The European Court of Justice ruled on the issue of Hungarian foreign currency loans, which another ABC client brought against the bank because it changed the exchange rate margin for its foreign currency loans during the term. The European Court of Justice will decide on this, but it has also been found out whether a foreign currency loan agreement is “unfair”.
A statement from the court states that anyone who is debt-denominated in a foreign currency must be aware of the economic risks that may lead to an increase in installments. However, they may have a headache about the exchange rate premium, as the panel believes that the Hungarian court can decide whether the terms and conditions are fair. In this regard, the panel may also take a unity decision to facilitate further court work.
But what about the spread?
Even in my article in the Cash Center, I calculated what it means for a foreign currency borrower in this particular case if the contract rate margin is restored to full maturity.
The ruling of the Mansion, which reached the European Court of Justice, stated that “In the case of a foreign currency loan, the amount of the loan is determined by the parties, in this case the franc. The bank has already referred to this in forint at a higher selling price. Then, when the line was repaid, the customer settled the forint at the purchase price. That difference is a cost, said the Mansion. Costs must be included in the contracts, otherwise they will be null and void. However, the judgment states that by replacing the name of the cost resulting from the exchange difference, the relevant foreign currency loan agreement remains in force.
Cost resulting from the above exchange rate difference
The contract could not be canceled by the Mansion and the original condition restored because the customer’s damage was insignificant in relation to the entire content of the contract and the cost resulting from the above exchange rate difference was included in the APR known to the customer at the time of the contract.
Thus, the Mansion only declares the contract to be valid only by way of an addition, and this addition is the name and the amount of the cost. But since the rate must also be fixed, it cannot change it only under the terms of a unilateral contract amendment, which very strictly regulates when banks can increase their fees. ”
It follows, therefore, that ‘the customer is entitled to compensation if his bank has in the meantime used a higher exchange rate margin than when the contract was concluded. But how much is this compensation?
Currently, there is a 2 percent difference between the buy and sell rates, instead of the 1 percent allowed by the Mansion at the time of the contract. Which means $ 500 in the case of a $ 100,000 installment loan, as there is only half a percentage point difference between the current rate and the contract rate. As a result, the customer suffered a total loss of 36 thousand forints in 6 years. As we do not know when ABC raised its buy and sell rates, we assumed that the entire term would be compensated. Not knowing the amount of the loan, we only assumed the amount of the installment, but it still appears that the litigation cost was probably higher than the amount the debtor could win. “
Do All Currency Borrowers Get Cash Now?
The communication states that the main objective of the European Court of Justice should be to preserve the validity of the contract. It is not contrary to the Hungarian court to restore unfair terms. This gives the Hungarian court the opportunity to determine when it is necessary to clarify exchange rate gaps and when to compensate accordingly. The mansion can even do so in a uniformity procedure, which would simplify further litigation for foreign currency debtors.
The court’s full notice is:
Consumers who take out a loan denominated in a foreign currency must be able to appreciate the economic consequences of using a different exchange rate (foreign exchange rate) to repay the loan than that used to calculate the loan amount (foreign exchange rate).
The national court may replace the unfair term by a provision of national law in order to restore the balance between the parties to the contract and to maintain the validity of the contract.
The Unfair Contract Terms Directive requires that consumers are not liable for unfair terms in contracts with a seller or service provider. However, with regard to the main subject matter of the contract and the conditions governing the eligibility of the price or remuneration for the goods or services supplied for consideration, the Directive allows Member States to provide in their transposing national legislation that these conditions are not subject to unfairness assessment. as long as they are clear and understandable. The Hungarian legislation transposing the Directive contains this exclusion.
The contract stipulated that the amount of the loan, expressed in Swiss francs, was to be determined at the exchange rate of the bank on the day of disbursement. Under this condition, the loan was set at CHF 94,240.84. However, according to the contract, the amount of each installment to be paid was to be determined at the Swiss franc exchange rate used by the bank on the day before the due date.
Calculate the installments due at the selling rate
Mr. Khrisler challenged before the Hungarian courts a clause authorizing the bank to calculate the installments due at the selling rate of the Swiss franc. They argued that this condition was unfair in that it required the use of a rate different from that used when the loan was disbursed.
The Court examining the application for review asks the Court whether the clause relating to the conversion rates applicable to a loan denominated in a foreign currency relates to the principal object of the contract or to the price / quality ratio of the service. He also wishes to know that the disputed term is so clear and comprehensible that they may be exempted from the assessment of their unfairness under the Directive. Finally, the Hungarian court wishes to know that if the contract cannot be performed if the unfair term is abandoned, the national court is entitled to amend or supplement it.
The Court recalls, first of all, that the prohibition on the assessment of unfair terms in the main subject-matter of the contract must be strictly interpreted and applied only to terms which establish the essential services to which the contract relates. It is for the Court to determine whether the disputed term is an essential element of the contract entered into by Mr. Khrisler.
The Court further notes that an examination of the unfairness of the condition in question cannot be disregarded on the ground that it concerns the matching of the price or remuneration to the goods or services supplied for consideration. That condition is limited to the fixing of the exchange rate between the Hungarian Forint and the Swiss Franc for the purpose of calculating the installments, but does not require the lender to provide the conversion service. In the absence of such a service, the financial burden of the difference between the purchase price and the sale price borne by the borrower cannot be regarded as consideration for a service.
Secondly, the Court points out that the condition determining the principal subject-matter of the contract is exempt from assessment of its unfairness only if it is clear and comprehensible. In that regard, the Court points out that that requirement is not limited to formal and grammatical clarity. On the contrary, the loan agreement must clearly state the reasons and characteristics of the foreign exchange conversion mechanism. Thus, the Court must determine whether, on the basis of the advertising and information provided by the creditor at the time of the conclusion of the loan agreement, a generally well-informed and reasonably prudent consumer is not only able to recognize the difference between the effects of applying the exchange rate on the calculation of installments and on the total cost of a loan it borrows.
Lastly, the Court finds that, as in the present case, if the unfair term is abandoned, the contract does not preclude the national court from replacing the term at issue with a dispositive provision of national law. That solution makes it possible to attain the objective of the directive, which is, inter alia, to restore equality between the parties, while preserving to the fullest possible extent the validity of the contract.
Penalize him than the creditor
If such substitution were not permitted and the contract were to be annulled by the court, the dissuasive effect of the penalty of annulment and the objective of consumer protection would be jeopardized. In the present case, the annulment would have the effect of making the entire outstanding amount of the loan repayable. However, this would go beyond the consumer’s financial ability and therefore be more likely to penalize him than the creditor, which, in view of this consequence, may not be encouraged to avoid including such clauses in his contract.