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Constitutional Court rejects request to annul some parts of retail loan contracts law

Issues

Hungary's Constitutional Court on Thursday rejected a request to annul some parts of legislation on retail loan contracts. The request was made based on the argument that the legislation violated the principles of the division of power and legal security.

The Constitutional Court said it had already addressed a number of the points made in the request in an earlier ruling. It added that legal security requires certain standards of clarity and the predictable operation of legal institutions.

By specifying the state as the defendant of the lawsuit, the legislator does not favor the state over the other party to the proceedings, but simply introduces special rules of procedure to protect the interests of the consumer, the court said.

"What happened was not that the state abused its power to create a situation whereby the opposing party is in a disadvantageous position against the other party, but that the financial institutions had to initiate legal proceedings against the state to overturn the assumption," it added.

The legislation laid the groundwork for requiring lenders to compensate retail borrowers for making unilateral changes to contracts and for using exchange rate margins when calculating repayments for foreign currency-denominated loans.

In a ruling last November, the Constitutional Court said prohibiting unilateral changes to loan contracts did not go against the fundamental law.

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