What has happened with the floor clauses?
Posted: Mon Dec 23, 2024 4:33 am
The CJEU (Court of Justice of the European Union) has issued a ruling in favour of the retroactivity of floor clauses , contrary to the Opinion of the Advocate General and the ruling of the Supreme Court which limited the retroactive effects of this figure.
To understand this long-awaited ruling from the Court of Justice, we must know what a floor clause is.
What is a floor clause?
Most credit contracts depend on the Euribor; when granting a loan, banks require the repayment of the Euribor plus a spread. For example, a mortgage loan required the repayment of the Euribor+1 (meaning it has the Euribor interest rate plus an extra point).
The Euribor fluctuates and for this reason many credit contracts include floor switzerland business fax list and ceiling clauses . These clauses stipulate that even if the interest rate is above a certain threshold (ceiling) or below (floor), the consumer will continue to pay a minimum interest rate equivalent to that threshold and in the case of floor clauses a lower rate will not be applied.
In 2008, the Euribor reached its maximum of 5% and debtors were paying more than 6% interest. But couldn't this have been avoided with ceiling clauses? No, since they were never activated. In the contracts, the ceiling clauses had been set at an average of 13%.
From 2009 onwards, the Euribor began to fall rapidly. Many mortgage holders did not see their payments fall, due to the floor clauses contained in their contracts. These clauses were activated because the limits were generally set at around 2% or 3%, a more realistic percentage to reach compared to the ceiling clauses.
As a result, many consumers began to file lawsuits because they were unable to take advantage of the drop in the Euribor, claiming that they were not aware of the existence of this clause in their contract and that the differences between the floor and ceiling clauses were abusive.
Thus began a long judicial process leading to the ruling of the Court of Justice of the European Union.
To understand this long-awaited ruling from the Court of Justice, we must know what a floor clause is.
What is a floor clause?
Most credit contracts depend on the Euribor; when granting a loan, banks require the repayment of the Euribor plus a spread. For example, a mortgage loan required the repayment of the Euribor+1 (meaning it has the Euribor interest rate plus an extra point).
The Euribor fluctuates and for this reason many credit contracts include floor switzerland business fax list and ceiling clauses . These clauses stipulate that even if the interest rate is above a certain threshold (ceiling) or below (floor), the consumer will continue to pay a minimum interest rate equivalent to that threshold and in the case of floor clauses a lower rate will not be applied.
In 2008, the Euribor reached its maximum of 5% and debtors were paying more than 6% interest. But couldn't this have been avoided with ceiling clauses? No, since they were never activated. In the contracts, the ceiling clauses had been set at an average of 13%.
From 2009 onwards, the Euribor began to fall rapidly. Many mortgage holders did not see their payments fall, due to the floor clauses contained in their contracts. These clauses were activated because the limits were generally set at around 2% or 3%, a more realistic percentage to reach compared to the ceiling clauses.
As a result, many consumers began to file lawsuits because they were unable to take advantage of the drop in the Euribor, claiming that they were not aware of the existence of this clause in their contract and that the differences between the floor and ceiling clauses were abusive.
Thus began a long judicial process leading to the ruling of the Court of Justice of the European Union.