The consumer union of Castellón has been successful in bringing its first bank to justice, forcing them to pay compensation to hundreds of people wrongly charged for floor clauses in mortgage agreements. The bank has been ordered to pay all legal costs together with accumulative interest to the amount of €5,881.87 to settle outstanding disputes from consumers holding unlawful mortgages, following a Supreme Court ruling in Spain last year.

The judicial decision is another in the fledgling judicial battle against abusive clauses that banks have unlawfully been applying at the time of signing and notarizing mortgage documents.  This is the first case in the Valencian community and not only forces the bank to pay 100% of abusive floor charges but all of the accumulated interest and court costs.

The ruling refers in part to an opening commission of €1,434.44, a charge that the bank levied on new mortgage customers that the court highlighted as being superfluous. The European Court of Justice ruled that “expenses and commissions must be duly justified and relating to services actually rendered”. This confirms the court’s view that spurious charges made at the time of signing a mortgage agreement have been completely to the consumer’s disadvantage. The Court’s commitment now rests in ensuring existing mortgage holders are compensated and new agreements are drawn up in accordance with the law.

Fees and Expenses Must Reflect Added Value to Client

An additional charge for ‘expenses and taxes’ of around €4,500 has been slammed by the Consumer Court for ‘breaking the principal of equality between contracting parties’, buy charging the client with payment of expenses that also include those of the bank and with no opportunity for negotiation. The feeling is that banks have been using strong-arm tactics to get mortgages signed, with no opportunity for consumers to negotiate.

Quoting Article 8 of the Consolidated Tax Law on Capital Transmissions and Documented Legal Acts, the Court warned the bank that it cannot pass on its own taxes “unduly on the other contracting party”, in mortgage agreements without facing severe penalties.

The Consumer Union of Castellon warned earlier last month about the efficacy of the first sentences condemning banks for abusive mortgage loan terms because of the existing of loopholes concerning accrued interest.

Consumers were faced with the dilemma of avoiding court because of the high cost of legal expenses until the new judicial decision. A positive consequence of its ruling is that those who don’t have the resources to pay for a legal team are more likely to receive full reimbursement of the costs with a victory over the abusive clauses and that compensation will be sufficient to cover the costs. This means that more vulnerable people who may be unable to afford a lawyer will have access to ‘no win, no fee’ services to help them achieve justice.

Government Indifference

When the magnitude of the mortgage floor clause scandal became apparent the Spanish Government set up an extra-judicial process for settling claims, which was supposed to take the strain of the justice system. However, it was roundly criticised for being too favourable to lenders, and since then the Government appears to have washed its hands of the problem.

The Government was urged to set up special courts in each province to deal with all abusive clause claims, but the request was ignored. As a consequence, the system is now overloaded with an avalanche of court proceedings related to mortgage claims, and off-plan deposit recovery claims too.

In the light of recent rulings on mortgage floor clauses, mortgage setup costs and off-plan deposit and stage payments, many people can now claim back money from banks for overcharged interest and lost deposits. However, if the courts collapse under the workload, successful claimants may have to wait even longer to get their money back.