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Banks must adequately inform FX loan borrowers, CJEU rules

Issues

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In a preliminary ruling sought by the Budapest Regional Court of Appeal, the Court of Justice of the European Union (CJEU) has said that financial institutions are required to provide borrowers with adequate information to enable them to make well-informed, prudent decisions.   

Two Hungarian borrowers brought legal proceedings before the Hungarian courts against OTP Bank and OTP Faktoring concerning a credit contract for the provision of a loan denominated in Swiss francs. The Hungarian courts referred the case to the CJEU to determine if elements of the contract were unfair.

The CJEU said that a contractual term relating to the foreign exchange risk must be understood by the consumer both at the formal and grammatical level, and also with regard to its actual effects.

Furthermore, an average consumer, who is reasonably well-informed and reasonably observant and circumspect, must not only be aware of the possibility of a depreciation of the national currency in relation to the foreign currency in which the loan was denominated, but must also be able to assess the potentially significant economic consequences of such a contractual term with regard to his financial obligations, the court said.

The court added that it is for the given national court to identify, in the place of the consumer in his capacity as an applicant, any unfairness of contractual terms other than that relating to the FX risk, provided that it has at its disposal the legal and factual elements necessary for that task.

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