Economy
Hungary readies FX loan relief package, HUF borrowers included
The key details are the following:
- Legislation on the compensation of unfair banking practices is applicable not only on foreign currency loan holders but also those who had taken out forint-denominated loans (in their case it is possible that the lenders will be obliged to withdraw interest reductions).
- Legislation will not apply to those that repaid their FX loans via the early FX mortgage repayment scheme below market rates.
- The increase in monthly instalments caused by the use of bid offer ‘spreads’on disbursement vs. repayment is fully refundable and banks will have 90 days to calculate how much their borrowers are entitled to.
- One-sided modifications of FX loan contracts by the lenders are automatically deemed unfair, unless the banks offer proof they are not.
- The banks may prove their actions were fair at the Municipal Court within a very limited period and at high costs.
The first article of the bill stipulates that besides foreign currency-denominated loans or those that were disbursed in foreign currency and repaid in forint the law will apply also on forint loans and financial lease contracts. The first time we have heard about providing assistance to HUF borrowers was this morning by the Prime Minister.The second article makes it unequivocal that those who had taken part in the early FX mortgage repayments scheme between September 2011 and February 2012, i.e. who had repaid their debt in scope of this programme, will not left out of the current relief package. Economic policymakers have been leaving this particular door open until the last minute.
Exchange rate bid/ask spread
The legislation stipulates that the exchange rate rate bid-ask spread, i.e. the exchange rate gap was unfair when calculating borrowers’ outstanding loan amounts versus payments credited, is invalid. The government enshrined a Curia (Supreme Court) ruling last Friday into law that the official medium exchange rate of the National Bank of Hungary (NBH) must be used for calculation both when extending the FX loan and receiving payment from the borrower.
The banks will have 90 days from the enactment of the law to recalculate the loans in line with this regulation. The legislation will come into effect sometime in mid-July, 8 days after it is officially announced. A separate law will deal with this settlement, the legal observation of which will be the responsibility of the central bank as the supervisory body.
Unilateral modification of loan contracts
According to the bill, it must be assumed that every contractual term that enables a unilateral hike of interest, cost or fee is unfair since it does not comply with the principal of clear and intelligible phrasing, itemised definition, objectivity, actuality and equitability, transparency, rescindment or symmetry.
It is the banks that need to demonstrate that the term in question is fair. A law suit to this end needs to be filed at the Municipal Court within 30 days, otherwise the contractual term deemed unfair by the legislation will be invalid. The first-instance court proceeding will cost the banks HUF 1.5 million each and the court will also have 30 days to bring a ruling. An appeal will cost HUF 2.5 million and the revision of a second-instance ruling will cost HUF 3.5 million (in which case the case could end up in front of the Curia).
The defendant in the law suit will be the Hungarian State. The maximum delay in the announcement of the ruling is 15 days. The court will need to examine only the fairness of the contractual term that allowed the one-sided modification of the loan contract. If fairness cannot be established, the unilateral amendment is automatically considered unfair. The new legislation brings to a halt currently ongoing law suits in this regard and suspends executory procedures (deadlines will no longer apply).More to follow!
Exchange rate bid/ask spread
The legislation stipulates that the exchange rate rate bid-ask spread, i.e. the exchange rate gap was unfair when calculating borrowers’ outstanding loan amounts versus payments credited, is invalid. The government enshrined a Curia (Supreme Court) ruling last Friday into law that the official medium exchange rate of the National Bank of Hungary (NBH) must be used for calculation both when extending the FX loan and receiving payment from the borrower.
The banks will have 90 days from the enactment of the law to recalculate the loans in line with this regulation. The legislation will come into effect sometime in mid-July, 8 days after it is officially announced. A separate law will deal with this settlement, the legal observation of which will be the responsibility of the central bank as the supervisory body.
Unilateral modification of loan contracts
According to the bill, it must be assumed that every contractual term that enables a unilateral hike of interest, cost or fee is unfair since it does not comply with the principal of clear and intelligible phrasing, itemised definition, objectivity, actuality and equitability, transparency, rescindment or symmetry.
It is the banks that need to demonstrate that the term in question is fair. A law suit to this end needs to be filed at the Municipal Court within 30 days, otherwise the contractual term deemed unfair by the legislation will be invalid. The first-instance court proceeding will cost the banks HUF 1.5 million each and the court will also have 30 days to bring a ruling. An appeal will cost HUF 2.5 million and the revision of a second-instance ruling will cost HUF 3.5 million (in which case the case could end up in front of the Curia).
The defendant in the law suit will be the Hungarian State. The maximum delay in the announcement of the ruling is 15 days. The court will need to examine only the fairness of the contractual term that allowed the one-sided modification of the loan contract. If fairness cannot be established, the unilateral amendment is automatically considered unfair. The new legislation brings to a halt currently ongoing law suits in this regard and suspends executory procedures (deadlines will no longer apply).More to follow!
