Cancelling credit contracts due to unfair terms: when does the view of the consumer matter? A quick judicial recap in OTP Jelzálogbank (C‑932/19)

Yesterday the Court of Justice delivered its judgment in case C‑932/19 OTP Jelzálogbank, which like many previous cases dealt with unfair terms of foreign currency-denominated loans. The judgment largely reiterates CJEU prior case law - especially related to the possibility for national authorities to deem particular terms unfair and void and replace them retroactively with state-mandated provisions (see e.g. our previous comment on Dunai) and to the finding whether a contract is capable of continuing to exist without the unfair terms. An aspect of the judgment which is especially worth highlighting is the role of the consumer in the latter context.

Facts of the case

 

The case involved a Hungarian consumer who entered into several contracts for loans denominated in a foreign currency in 2007 and 2008. The loans contained terms which later proved very problematic, ultimately leading to a legislative action by the Hungarian legislature finding that terms establishing an asymmetry between the exchange rates applied when the loan was paid out and when the loan was repaid were to be void. Instead such unfair clauses were to be replaced by a provision intended to apply a single exchange rate, fixed by the National Bank of Hungary.

The consumer in the case at issue was not quite happy with the above solution and would rather have had the entire agreement cancelled. The consumer believed that this view found support in the CJEU decision in Dziubak, published in 2019. However, in the case at hand the Court did not quite share the consumer's opinion and instead reiterated prior case law related more specifically to legislative actions aimed at replacing terms deemed void. In doing so, the Court also recalled some limitations of such actions, remarked when courts can contuinue to review unfairness and remarked on the role of the consumer at the stage of finding whether an agreement containing unfair terms should be cancelled or not.

 

Judgment of the Court

 

When it comes to legislative actions mentioned above, attention should be drawn to the Dunai case. Here the Court found that, firstly, terms replacing unfair term under national legislation, in so far as they reflect mandatory statutory provisions, do not fall within the scope of Directive 93/13 in line with Article 1(2) of that directive. Secondly the Court observed that "in so far as the Hungarian legislature has remedied the problems connected with the practice relating to agreements containing a term relating to the exchange difference, by requiring the replacement of that term and by safeguarding the validity of the agreements concerned, such an approach corresponds to the objective pursued by the Union legislature in the context of [Directive 93/13 on unfair terms], namely to restore the balance between the parties while in principle preserving the validity of the agreement as a whole, and not to cancel all agreements containing unfair terms" (para. 40). 

While the Court had indeed made that finding in Dunai, and has now reiterated it in OTP Jelzálogbank, it is interesting to have a look at it once again in the light of recent judgment in Banca Transilvania. Here the Court explicitly found, disagreeing with the AG, that the fact that a balance between the rights and obligations of the parties has been struck does not constitute a condition for the application of the exclusion in Article 1(2) of Directive 93/13, but a justification for such an exclusion. In the present context, however, the question whether mandatory provisions aim to restore a balance seems more consequential. Such a dissonance can arguably be exaplained by the ex post nature of the intervention in the commented case and the Dunai judgment.

Nothwithstanding the above, the judgment in Dunai also contained an important caveat which the Court reiterated in OTP Jelzálogbank. Specifically, the Court recalled that Article 6(1) of Directive 93/13 does not preclude national legislation preventing the court seised from granting an application for the cancellation of a loan agreement on the basis of the unfair nature of a term relating to the exchange difference, provided that the finding that such a term is unfair allows the legal and factual situation that the consumer would have been in in the absence of that unfair term to be restored (para. 42). The consumer should, in particular, be provided with a right to repayment of the sums wrongly received by the sellers or suppliers concerned (para. 44).

Finally, the Court also made clear that any legislative action taken in respect of one term does not preclude the court from reviewing the unfairness of other terms of the contract, such as those relating to exchange rate risk (para. 45). Such a review can also lead to court to conclude that the contract is no longer capable of continuing in existance without unfair terms and should be cancelled in its entirety. The latter finding, however, cannot be based solely on a possible advantage for the consumer of the annulment of the agreement as a whole. The decision should rather be based on the criteria laid down in national law, and the situation of one of the parties to the agreement cannot be regarded, under national law, as the decisive criterion determining the fate of the agreement (para. 49). There is therefore a subtle, yet important, difference between the role of consumer's opinion in OTP Jelzálogbank and in Dziubak. In the former case, we consider an objective assessment whether the contract can continue in existence or not. In the latter, we speak about a situation when the court had already found that the contract cannot continue in existence without the unfair terms and the question is whether the entire agreement should thus be cancelled or rather gaps therein should be filled - here, following Dziubak, the view of the consumer remains decisive.

=> Blog updates: We will soon publish a wrap-up post about the developments in unfair terms case law over past months, signalling judgments we have not yet commented upon. Stay tuned!