The way of contracting financial products has changed over time by appearing different abusive clauses in loans and mortgages , which added to the lack of financial education and the lack of information becomes an abuse of the dominant part, the bank.
Before the negotiations were slower and more expensive, but the current trend is to sign agreements in a few hours through the accession contracts.
The current reality has led society to adopt faster processes to the detriment of quality, this fact “speed” is found in private loans and mortgages.
This new way of signing contracts has had as unfavorable results the incorporation of numerous abusive clauses that due to their lack of knowledge and lack of information affect the consumer.
As a consequence, legislative measures have been adopted that seek to better protect users from these excessive practices.
The causes that led to the incorporation of abusive clauses
Before listing some of the most relevant abusive loan clauses that are usually included in mortgage loan contracts, we must analyze a little behind the emergence of these excessive conditions for consumers.
As already mentioned, the current reality and the globalization of trade have driven new forms of contracting that have increased the number of operations, considerably reducing waiting times.
This new context has hurt users, as it forces them to lose the guarantees that result from an individual negotiation between the consumer and the merchant in favor of an expedited contract, resulting in the exclusion of numerous terms and conditions that must be agreed upon. With time, such as the amount of the loan, the fee that is established for its progressive repayment, the term for the repayment, the applied interest, the clauses of resolution of conflicts, among others.
It is for this reason that today you can see a large number of contracts concluded quickly and where “General Contract Conditions” are drafted unilaterally by a professional, and where he applies certain clauses to be signed with the consumer.
Know the abusive clauses in loans and mortgages
The presence of a considerable number of abusive clauses in different types of contracts is public and notorious.
However, this post focuses on the abusive loan clauses that are frequently found in mortgage contracts , with consequent referrals in the tenants.
Any abusive clause is reprehensible, however, since it is a fundamental asset such as family housing, it is appropriate to know them so that you are protected from this type of harmful practices.
In this regard, you should take into account that the acceptance of these abusive clauses directly results in the execution of the mortgage with excessive demands by the lender , in loss of the debtors’ homes or even the parents if it was established. as bank guarantee.
In light of the above, you should focus your attention on some abusive clauses that include banking entities in mortgage loan agreements, without forgetting the private lenders, who taking advantage of the ignorance make use of these clauses for their own benefit.
It is understood as a ground clause the contractual practice that prevents an eventual depreciation in the interest rate applied to the repayment of the loan, which is assumed to be variable. With reference to the interest rate, this can be defined as, on the amount that is applied to each installment that the borrower must return. This interest rate is set by the bank to ignore the client requesting a mortgage, therefore, it is considered an abusive clause.
There are generally two types of mortgages with marked differences: the variables and the fixed ones.
- Fixed interest mortgages. As the name implies, they are fees that do not vary, even if there are falls or rises in the interest rate established by the central banks. Therefore, regardless of the behavior of the economy, the mortgage interest will always be the same, month by month.
- Variable interest mortgages. On the other hand, variable interest rates use the indexes established by Financial Standing as a reference, a guide used by the different European banks when setting up loans or credits and which are usually set based on a daily average.
However, although the banking entities are guided by the Financial Standing, in addition each one establishes a percentage that is reviewed annually, which is calculated according to the way in which the financial markets fluctuate.
Given that the Financial Standing index can vary considerably and to cover itself economically, some financial institutions agreed with their clients a minimum code that guarantees them adjusted interest.
This provision that clients did not know or were unaware of its scope at the time of signing the mortgage is what is known as the Land Clause.
Although this condition is important, it is not clearly indicated in the contract nor is it explained by the entity’s representative. Following the collapse suffered by Financial Standing in 2009, a controversy was presented regarding this clause.
Those who had the ground clause in their mortgages were harmed by having to continue paying higher fees, on the contrary, those who did not have included in their contracts the clause paid lower fees, which is why the lawsuits against those banks that They implemented these abusive practices.
The Land Clause was annulled in 2013 by the Supreme Court, but those affected still await the reimbursement of surplus payments for this concept.
Early Expiration Clauses
With this clause, the banking entities determine when the debt owed on a mortgage guarantee loan fails to meet any of its obligations.
In general, the breach is verified when one or more installments have been stopped, sufficient reason for the entity to terminate the contract and demand that the total remaining capital be returned.
Although this clause is inserted in different types of contracts (labor, sale, commercial, etc.) ending the relationship agreed by the parties before the agreed date, by the sole fact that one of the obligations contracted was breached.
Recently, this figure has reached special relevance in the mortgage sector, since it has been inserted as a clause in the different signed contracts.
Thanks to this clause the entities acquire the right to terminate any contract under the pretext of breach of conditions, demanding full payment of the agreement.
Therefore, the early expiration clause is considered an abusive practice. As an example, what happened during the economic crisis that affected the country in recent years.
