Thursday, 3 May 2018

Kasler repercussions - AG Tanchev in OTP Bank and OTP Faktoring (C-51/17)

Today AG Tanchev issued an opinion in the case OTP Bank and OTP Faktoring (C-51/17) examining compliance of Hungarian law with Unfair Contract Terms Directive. Unsurprisingly (for a Hungarian reference), the facts of the case pertain to another consumer loan contract (concluded in February 2008) where the loan was denominated in Swiss Francs (see previously e.g. our blog post on Kasler case). Similarly to the Kasler case, the creditor converted the loan from Hungarian forints to Swiss francs, using its own buying rate for the conversion, whilst monthly repayment instalments were fixed according to the bank's selling rate. Another contract term gave the creditor the power to unilaterally change the ordinary interest and management costs. Consumers now are seeking for the declaration of invalidity of the contract as it contains unfair contract terms, whilst they would like to keep the loan contract valid but just change the denomination into forints (para 19). 

New Hungarian law
After the Kasler judgment by the CJEU, Hungarian law has changed and declared invalid such clauses in consumer loan contracts, which use the buying rate of a foreign currency to determine the loan payment, but selling rate is used for the purpose of loan repayment. The consequence of such invalidity is the replacement of a given term with a provision providing the official exchange rate for the currency set by the National Bank of Hungary to be used for both loan payments and repayments. Subsequently, another law required banks to return any overpayments made by consumers due to unfair contract terms. Finally, third law adopted in 2014 prohibited accepting loan contracts secured by mortgage denominated in foreign currencies and converted consumer debts into forints.

Simultaneously, the Hungarian Supreme Court's judgments retains validity in stating that generally, contract terms determining that the consumer is to bear exchange rate risks are core contract terms. They can, therefore, only be examined as to their unfairness when they are not transparent to average consumers, taking into account the text of the contract and the information received from the financial institution. Unfairness can be found if consumers have reason to believe that the exchange rate risk is not genuine or that he bears the risk to a limited degree, which may occur if consumers receive inadequate or untimely information from creditors (para 27).

Questions
The questions of Hungarian court aim to establish how the changes in Hungarian law, which were introduced years after conclusion of the contract, could have affected contractual obligations and what is their compliance with EU law. 

Temporal effects
One of the disputes between the parties in the proceedings concerns the retroactive aspects of the Hungarian legislation that was introduced in 2014. Whilst the temporal effects of these laws are for the Hungarian legislator to establish, AG Tanchev reminds that Kasler judgment did not introduce any temporal limitations and generally requires national courts to apply EU law-consistent (Kasler-conform) interpretation of UCTD from the adoption of this directive into national law. This means that pursuant to EU law, the new Hungarian laws could apply to contracts concluded as of the date of entry into force of the UCTD (31 Dec 1994) (para 50), ex tunc therefore rather than ex nunc.

Testing for unfairness
As unfairness test applies pursuant to art. 3(1) UCTD only to non-individually negotiated terms, and excludes terms reflecting mandatory statutory or regulatory provisions pursuant to art. 1(2) UCTD, there is a question whether terms introduced by new Hungarian legislation that would replace contractual terms could be tested for unfairness.

AG Tanchev rightly focuses more on the second requirement, as it is quite self-evident that consumers have not individually negotiated terms that had been imposed by statutory law. One argument raised by AG Tanchev is that due to the strict application of the exception from Art. 1(2) UCTD, the terms reflecting new Hungarian law cannot fall within its scope as they had been adopted years after conclusion of the contract (para 59-60). The idea being that the legislator takes into account the balance of interests' between the parties when forcing them to adopt a certain contractual term, which cannot happen ex post. This seems unconvincing, as the sole purpose of the Hungarian legislation was to restore that balance and if it applies ex tunc then the objection should be withdrawn. The second argument is, however, strong, as AG Tanchev reminds that this legislative change flows from the need to comply with Kasler judgment and EU law-conform interpretation of UCTD. If contractual terms following from the adoption of new law were excluded from unfairness test, then the CJEU could not check again whether the Kasler judgment had been properly followed by the national legislator, through adjudicating on potential follow-up unfairness claims (para 63). As we had seen on the example of Spanish saga, such follow-up cases often show further inconsistencies in national interpretation and application of EU consumer law.

Transparency
What I find personally disappointing is the lack of engagement of AG Tanchev with issues of information transparency. As in the given case the bank has issued quite a detailed information to its consumers on exchange rate risks, see: 

 ‘in relation to the loan risks, the debtor declares that he is aware of and understands the detailed information relating to this matter provided to him by the creditor, and is aware of the risk of taking out a foreign-currency loan, a risk which he alone bears. With regard to the exchange rate risk, he is aware, in particular, that, if during the term of the contract there were variations in the exchange rate between the forint and the Swiss franc which were unfavourable (that is to say, in the event of depreciation of the exchange rate of the forint as opposed to the exchange rate at the time of disbursement), it might even happen that the exchange value of the repayment instalments, which are fixed in foreign currency and payable in forint, would increase significantly. By signing this contract, the debtor confirms that he is aware that the economic repercussions of this risk lie entirely with him. He also declares that he has carefully assessed the possible effects of the exchange rate risk and that he accepts them, having weighed up the risk in the light of his solvency and economic situation, and that he will not be able to make any claim on the bank as a consequence of the exchange rate risk

When I look at the judgment of the Hungarian Supreme Court it seems to me that the provision of such information could lead to Hungarian courts establishing that there was sufficient information provided to consumers on this risk, and, therefore, transparency, which could lead to the exclusion of the core term from unfairness testing. From that perspective, it is relevant to consider whether this information was transparent enough or more would be required from the bank? AG Tanchev leaves this question to be answered by national courts. The hint he gives that this might not have been enough is by referring to Andriciuc case, which required creditors to 'set out the possible variations in the exchange rate and the risks inherent in taking out the loan (...)' (para 71). Such specifics are not included in the above notice.

Another interesting question raised by the applicants but left unanswered is whether the fact that the Hungarian legislator imposed the official exchange rate of the Hungarian National Bank could be perceived as invalid, due to lack of transparency of such an exchange rate to consumers or the lack of foreseeability of such a rate determining consumers' obligations - at the moment of the conclusion of the contract. It is interesting to consider whether the Hungarian legislator should not have at least offered consumers a choice - to have their contractually agreed on exchange rate changed into the official exchange rate of the Hungarian National Bank or to remain with the contractual one. Whilst the official exchange rate might be more transparent, it won't necessarily be more beneficial to consumers.

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