SWISS Franc loan contracts involved thousands of borrowers in default, both in Cyprus and other Balkan and European countries. This particular banking product, promoted especially in the early 2000’s, resulted in a severe socio-economic problem due to the depreciation of the exchange rates.
The indignation of borrowers, who observed a substantial increase in their balances on their loans and payments, forced them to resort to legal measures to defend their legal rights and entitlements.
The start of the judicial processes in various other European Courts and their decisions in favour of the borrowers have played a prominent role in the protection of creditors’ legal rights and the treatment of lending contracts that contained controversial and damaging clauses. Consequently, national European courts have tended to adopt decisions in favour of the borrowers.
Recently, in Cyprus, the first partial vindication of a borrower was heard before the District Court of Nicosia in a case that contested the banks overcharges and the financial loss caused by the depreciation of the exchange rate between the Swiss Franc and the euro. The loan had been granted by the bank for the purpose of funding emergency housing.
The Plaintiffs (borrowers), as with the majority of bona fide borrowers, paid their loan instalments meticulously and regularly. However, their loan never reduced over time and, in fact, continued to increase.
Swiss Franc borrowers were forced to convert their funds to pay their loan instalments on the day that the payments were due and according to the exchange rate on the date of the instalment payment. The devaluation and considerable downturn of the Swiss Franc negatively affected the loans and compounded the interest on them.
The plaintiffs in this particular case requested the issuance of a protective interim order under the provision of Article 32 of law 14/60 for:
(a) the suspension of the monthly instalments on the agreement and
(b) suspension of the defendants’ life insurances with two insurance companies in favour of the borrowers and not the bank.
The Cypriot Court, correctly interpreting the European Directive 93/13/EEC on the unfair terms in loan contracts, applied the European Precedent of the European decision C-26/13 Kasler and Rabai v OPT Jelzalogbank Zrt dated 30/04/2014 regarding the borrowing of Swiss Francs and questioned the clauses that weakened the other parties’ negotiation chances and, in particular, the bank’s position of “take it or leave it” that was in violation of the borrowers’ principles of autonomy and their contractual freedoms.
It is on this basis that the Cypriot Court, referred to the decision of the European Court of Justice in the case of Kasler for the understandable wording of terms so that they are meaningful and clear to a borrower.
It is widely viewed that the judge’s final verdict will primarily centre on ‘whether the manner and kind of lending represents a common loan agreement, for which the borrower knows from the beginning that he will be required to pay back a specific amount including the relevant interest on the loan’.
The Court rightly determined in the case that the borrower was not in a contractual position to have knowledge of the entire sum of the loan and the obligations/relationship between the lender and borrower. In these types of loan contracts, the content is normally unknown and/or undefined and/or unclear in the repayment of loans that are reliant on exchange rate fluctuations (between the currency of the loan contract and the currency of the borrower’s income), including the variable interest rates imposed on the loan.
Although, the Cyprus Government has, to date, not taken a stance on this matter, the Cypriot justice system has followed both European and Case Law in protecting borrowers from contracts containing unfair and concealed terms by the banks for the sole purpose of gaining a profit.
The first Cypriot judgment (albeit interim) regarding Swiss franc loans, in conjunction with the European Legislation and Law, is a formidable safeguard available to borrowers in difficulty who wish to restore through the Courts the financial losses that they have suffered.
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