The EU court issued ruling on FX-indexed mortgages
The Court of Justice of the European Union in its judgement on 3 October 2019 (case No C-260/18) ruled that Polish consumers who took out mortgages in Swiss francs can ask their country's courts to annul the contracts.
The European Court of Justice held that unfair terms in Polish mortgage contracts cannot be replaced by general provisions in Polish law, ruling that European Union law does not preclude them being annulled.
“In loan contracts concluded in Poland and indexed to a foreign currency, unfair terms relating to the difference in exchange rates cannot be replaced by general provisions of Polish civil law,” the ECJ said in its judgement.
The long-awaited decision is expected to allow consumers to ask local courts to convert the loans into the local złoty currency. More than 500,000 Poles took out loans linked to the Swiss currency in search of attractive interest rates after Poland joined the EU.
Changing the terms of the loans had become prohibitively expensive after the Swiss franc spiked in value, causing thousands of borrowers to challenge clauses in their contracts that set how banks calculated repayments in the local courts.
Whereas the funds were made available in złoty, the outstanding sum due and the monthly repayments were expressed in Swiss francs in such a way that the repayments were required to be debited in złoty from the borrowers’ bank account.
The borrowers brought an action before the Regional Court in Warsaw, seeking a declaration that the loan contract was invalid because the terms in that contract were unlawful and unfair. According to the borrowers, once the terms at issue are removed, it would be impossible to determine the correct exchange rate, with the result that the contract could not continue in existence.
The Polish court asked the CJUE whether, after their removal, the unfair terms could be replaced by general provisions of Polish law that provide the effects expressed in a contract are to be completed by the effects arising from the principles of equity or established customs.
“The court finds that those provisions cannot remedy the gaps in a contract caused by the removal of unfair terms that appeared in it,” the CJUE said. The Court also clarified that the consumer must also be able “to refuse to be protected against the detrimental consequences caused by the annulment of the contract as a whole where the consumer does not wish to benefit from that protection.”