EU court rules FX loans not subject to investor protection rules

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jessica fejos

The European Unionʼs Court of Justice ruled yesterday that an FX car loan taken out by a Hungarian couple was not subject to EU investor protection rules.

(Photo: Jessica Fejos)

A Hungarian court in Ráckeve, near Budapest, had asked the Court of Justice whether the failure to uphold investor protection provisions, such as a lender gauging an investorʼs knowledge, could invalidate an FX loan contract with a client.

"Foreign exchange transactions which form part of certain types of foreign currency denominated loans do not constitute an investment service. They are not, consequently, subject to the rules of EU law relating to investor protection," the Court of Justice said in a statement on the ruling.

"Since the borrower seeks only to secure funds with a view to purchasing goods or a service, and not to manage a foreign exchange risk or to speculate on a currency’s exchange rate, the transactions at issue do not have as their purpose the provision of an investment service," it added.

Cheap FX loans were once the most popular retail lending product in Hungary, until exchange rate changes caused the size of repayments to swell.

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