The European Union’s top court ruled out that the Hungary was not unfair to borrowers in the exchange rate it set in repaying loans denominated in foreign currency. This is by rejecting a demand to invalidate such agreements. The issue of foreign currency loans weighed on Hungarian borrowers and banks in the last decade. This is because of the many big loans that they took in euros and Swiss francs to exploit significantly lower borrowing costs.
A Hungarian borrower challenged a provision in a 2007 loan contract, that concluded with Hungary’s OTP Group. That said that, the practice of issuing the loan at the forex purchase rate and repaying instalments at the selling rate was unfair. Hence, the contract should be void. Banks have since converted retail loans into forints. They did this with the help of the NBH, to get rid borrowers of exchange rate risks. But the Hungarian borrower refused to withdraw his litigation. A Hungarian court also asked the European Court of Justice to make a final ruling.
The ECJ said that it observes that the solution adopted by the Hungarian legislature corresponds to the objective pursued by the Unfair Contract Terms Directive. And that is to restore the balance between the parties. It said such contracts could not be declared void purely, just simply on the basis of a single provision damaging borrowers’ interests. It also stated that in accordance with the criterion of objectivity laid down by the Court in its relevant case law, the situation of one of the parties to the agreement cannot be regarded, under national law.
