Updated: Kúria rules exchange rate margin invalid in FX case
The Kúria, Supreme Court of Hungary, ruled that contractual provisions regarding exchange rate margins were invalid in a case involving borrowers with a foreign currency-denominated loan and the country's biggest commercial lender.
The Kúria said the use of the disparate exchange rates was unfair because the practice resulted in undue compensation for lenders and costs for borrowers. The court explained that “re-calculation”, not “conversion”, takes place in FX loans, thus clients cannot be charged for the service of “conversion”. It added that the practice did not conform to “clear, intelligible criteria” for borrowers that had also been cited in a European Court Justice decision.
The Kúria noted that, according to provisions in Hungarian law, liabilities in foreign currency must be calculated at the exchange rate valid at the time and place of repayment. It said the National Bank of Hungary's (MNB) official FX fixings could be viewed as such, and these must replace the invalid provisions on the buying and selling rates in the contract.
The Kasler versus OTP case was earlier referred to the European Court of Justice. The court in Luxembourg said in April that it is within the competency of national courts to take legal measures in the interest of re-establishing fair and balanced conditions between parties in foreign currency-denominated loan contracts and maintaining the validity of those contracts.
Cheap Swiss franc-based loans were once the most popular retail lending products in Hungary, until the weaker Hungarian forint caused repayments to grow, pushing many households close to default. Hungary's government has taken a number of measures to assist FX borrowers and has said it plans to phase out FX loans.
György Wellmann, who heads the Kúria's civil department, said after the decision on Tuesday that the court could take a legal uniformity decision on questions related to FX loans on June 16. The questions will be those particular ones which had not been included in a legal uniformity decision by the court announced in December 2013, he added.
The civil department will consider whether FX loan contracts are unfair, as the consumer bears the risk of exchange rate changes, and whether the contracts are unfair if lenders incorrectly informed borrowers of such risks, he said. The court will also review under which circumstances the unilateral changes to contracts meet transparency requirements and whether the use of the exchange rate margins is fair, Wellmann discussed. There is no guarantee that a decision would be taken on June 16.
-- Christian Keszthelyi contributed to this article
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