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Courts can amend foreign currency loans

Advocate General Niels Wahl of the EU Court of Justice has advised that national courts can force banks to replace unfair contract terms for customers holding foreign-currency loans.

foreign currency loansBUYERS of property in Cyprus are not the only ones who were advised to take loans denominated in Swiss Francs to fund their purchase.

A recent case in which a Hungarian couple challenged the system of exchange-rate margins used by lenders was referred the EU tribunal last year for guidance on the powers of national judges:

In 2008 a bank granted a couple a loan of 14,400,000 Hungarian Forints; its equivalent value in Swiss francs was fixed at CHF 94,240.84. According to the terms of the contract, the couple took note of the fact that in addition to the loan, related interest, administration fees and default interest and other charges would also be determined in CHF.

The couple challenged the term in their contract that allowed the bank to calculate their monthly instalments based on the selling rate for CHF in Hungary’s High Court. They claimed that the clause was unfair as it applied a different exchange rate to that used when the CHF loan was calculated in 2008. The High Court referred the matter to the EU Court of Justice, requesting its opinion on the matter.

According to Advocate General Niels Wahl of the EU Court of Justice, contractual terms that provide for the use of an exchange rate that differs from the exchange rate used calculating the loan repayments are not exempt from an assessment as to whether they are unfair.

In essence, Advocate General Wahl advice means that Hungary’s courts can force banks to replace unfair contract terms for customers holding foreign currency loans.

The news heralded a fall of 2.8 per cent in the share price of the OTP Bank, Hungary’s largest lender.

Although Advocate General Wahl opinion is non-binding, the EU Court of Justice follows the advice of its advocates general in most rulings, which usually come about 6 months later.

Further reading

Court of Justice of the European Union Press Release No 16/14

Readers' comments

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  • Mike says:

    FFJ has summed it up admirably. Sadly we as a nation do seem to be very insular and naively ignorant of the damage our internal actions affect the way the world view us.

    It would be nice to see the courts pass judgement on any cases that warrant a change. I do not however see all the cases requiring a change as I am certain there must be some who ignorantly forged ahead blinded by the expectations of great profits without taking reasonable steps to analyse the risks or otherwise.

    A devils own job for any court to pass judgement on but one that needs to be determined as there are, without doubt, buyers who were mis-sold Swiss Franc mortgages and loans which were totally inappropriate to their circumstances and means. Others however may be at the risk of accepting they made an ill advised decision and gambled and lost. Certainly not a situation one would want anyone to be in but a fundamental effect of currency fluctuations.

  • Fighting For Justice says:

    I note the phrase ‘national courts CAN force banks’.

    I think many of us have experience of Cypriot courts and what they can do and what they do do are miles apart most of the time.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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