Francredit are two words that spend the sleep of many a person. Foreign currency loan agreements, so readily concluded a decade ago, have been found to be seriously flawed. These included the massive inclusion of so-called 'tortious clauses' (abusive clauses). This exposed bank customers to risks. Risks they had no idea about and which the banks were silent about.
The so-called the release of the Swiss franc five years ago resulted in a sharp increase in loan instalments. This event put thousands of borrowers in a difficult situation. It even seemed to be a stalemate. Today, however, the picture is looking increasingly favourable. Further court rulings are appearing, which give to francophiles hope of winning against unreliable banks.
The Dziubaks case (C-260/18)
In a dispute arising between Raiffeisen Bank and Mr and Mrs Dziubak, the Warsaw Regional Court referred four questions, referred to as preliminary questions, to the CJEU, with a request for interpretation.
In 2008, the borrowers entered into a mortgage loan agreement with the bank expressed in zloty (PLN). However, it was indexed to the Swiss franc (CHF) exchange rate, bearing interest at the sum of the LIBOR reference rate, and the bank's usual margin. The indexation clauses of the aforementioned loan were included in the loan terms and conditions used by the bank. They were also included in the agreement concluded with Mr and Mrs Dziubak.
The terms and conditions attached to the agreement stipulated that it would be paid in PLN at an exchange rate no lower than the PLN-CHF buy rate according to the exchange rate table in force at the bank at the time of unblocking the funds. The balance of the debt was expressed in CHF based on this exchange rate. Individual loan instalments, on the other hand, were debited from the bank account maintained in PLN, according to the PLN-CHF selling rate.
The borrowers considered the agreement they had entered into to be invalid. Their argumentation was based on the fact that unfair provisions were included in the agreement regarding the mechanism for indexing the Swiss franc exchange rate. They brought an action before the court to declare the contract null and void due to the illegal provisions present in it.
These clauses allowed the bank to unilateral fixing of the exchange rate. This in turn resulted in the arbitrary determination of the balance of the loan expressed in francs and the amounts of the individual instalments expressed in PLN. According to the borrowers, the elimination of the indicated provisions from the agreement would make it no longer valid.
The bank considered their claims to be unfounded. The bank stressed that after the removal of the clauses indicated, they would still be obliged to repay the loan by other provisions of the contract. Indeed, the removed contents would have to be supplemented by the general provisions of the Civil Code.
What did the District Court ask the CJEU about?
The Warsaw Regional Court referred four questions to the CJEU in the above case:
- Does the EU directive on unfair terms in consumer contracts allow for the assumption that, if, as a result of the elimination of unfair clauses from a contract, its demise would be to the detriment of the borrower, it is possible to filling in the gaps about national legislation?
- Should the assessment of the consequences of the cancellation of the credit agreement take into account the the circumstances at the time of conclusion of the contract or the existence of a dispute between the bank and the borrower regarding the abusiveness of a given provision; what is the relevance of the consumer's position during the dispute?
- Is it possible to uphold provisions that constitute unfair contractual terms if it would be a favourable solution for the borrower?
- Does the recognition of provisions defining the amount and method of repayment of the loan as prohibited prevent the continued application of other, non-abusive contractual provisions defining the borrower's main benefit, the presence of which in the contract was inextricably linked to the clauses declared prohibited by the borrower?
CJEU judgment - Dziubaks case
The CJEU, in the case of Mr and Mrs Dziubak, ruled as follows:
- Directive on unfair terms in consumer contracts does not preclude a national court, after finding certain clauses in a credit agreement to be abusive, from taking the view that the agreement in question can no longer function in law if the removal of these clauses would result in a change in the nature of the main subject matter of the contract,
- due to the collapse of the loan agreement, the effects on the borrower's situation must be assessed according to the circumstances at the time of the dispute,
- For the assessment of the consequences of the cancellation of the contract, the will of the borrower is decisive in this respect,
- in the light of the Unfair Terms in Consumer Contracts Directive, it is not possible to close loopholes resulting from the removal of abusive clauses from a contract solely on the basis of general national provisions providing that the effects expressed in the content of a legal transaction are to be supplemented, in particular, by effects flowing from principles of equity or established custom which are not dispositive or applicable when the parties to the contract so agree.
