The Court of Justice of the European Union clarified the information obligations of banks while concluding Swiss Franc Loan Agreements

The Court of Appeal in Oradea referred to the Court of Justice of the European Union for a preliminary ruling seeking to clarify how the unfair nature of the contractual loan terms should be assessed in the light of Directive 93/13/EEC including how the requirement of defining the terms of the contracts concluded with the consumers in plain intelligible language should be understood.

The questions were asked in the dispute between borrowers and Banca Românească SA. The borrowers concluded with the Bank loan agreements denominated in Swiss francs. Despite the fact that borrowers received their income in Romanian lei, the agreements provided for the repayment of loans in Swiss francs. Therefore, the borrowers suffered negative economic consequences of the increase in the loan instalments as a result of the exchange rate fluctuations. At the same time the Bank reserved a right to debit the borrowers’ accounts and to convert the balance available on the borrower’s account into the Swiss francs according to the Bank’s exchange rate as it stood on the day of operation.

The Court of Justice of the European Union emphasised that the contractual clause according to which the loan has to be repaid in the certain currency forms the nature of the debtor’s obligation and thereby constitutes an essential element of a loan agreement. According to the directive 93/13/EEC if the contractual clause lays down an essential obligation characterising the agreement, the clause cannot be regarded as being unfair if it is drafted in plain intelligible language.

In the context of the above the Court of Justice of the European Union indicated that the requirement of transparency of contractual clauses is to be understood in a broad way and cannot be reduced merely to their being grammatically intelligible. According to the Court the financial institutions must provide the borrowers with adequate information to enable them to take well-informed and prudent decisions including, in particular, information on:

• bearing the foreign exchange rate risk by the borrower which in case of devaluation of the currency in which he receives his income may cause considerable difficulties on his side,

• possible exchange rate variations and the risk inherent in taking out a loan in a foreign currency particularly where the borrower does not receive his income in that currency.

According to the Court, the information obligations should be performed by the bank in a manner to make the well-informed and reasonably observant and circumspect consumer aware of both possibility of a rise or fall in the value of the foreign currency and also enabling estimation of the significant economic consequences of repayment of the loan in the same currency as the currency in which the loan was taken out.

The Court also pointed out that the assessment of the unfairness of a contractual clause should be made by reference to the time of conclusion of the contract at issue taking into account all circumstances which would have been known to the bank at that time and that could affect the future performance of that contract since the contractual clause may cause imbalance occurring at the time of the execution of the contract.

• Judgment of the Court of Justice of the European Union of 20 September 2017 in the case C-186/16