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Report: Spanish court rules against mortgage 'floors,' urges banks to repay borrowers

A Madrid court ruled April 7 that Spanish banks can nolonger sell mortgages with clauses setting minimum interest rates and ordered thelenders to reimburse customers for any related losses incurred since 2013, Reutersreported the same day.

Until a 2013 ruling by the country's Supreme Court, Spanishbanks inserted floor clauses in mortgage contracts to ensure that the interestrate on the loan could not fall below a certain level.

Customers who filed class action suits against the banks havealleged that the so-called floor clauses were not explained clearly to themwhen taking out mortgages and prevented them from benefiting as much as theycould have in the eurozone's historically low interest rate environment.

The ruling, if not appealed, will force approximately 40 ofthe country's banks to remove the floor clause from their contracts and repaycustomers for any losses along with interest, Reuters reported.The European Commission had urged the banks to take these in October 2015.

A spokesperson for CaixaBank SA reportedly told Reuters that the lender hadremoved most of such clauses at a cost of about €220 million and set aside €515million to cover for related losses since 2013.

BankiaSA also has provisioned to cover potential losses since thedeclaration of these mortgages, according to a bank spokesperson.

Banco deSabadell SA's mortgage contracts continue to include floor clausesbut the bank, like CaixaBank, is reportedly assessing the situation followingthe latest ruling.