MADRID – Spanish banks are facing the prospect of having to pay back several billion dollars to clients following a European Court of Justice ruling Wednesday over mortgage agreements that insured that interest rates did not fall below a certain level.
The decision overruled one by Spain’s Supreme Court in 2013, which annulled so-called ground clauses applied by Spanish banks but exempted the banks from repaying money made on the contracts up to that year.
The clauses set a minimum interest rate, meaning customers could not benefit when official rates dropped beneath that level. They started around 2009 as the financial crisis struck.
The European Court said a capping date for reimbursements was incompatible with EU law, meaning the banks will have to make repayments from 2009.
Spain’s International Financial Analysts group estimated banks may have to pay 4.5 billion euros ($4.7 billion).
“It’s an historic day,” said Manuel Pardos of the bank client defense association, ADICAE. “The ground clauses were a genuine fraud designed by the major banks.”
Pardos said more than three million people had been victims of the clauses.
The Spanish Bank Association said it respected the decision and would work with clients to apply the resolution.
Back in 2013, the Spanish court said it set a time limit on reimbursements so as to avoid a major upset to the country’s financial system, which was then facing acute difficulties in light of the country’s recession and Europe’s widespread debt crisis.
David Ruiz of International Financial Analysts said Spanish banks in general had not expected the latest ruling and had not made provisions for the retroactivity. But he denied it would have any major effect on the banking system.
The Spanish court decision in 2013 directly affected three banks. Certain financial entities continued to apply the clauses after 2013, leading to the European Court action.
Shares in several major banks fell on the Madrid stock exchange following the announcement. Banco Popular dropped 6.4 percent to 0.9 euros and BBVA was down 1.7 percent at 6.4 euros.