ECB critical of FX-loans law

Issues

Hungarian authorities have failed to consult the European Central Bank (ECB) on the law dealing with the compensation of FX loan contracts, the ECB said on its website yesterday evening. Furthermore, the Frankfurt-based European bank says the law could have negative effects on the financial sector.

The law paving the way for compensating customers holding FX-loans was adopted on July 4th by the Hungarian parliament. It states that the practice of banks charging currency spread was illegitimate, and that such charges have to be repaid to debtors. It also says that one-sided contract modifications are void unless the banks can prove in court that the modifications were legal.

Several amendments were inserted in the final text of the law before the vote but none of them was issued to the ECB, the bank points out.

The ECB also says that the application of the seven principles laid down by the Supreme Court of Hungary (Curia) - clarity, itemised listing, objectivity, factuality and proportionality, transparency, right of termination and symmetry – is unclear. In an earlier judgment, the Curia had said unilateral changes made by a bank to a contract could be considered legal if these principles were respected.

Implementing such measures could put a significant strain on the banking sector, and have an adverse effect on the stability of the Hungarian financial sector as a whole, adds the European Central Bank.

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