The increase in unemployment resulted in the non-payment of some families of their mortgage payment obligations, since the fees set in times of prosperity no longer reflected the subsequent reality.
The abusive application of the clause by the banks forced the debtor to pay the entire unpaid capital.
It is an illogical strategy that contradicted the condition of the clause, since who can not pay one or several installments much less can pay the entire mortgage. In such a case, the final application of said clause depends on the corresponding eviction.
Cost allocation clauses
The contractual provisions of the clause consist in holding the user responsible for the notary costs or expenses derived from the mortgage contract and their respective registration with the corresponding notary entity. Even the clause obliges the consumer to pay the expenses derived in the event that a judicial process is initiated to execute the mortgage for non-payment of fees or for declaratory process by the affected party.
Some of the expenses that are charged to the consumer are those incurred by paying taxes, postal costs, notary fees, processing costs, among others.
Undoubtedly, it is an abusive clause since banks charge the user with all the costs derived from the constitution of a mortgage, attributing certain expenses that are regulated by legal resolutions of a procedural type or related to the corresponding tax.
These circumstances, as well as the lack of clarity or transparency of the terms of the contract and the inequality it represents for the user have contributed to the declaration of nullity of such abusive clauses. They should be replaced, if possible, by actions that benefit the consumer.
Regulatory clauses of the interest rate applicable to the mortgage
Mortgage loans must establish minimum particular conditions in accordance with the regulations. For example, the interest rate applied and other issues must be expressed annually, in addition the accrual start, the periodicity and the form of ordinary settlement must be indicated.
When the interest rate is variable, it must be defined in the contract in a clear, concrete, understandable manner and according to Law. If, on the contrary, it is a referential interest rate, it must be fully identified in the contract, indicating its periodicity and the way in which it should be published for public knowledge.
Other aspects that must be clearly defined are the necessary adjustments for the nominal or substitute calculation, the limits of the variation, the minimum threshold to vary the interest or its rounding and the procedure for the corresponding claim in case of disagreement with the calculation applied to the type of interest. Here are two examples:
- Interest on late payment. The clause establishes a percentage of extra cost applied to the user in case of an alleged non-payment of a mortgage payment and without being required by the banking entity, that is to say automatically. After the maturity of the quota, the delay is applied with the resulting accrued interest.
- Remuneration interests It is the interest that the entity requires the user for the loan received. This condition requires the bank client to return the loan at a certain interest rate. The term of the clause implies the repayment of the loan at 17% annualized interest.
The effect of these measures is that the interest rates applied imply a usury practice, therefore, excessive for the user. And if they are considered usury, it implies the impairment of their rights; If this is added to the fact of not being negotiated or informed to the client, it is in the presence of an abusive practice.
This contractual clause provides that the mortgage debtor renounces the jurisdiction that by law corresponds to him, thus submitting to what the bank establishes in its general conditions .
This represents a serious inconvenience for the debtor, since, if he resides in a province other than the one to which he must submit, he must travel to the corresponding province to legally act against the entity, assuming the derived costs and the time that It involves the action.
In this sense, the law is clear regarding the right of those involved to go to the courts that correspond to it based on the established litigation. By obliging the debtor to go to a different jurisdiction to the one that corresponds, not only acts outside the regulations of law, but also limited to the user.
In sum, it is not the conditioning of one of the parts of the contract that determines the corresponding jurisdiction, but the law. In cases of mortgages, the law establishes that the jurisdiction corresponds to the place where the property is located.
Other types of clauses
There are other types of clauses that are also classified as abusive, although they are not considered as relevant as the previous ones. However, they are mentioned below so that you are aware of them in case of an eventual application:
- Tranquility Mortgage Clause
- Interest rate rounding clause
- Prohibition clauses to dispose of the property subject to the mortgage
- Clauses waiving the lease by a third party
- 360/365 day clause.
- Interest retention clause.
- Clauses that regulate other aspects of the mortgage loan contract, such as, Appropriation by the creditor of the surplus of the provision of funds, the personal bond added to the mortgage, Award Clause in favor of securitization fund, Clause of treatment of personal data , Subrogation clause of the acquirers, Multi-currency mortgage, Regulatory clause of the purpose of the loan, or the Valuation Value Clause for auction, among others.
In summary, there are many abusive clauses that are included in loans without the consent of the mortgage borrower or without due timely information.
Undoubtedly, this type of excessive practices not only injure the rights of the affected, but also taking into account the decisions of the courts in this regard, are behaviors that in many cases violate the regulations of law .
In all these cases it is best that you are informed, know your rights and defend them.
Risks and Warnings
After reading this document you have to be very clear that the hiring of financial products is a long-term commitment and as a result you need the advice of a financial professional, lawyer, advisor to help you understand what puddle you are going to get into.
Therefore, just as you do not travel around the world without insurance, do not hire any financial product without prior advice.