In Spain, low return rate for banks

Maintaining the benefits of lower interest rates, financial institutions have gained billions of euros on the backs of consumers. Europe has condemned this practice and opens the way to a monster compensation.

“O you ais if you have a floor clause? We will indicate if your housing loan is concerned and we help you to claim all that you overpaid. Today, thanks to the verdict of the European court, everything is much easier. Arriaga Associates. “In giant characters, the announcement of a law firm specializing in consumer protection against bank appears on one of the billboards that line Gran Vía, the modernist and central artery of Madrid. Almost everywhere in the capital, and in other Spanish cities, dozens of law firms and make their advertising around the controversial “floors clauses”, an abusive practice implemented by many banks.

financial Boulet

What is it about? In a provision appearing in many mortgages since the 90s, and under which lower interest rates – below a certain “floor” – is not reflected favorably for the customer but benefits exclusively to the financial entity. And that, in a country where the variable rate is ultramajoritaire. Specifically, this is a covert way to generate profit on the backs of individuals. Many banks, forty by the Spanish courts and not least (CaixaBank, Banco Popular, BBVA …), had introduced this clause without the knowledge of customers. The interest rates are exceptionally low in recent years, the damage is substantial for borrowers. In late December, the European Court of Justice sanctioned this practice scathingly. It is estimated that between 1.4 and 2 million customers have been victims and they have a very good chance to get their due. “That is why that law firms are mobilizing as eagerly commented Merchant Gran Vía newspapers. They know there’s a lot of money to be made, and they take advantage! ”

So, a kind of panic has gripped the banking sector. Since the decision of the Court of Justice on 21 December, which is final, he tried by all means to find parades to escape larger refunds to customers of its history. Or, at the very least, according to estimates by the Bank of Spain, 4 billion euros. “What very negatively affect the profits of many financial entities for the year 2016 and also their market value, summarizes Jesus Martinez of qualification S & P. For leaders, this is a nightmare … ”

The heavy blow to the European Court, in any case, changed that. In May 2015, after years of complaints from collectives and consumer associations (notably ADICAE, an organization fighting for the “moralization of the bank”), the Spanish Supreme Court had already ruled in favor of hundreds of thousands of people cheated: he had considered that the banks had acted “opaquely”, “without properly explain to their clients the implications of this clause”.

With this decision, customers could claim their money going back to 2013. Now, seized by the same associations, the European Court greatly expanded the retroactive what he considers an “abuse” of the sector bank, going back to 2008. Five more years: an abyss. Until then, some banks were partly to process payments from their customers. But with European case law, the amounts otherwise become substantial. In addition, the mobilization of law firms and that of consumer protection associations give 1.5 million individuals around the hope of receive compensation of around 4,000 euros (average for an apartment 150 000 euros), and many more for more substantial purchases.

Except that concerns are moderate enthusiasm. Noting the media extent of the phenomenon, the Conservative government is trying to control the situation promises to be a beautiful chaos. How indeed manage insurance claims? If the proceedings are judicial, “it is expected that the civil courts are saturated quickly,” warned the Minister of Economy, Luis de Guindos. The scandal of “floor clauses” would result in a doubling of the annual number of complaints. In order to facilitate “an alternative solution,” Luis de Guindos is preparing a decree law whose purpose is to “find a solution within a maximum period of three months.” Expected this week, this decree was postponed to the end of the month. Why? “The banks are panicked because they have much to lose, pointing the newspaper El Mundo in an editorial. And that is unfortunate but it seems that the executive wants to help them, “The Ministry of Economy wishes to promote amicable solutions, case by case -. That require banks – and cause the customer can not reject this offer unless, justice having been seized, a judge ruled in the opposite direction. “The banks have every incentive to make the round back, waiting for the storm to pass, and to try to get the least amount of money from their banks, said Jose Luis Campuzano, of the Spanish Association of the bank. Especially since the situation is not famous, although forecasts predict a slight economic improvement [1.6% growth now, note] and the real estate market recovery. ”

Facing financial millstone potential of “floor clauses”, the banks concerned are urging the government to avoid their maximum repayment in hard cash. “The concerned financial institutions are trying to deactivate the bomb by alternative routes, even noted the editorial of the newspaper El Mundo. Some contact affected customers to offer them a lower interest, the transition from a variable rate to fixed rate, reducing the duration of the loan, new financial products … Everything to avoid going out of cash. ”

“Citizen Anger”

This case adds to the discredit already huge banks. “Since the real estate crisis and the crisis of 2008 credit, their image is catastrophic in the opinion, the analysis Jesús Maraña Infolibre newspaper. And largely explains the citizen anger. After the implosion of the bubble, banks have suffered and have sought ways, often fraudulent, to make money to the detriment of individuals. “This explains why in recent years the scandals are replaced at a rate of ‘hell. Home Loans “multi” (currency manipulation changes), fraud swaps (financial derivatives), mass expulsions of people put on the street, “preferences” (complex and abusive financial products that have ruined hundreds of thousands of Spaniards ), “commissioner for descubierto” (undue commissions) … in addition, the Supreme Court recently ruled in a consumer association, the OCU, considering that the notary fees are at buyer’s expense but form the bank. Again, substantial repayments for individuals are involved …

“Banks are paying today, in terms of image and financial terms, of all their abuse, opaque practices, fraudulent financial engineering,” says an official of the ADICAE. Last week, the Accounts Tribunal has publicly slate calculated that the state, therefore the taxpayer, had to settle for aid to banks 60.7 billion euros, paid in 2012 to rescue funds savings bankrupt (Bankia, CAM, Novacaixagalicia …), and the crisis has caused the nationalization or disappearance of eleven financial entities. The opposition demanded the constitution of a parliamentary committee “to shed light” on this draft financial and “purify all the responsibilities.” Chapter bank abuse is far from over.