What is a “cláusula suelo” anyhow and how illegal it is when it is included in a Loan contract

11 Jul What is a “cláusula suelo” anyhow and how illegal it is when it is included in a Loan contract

Practically the whole financial sector is subject to trial in front of  the judge in what refers to the controversial “ground clauses, or cláusulas suelo”, that prevented numerous mortgaged Spaniards or Spanish residents to benefit from the strong slope of the interest rates experienced from end of 2008.

At an initial step, several years ago the Spanish Courts admitted to proceeding the greater collective claim presented in Spain against most Spanish banks.

It was considered that in Spain 3.8 million people were having this type of clauses in their hypothecating contracts.

The clauses are legal

The famous ground clauses, or cláusulas suelo are clauses included some years ago by the banking organizations in many contracts of hypothecating loans establishing a certain level from which the rate of interest is not reviewable to the loss even though the EURIBOR, main reference index of the interest rate for mortgages in Spain, continues its reduction. This level is usually located over 3%, although it varies much of a banking organization to another. It can even arrive at 5%.

These clauses, legal and negotiable, but whose existence a great part of mortgaged population did not, or said not to, know caused and continues causing the popular indignation, since many of the mortgaged people have seen a constant fall of the interest rates in both last years, from 4.25% in October of 2008 to 1% in May of 2009, while such thing has not been translated in a reduction of their monthly payments.

The Bank of Spain reported and calculated in 29% the percentage of mortgages granted to the Spanish families subject to these grounds.

In recent years the claims against the banks have been massive and the European Justice Tribunal and Spanish Supreme Court alike have ruled in favour of the consumers thus giving the regular local Courts the grounds to stop and cancel many repossession claims.

However, the existence of cláusulas suelo in a loan’s contract (Escritura de Préstamo Hipotecario) does not necessarily indicate that the consumer has a right to recover interests, stop foreclosures, etc, per se and it is the courts who will determine and decide whether or not the clauses present an abusive profile on each specific case.