CJEU: The unfairness of exchange-rate risk must be examined even despite state-mandated conversion into forints

Despite the state-mandated conversion into forints, the national court must examine whether the bank acted unfairly when, in a foreign-currency loan agreement, it shifted the entire exchange-rate risk onto the consumer.

For years, we have emphasised that the practice of the Hungarian courts, inspired by the Curia, under which they repeatedly ruled in favour of the banks, was entirely unlawful. Our position on this issue can be read in detail in the Népszabadság article. After our law firm became involved in handling Hungarian foreign-currency loan cases, we achieved numerous successes and managed to save the homes of many Hungarian families from forced auction. We have consistently maintained that the Curia’s directives, which run counter to common sense, need to be reviewed at EU level.

This has now happened: the Second Chamber of the Court of Justice of the European Union has ruled entirely in line with the arguments we have put forward.

In the case, the Court had to examine whether national courts may rely on an exception contained in the EU directive on unfair terms in consumer contracts, according to which the unfairness of a contractual term incorporated into the contract by operation of statutory provisions is, in principle, not subject to review. The Hungarian legislature — albeit subsequently — sought by statute to make the conversion into forints, which was favourable to the banks and arbitrary, part of the contract. The Court’s answer to this was an unequivocal no.

According to the Court, the subsequent state intervention is ineffective, because — despite the established intention of the Curia — the unfairness of assigning the exchange-rate risk may nevertheless be examined. Perhaps precisely because the Curia has so far taken a position that is wholly contrary to this, the European Court has now provided very detailed guidance on the basis on which this review must be carried out:

The requirement of “plain and intelligible” wording means that the term concerning exchange-rate risk must be understandable to the consumer not only formally and grammatically, but also as regards its specific content. In other words, an average consumer must be able not merely to recognise that the national currency may depreciate against the foreign currency in which the loan is denominated, but also to assess the potentially significant economic consequences of such a term for his or her financial obligations.

In this context, the risk disclosure must also address — or should have addressed — the fact that the clarity and intelligibility of the contractual terms must be assessed by reference to all the circumstances existing at the time the contract was concluded and relating to its conclusion, as well as to all the other terms of the contract, notwithstanding the fact that some of those terms were subsequently declared unfair, or presumed to be unfair, by the national legislature and were declared void on that basis.