The issue of foreign currency lending weighed on Hungarian borrowers and banks in the first half of the last decade after many took out large loans in euros and Swiss francs to exploit significantly lower borrowing costs.
A Hungarian borrower challenged a provision of a 2007 loan agreement with Hungarian group OTP, claiming that the practice of issuing the loan at the forex buy rate and repay the installments at the sell rate was unfair and that the contract should therefore be void.
Parliament subsequently enacted legislation stipulating that the official exchange rate of the National Bank of Hungary was to be applied both when issuing and repaying loans.
Banks have since converted retail loans into forints with the help of the BNH to rid borrowers of currency risks.
But the Hungarian borrower refused to withdraw his lawsuit and a Hungarian court asked the European Court of Justice to rule definitively.
The ECJ declared that it “observes that the solution adopted by the Hungarian legislator corresponds to the objective pursued by (the Unfair Contract Terms Directive), which is to restore the balance between the parties while maintaining the validity of the agreement as a whole “.
He said such contracts could not be declared void on the sole basis of a single provision harming the interests of borrowers.
“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 considered, in national law, as the determining criterion governing the fate of the agreement”, noted.
($ 1 = 293.2200 forints)
(Reporting by Gergely Szakacs and Foo Yun Chee; Editing by Mark Heinrich)