- Directive on unfair terms in consumer contracts does not allow retaining abusive clauses in a contract if their deletion would entail the invalidation of the entire contract. The exception is the situationin which the borrower does not agree to invalidate the contract or even expressly oppose it.
In January 2020, the franking credit agreement of Mr. and Mrs. Dziubak cancelled.
The Dziubaks case - a breakthrough for the franking community?
The judgment in the case of Mr and Mrs Dziubak was a judgment that had been eagerly awaited. Although the ruling was given in the circumstances of an index-linked loan agreement, the judgment is also relevant for denominated loans.
We wrote about the differences between the two in this article:
Read more: Help for francophiles - what is it really?
The ruling allows the courts to first of all rule on the abusiveness of the provisions contained in credit agreements. They then decide on the consequences of such a finding. The courts can invalidate a contract if the deletion of the abusive clause in question has the effect of making it no longer valid.
The CJEU was in no doubt as to The impermissibility of modifying defective franking credit agreements. It is not permitted to fill gaps in the contract with provisions of an equitable nature. This can only be done with provisions that can be directly applied in such circumstances. At the moment, the Polish legal system does not include them. Nor is it permissible to supplement the contract with a provision permitting the use of the average CHF exchange rate in the NBP, as has been pushed quite strongly.
However, the CJEU ruling does not automatically change the disputed franking credit agreements; however, it is of considerable importance as an argument in court disputes with unreliable banks. Since the recognition of the case, the line of jurisprudence has been shaping up in a way that is favourable to the franking agents.
The settlement in Case C-280/18 takes into account the the position of the consumer, i.e. the borrower. It expresses its will as to a possible invocation of the abusiveness of the terms in the credit agreement resulting in the cancellation of the contract. This is undoubtedly an expression of looking after the interests of the borrower and leaving him the right to choose. A choice to decide on the consequences of the potential collapse of the franking credit agreement.
Abusive clauses, or what kind of clauses?
In order to better understand the significance of the CJEU judgment in the case of Mr and Mrs Dziubak, it is worth briefly recalling what so-called abusive clauses actually are. This is because they constitute the main problem in franking credit agreements.
In the simplest terms, these are contractual provisions that shape the consumer's (borrower's) rights and obligations in a way that is contrary to good morals and prejudices his or her interests.
As a general rule, if a provision is found to be abusive, it does not bind the consumer.
Abusive clauses include, in particular:
- conditions for the indexation mechanism,
- provisions concerning bridging insurance (premium for the period from the conclusion of the loan agreement until the date of entry of the mortgage in the mortgage book as security for the bank in the period prior to entry of the mortgage). The unlawful conditions imposed by the banks consisted, among other things, of a top-down charge for taking out such insurance,
- provisions concerning low contribution insurance are prohibited if they do not specify, inter alia, the substance of the insurance, including who is the policyholder and who is the insured or how the premium is to be determined.
Helping the francophone
The CJEU judgment, although favourable to franking customers, does not automatically change their situation. The first, and effective, step in the clash with an unreliable bank is first and foremost to an in-depth analysis of the loan agreement. It aims to verify the borrower's situation and potential options for action.
The initiation of legal action by franckowiczes against banks should be preceded by a comprehensive consideration of the best strategy, including litigation. The case of Mr. and Mrs. Dziubak and the favourable judgments issued for Polish frankovichs after the CJEU ruling are undoubted proof that it is possible to achieve a favourable settlement for the borrower. This is all the more important as the borrower is a consumer and is obviously the weaker party to the contract.
