paid from being excessive. Therefore, there is nothing fraudulent or illicit about them. The problem is that a customer may accept a floor clause that is half-hidden in the fine print of the contract, or without realizing the real risk involved. For that reason, the credit entity must explain well what it consists of, the risks that are run, and the profit that is obtained with it (the cheapening of the loan that it supposes). Anyone who has seen bank policies knows that there are entities that explain it perfectly, highlighting what the clause consists of, giving examples, and in this way the client knows what he is accepting; and others that make a minimum reference letter, often purely laudatory, with no explanation of the problem that they suppose if the Euribor leave in excess (which is what has happened now). Of course, the one who has to prove clarity is the credit entity, not the client.

Well, the fact that the Supreme Court has said that floor clauses are null and void if there is a lack of transparency is obvious. But this happens with floor clauses, and with any clause pre-drafted by a business, and that the customer can only accept or reject ("take it or leave it"). It is like saying that a contractual clause is null and void if it is illegal. For that, there is no need for a plenary session of the Executive Council from any court. A different matter is that, possibly, what the Supreme Court will do, when the judgment is published, is to specifically study the clauses of the defendant entities, how they were drafted, and highlighted (or not highlighted), and based on this establish, with respect to each one of them, whether or not there is transparency in their essay. That is what will really matter from the judgment. But the news does not imply that all floor clauses are null and void, nor that mortgage debtors will be "saved" from the floors they agreed to. Therefore, we should not raise false hopes, even more, but wait for the sentence and... see what it says on the paper where our "floor" is stated.