Thursday, 20 September 2018

May consumers bear exchange rate risk? - CJEU in OTP Bank and OTP Faktoring (C-51/17)

Today the CJEU issued its judgment in the OTP Bank and OTP Faktoring case (C-51/17). We have previously discussed the AG Tanchev's opinion in this case (Kasler repercussions...) and we refer our readers to that blog post first, for re-acquaintance with the facts of the case.

Legislators' intervention in a contractual relationship and its consequences for the unfairness test

Hungarian law, attempting to accommodate previous CJEU's judgment in the Kásler case, intervened in already concluded consumer credit relationships. With an ex tunc effect it replaced existing contractual terms prescribing consumer credits in foreign currency, which were deemed to be unfair, with new ones - setting a fixed exchange rate pursuant to the National Bank of Hungary and converting foreign currency loans into loans in Hungarian forints (HUF). However, such a legislative intervention might have introduce new terms into consumer credit contracts, such as the one placing the foreign exchange rate risk on consumers (due to the automatic amendment of contracts pursuant to new exchange rates). 

The CJEU considers such added terms not to be 'individually negotiated', as consumers had no possibility to negotiate them, which means that they fall within the scope of unfairness test, pursuant to Article 3(1) UCTD (paras 48-49). However, Article 1(2) UCTD allows to exclude from the unfairness test such standard contractual terms, which reflect statutory or regulatory provisions and are mandatory. These two conditions need to be met cumulatively, as was decided in the previous CJEU's case Andriciuc and Others (para 52), and are narrowly interpreted (para 54). By introducing new mandatory statutory terms to consumer credit contract, Hungarian legislator excluded then such terms from the scope of the UCTD (para 64). However, the CJEU emphasises the fact that the legislative additions were "not intended to address in full the issue of foreign exchange risk in respect of the period between the time when the loan contract at issue was concluded and its conversion into Hungarian forints..." (para 67). This means that the terms placing foreign exchange rate risk on consumers are not fully based on statutory rules and thus may fall within the scope of the unfairness test. These terms are, however, core contractual terms and pursuant to Article 4(2) UCTD may only be assessed as to their unfairness when they lack transparency (para 68).

Transparency requirements

Whether the terms placing foreign exchange rate risk on consumers were transparent is for the national courts to decide. However, the CJEU gives some guidance to national courts on this issue. It replaces its direction from the case Andriciuc and Others for national court to go beyond mere examination of formal and grammatical intelligibility of consumer credit terms (para 73). It refers to the recommendation of the European Systematic Risk Board (Recommendation ESRB/2011/1 of 21 September 2011) that "financial institutions must provide borrowers with adequate information to enable them to take well-informed and prudent decisions and should at least encompass the impact on instalments of a severe depreciation of the legal tender of the Member State in which a borrower is domiciled and of an increase of the foreign interest rate" (para 74). This means further that the loan institution needs to clearly inform consumers of the risk they are exposing themselves to by concluding a credit contract in a foreign currency, mentioning the dangerous and serious consequences of a possibility of home currency's depreciation. This should be done by setting out possible variations in the exchange rate risks and their consequences (para 75). Not to mention that the consumer should have been given sufficient time to carefully examine all pre-contractual information (para 76).

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