Hungarian parliament submits FX loan remedy bill

Issues

A bill submitted to Parliament today puts the burden on banks to prove at court the fairness of the right to unilateral amendments of retail loan contracts. It also invalidated the part of the loan contracts allowing the use of disparate exchange rates in FX loan and debt service calculations.

The bill incorporates a legal uniformity decision regarding FX loans of the Supreme Court of Hungary (Curia), taken on June 16, into Hungarian law. It was submitted by the justice minister. The law would take effect eight days after publication.

The rules of a resulting settlement with clients will be determined by a separate law, the bill states. Government officials promised the related bill to be submitted to Parliament by the autumn.

The bill applies on retail loan and leasing contracts signed before the current law takes effect, with the exception of those repaid early at a preferential rate in full under a government-initiated scheme between autumn 2011 and spring 2012.

The invalidated FX spread applies by definition on the FX loan and leasing contracts, but, in a surprise move, the proposed regulations related to the unilateral amendments apply to all retail loan contracts, including forint-based ones.

As expected the bill would invalidate the part of FX retail loan and leasing contracts under which banks used disparate exchange rates when calculating disbursement and installment payments, and replace it with the use of the National Bank of Hungary daily fixing rate.

The proposal gives banks 90 days after the law takes effect to calculate the difference.

The dues must be recalculated starting the date of disbursement of the loan. The recalculation applies only for the disbursement for those contracts where banks used the MNB fixing already, in line with a 2010 amendement of the respective regulations.

Banks must send their method of recalculation to the National Bank of Hungary who will review its conformity to law in its capacity as financial regulator.

The loan presumes that the clauses in retail loan and leasing contracts making a unilateral increase of interest rates, expenses or charges possible to banks were unfair and puts the burden on banks to prove otherwise in court.

The contractual provision(s) on unilateral amendments will become invalid if the bank does not initiate a court proceeding on the matter in 30 days after the present law takes effect, or if a court rejects the claim or terminates its procedure.

Once the contractual clause is invalid, banks must settle dues with clients based on the coming separate law.

The bill lists the seven criteria -- the same as the those listed by a related 2012 Kuria ruling -- which has to be met to state the right of unilateral amendment in a contract as fair.

The seven criteria are:

   (1) clear and easy-to-understand wording;

   (2) itemised determination;

   (3) objectivity;  

   (4) factuality and proportionness;

   (5) transparency;

   (6) the possibility to cancel the contract and

   (7) the principle of symmetry.

The proposal gives banks 30 days to check their general contractual regulations if they contained a clause for unilateral amendments at all. If so, the bank must submit the regulations within 30 days to the regulator, the National Bank of Hungary (MNB) together with a declaration whether the bank consider these clauses fair or unfair. They also has to submit the MNB the identification numbers of the affected loan contracts, including the value of receivables.

If the bank is of the view that its contractual clauses were fair it has to initiate a legal procedure to prove this. Courts will have to proceed in an accelerated procedure. They have to start discussing the cases within eight days and make a decision within 30 days. The bill also sets narrow deadlines for submission of and ruling on appeals.

The bill would also suspend ongoing court cases in which banks seek to collect dues or consumers intitiated related to the clauses affected by the current law. A separate law will define the date for the end of the suspension.

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