BUYERS 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.