Floor clauses are provisions in mortgage loan agreements that establish a minimum interest rate, preventing the borrower from fully benefiting from decreases in the benchmark index. Although not illegal per se, they have been subject to extensive review by the Spanish Supreme Court and the Court of Justice of the European Union (CJEU) due to potential abuses in their application.
When Is a Floor Clause Considered Null?
Spanish Supreme Court Judgment STS 241/2013, of 9 May 2013, declared the nullity of floor clauses that fail to meet transparency requirements. A clause may be deemed abusive and therefore null for reasons such as:
- The appearance that the loan is genuinely at a variable interest rate, without the consumer realising the existence of a floor.
- Insufficient information on how the floor affects the cost of the credit.
- The false impression that a floor clause is always accompanied by a ceiling clause.
- The clause being hidden among a large amount of complex contractual data.
- Lack of pre‑contractual simulations showing possible interest rate scenarios.
- Absence of a clear warning about comparative costs with other products.
Thus, the Supreme Court did not declare floor clauses illegal. Instead, it established that they must be clearly and transparently explained to the consumer in order to be valid.
Effects of Nullity on Interest Paid
In its judgment of 21 December 2016, the CJEU held that when a floor clause is declared abusive, the lender must refund all amounts unduly paid from the beginning of the contract, not just from 9 May 2013 (the limit previously set by the Spanish Supreme Court).
This ruling imposed full retroactive restitution of interest overpaid due to an abusive clause.
Procedure for Recovering the Money
Royal Decree‑Law 1/2017, of 20 January, established an out‑of‑court mechanism to facilitate refunds. This procedure is:
- Voluntary and free for the consumer
- Handled by the lender, which must reply within three months
- Supervised by the Monitoring Commission created by Royal Decree 536/2017, of 26 May
If the out‑of‑court procedure is unsuccessful, the consumer may file a court claim, which will be decided by the Courts of First Instance.
Elimination of Floor Clauses in the New Legislation
The Spanish Mortgage Credit Act (LCCI), in force since 16 June 2019, prohibits floor clauses entirely in variable‑interest mortgages (Article 21.3 LCCI).
However, to protect lenders, Article 21.4 LCCI establishes that interest may never be negative. This prevents situations in which the bank would have to pay the borrower if interest rates drop too far below zero.
Conclusion
Although floor clauses are not illegal, many have been declared abusive due to lack of transparency, leading courts to order full refunds of excess interest paid.
The current legal framework:
- prohibits floor clauses in new variable‑rate mortgages
- ensures full restitution of overpaid interest when the clause is abusive
- provides an out‑of‑court refund mechanism to simplify claims
