Brussels, April 30 (MTI) – National courts have the competency to replace unfair provisions in loan agreements in line with the laws of the given country, the Luxembourg-based European Court of Justice ruled today.
National courts can overwrite such provisions in order to restore fair and balanced conditions between the contracted parties and to maintain the validity of those agreements, the court said.
The ruling was made in the Kasler-OTP case involving a Hungarian lender and borrowers with a foreign-currency-denominated loan.
In its ruling, the court said that borrowers taking out a loan in a foreign currency must be in a position to consider its financial consequences and should be made aware that repayment of the loan may be made at a different rate from the one applied when the loan is taken out and the loan amount is converted to forints.
The case had been initiated by the Kuria, Hungary’s supreme court, in order to establish, among other things, whether the Hungarian justice system has the right to examine whether the conditions contained in the contracts of borrowers with foreign currency loans are fair or not.
The Kuria said after the announcement in Luxembourg today it would study the European Court’s ruling, and on this basis it was expected to make a decision in respect of the Kasler-OTP case at some time before its July 15-Aug. 20 summer recess.
The Banking Association told MTI on Wednesday that the legal issues of foreign currency lending were “gravely important” and the European Court’s ruling was a complex one, so its legal experts were examining it in depth before offering an opinion.
OTP, Hungary’s biggest retail lender, told MTI that the European Court decision, in accordance with the Kuria’s earlier decision on legal conformity, made it clear that it would be against customers’ interests if the cancellation of various provisions in a contract by the court result in the entire contract being annulled. Courts should make an effort to replace invalid provisions with valid measures, the bank added. According to OTP, the European Court ruling announced on Wednesday represented an intermediary decision which offers directions to the Kuria but does not include a concrete position. The final decision needs to be made by the Kuria and this will not only be decisive in the case at hand but will function as a supplement to the past decision on legal conformity, OTP said.
Cheap, Swiss franc-based loans were once the most popular retail lending product in Hungary, until the weaker forint caused repayments to grow, pushing many households close to default.
The government asked the Kuria last November to interpret several provisions of the fundamental law and to form an opinion on whether one-time contracts for FX loans were constitutional or not. The outcome is expected to influence how the government proceeds when it comes to the nature of expected legislation on coming to the aid of troubled borrowers.
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