Forex-based loan legality before Constitutional Court

Issues

This week, the Constitutional Court will begin consideration of questions regarding forex-based loan contracts vis-à-vis national law; on Friday, the Justice Ministry formally requested a constitutional interpretation which would determine whether the very presence of the loans is against national law...

In the ministry’s motion to the court, the Justice Ministry seeks interpretation of the constitutional clause reading, “Hungary shall ensure the conditions for fair economic competition, act against any abuse of a dominant position, and shall defend the rights of consumers.”

The ministry further inquired as to the constitutional conditions under which forex-based loan contracts could be modified with legislation.

From outside Hungary, the move is seen by some as an attempt to garner votes in the upcoming parliamentary elections. Standard Bank analyst Tim Ash was quoted at Business New Europe as explaining that “With elections due by April, the issue is clearly very political, and likely a vote winner still for the Fidesz government. The government no doubt will argue that this was a classic case of mis-selling ... and perhaps they have a case [but] hindsight is wonderful, and banks, regulators, and consumers got this wrong in the 00s, when Hungary did appear set for single currency membership in the very near future. There were indeed few people arguing against this lending back then.”

Ash went on to speculate that “A ruling against the banks would likely continue the foreign bank de-leveraging process in Hungary, [though] there is a limit to how quickly foreign banks can exit, and clearly most are relatively ‘captive’.”

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