The European Court of Justice (ECJ) determines the scope of Directive 93/13/EEC on Unfair Terms in Consumer Contracts (the ‘Directive’) to loan agreements with foreign exchange provisions, concluding that the unfairness of contractual terms for lack of clarity is judicially reviewable.
The ECJ, in case C-51/17 OTP Bank Nyrt. and OTP Faktoring Követeléskezelő Zrt. V. Teréz Ilyés and Emil Kiss, which was decided on the 20th of September 2018, ruled that financial institutions are required to provide borrowers with adequate information to enable them to take well-informed and prudent decisions. This means that a term relating to the foreign exchange risk must be understood by the consumer both at the formal and grammatical level and also in terms of its actual effects (such as depreciation of the national currency). It follows that an average consumer, who is reasonably well informed and reasonably observant and circumspect, must not only be made aware of the possibility of a depreciation of the national currency in relation to the foreign currency in which the loan was denominated, but also be able to assess the potentially significant economic consequence of such term with regard to his financial obligations. In this reference, the ECJ was asked to consider loan contracts made in Swiss Francs in Hungary with monthly repayments in Hungarian Forints, with the consumer bearing the risk of foreign exchange movements.
Furthermore, the ECJ also held that it is up to the national court (on behalf of the borrower in his capacity as applicant) to make an assessment to determine objectively if a contractual term is unfair.