The subject returns from time to time like a boomerang. This time it is due to Andrzej Duda's bill, still pending in parliamentary committees, called the 'franking law'. There has also been an increasing amount of publicity concerning those who, at one time or another, on their own initiative or at the instigation of banks, took out loans denominated or indexed to the Swiss franc. The results of the latest research conducted by Kantar TNS on behalf of the Polish Bank Association leave no doubt. Only 8% of the public would offer Help for Francophiles. 42% percent of those surveyed are of the opinion that they are not entitled to assistance. Since they took out a foreign currency loan, they had to take into account the possibility of an increase in the exchange rate.
Read also other articles on franking issues:
The CJEU ruling of 3 October 2019 and the situation of Polish franking customers
Francophiles and the Supreme Court ruling
In the meantime, I invite you to read this entry.
What is help for the Francophiles really?
The expression "help for the francophone" has become a slogan that seems to be used - sometimes unwittingly - by those in power. Companies offering their services in the fight against fraudulent financial institutions also often misuse this term. In doing so, they divert attention from the heart of the problem. This lies elsewhere. And if the public were aware of this, the result of the survey would certainly not be so drastic.
Infringement of consumer rights
The subtitle actually explains everything. The violation of consumer rights by financial institutions is at the heart of the dispute over franking credits. Franc loans are in fact loans granted in the Polish currency but indexed or denominated to the Swiss franc. What does this actually mean?
- In the case of a denominated loan, the borrower borrows an amount of currency from the bank, but receives zlotys converted at the exchange rate on the day the loan is disbursed.
- In contrast, in the case of a loan index-linked loan, the borrower borrows zlotys which, on the day the loan is disbursed, are converted into the relevant currency at the exchange rate on the day the loan funds are disbursed.
The whole point is that the banks converted the loan, as well as instalments and drawdown tranches, from zloty to Swiss francs and vice versa, at a rate unknown to the borrower and determined internally, using a so-called exchange rate table. By converting successive loan instalments, the banks made money on the so-called spread. This is the difference between the purchase price of the currency and its sale price.
Help for Francophiles and the 2o11 amendment to the banking law
In 2011, the so-called 'anti-spreading amendment' to the Banking Law came into force. Thanks to it, credit agreements denominated or indexed to a currency other than the Polish currency can be repaid in the currency in which the credit is taken. This is done by directly depositing the currency into the bank's coffers. This means that the borrower can purchase the currency at any bank or exchange office and pay the instalment of the loan at the bank where the loan is taken. This in turn saves on unfavourable currency conversion.
Another safeguard for borrowers introduced by the 2011 amendment is the obligation for institutions granting loans in foreign currency to specify in their contracts detailed rules on how and when the exchange rate, on the basis of which the amount of the loan, its tranches and capital and interest instalments are calculated, is to be determined, as well as rules for the conversion into the currency of the loan disbursement or repayment.
Before the amendment came into force, banks were converting loan instalments according to exchange rates known only to themselves. Nobody knew exactly how much of an instalment they would have to repay in a given month. This situation led to frequent abuses. The majority of franking credit agreements signed before 2011 contain prohibited provisions in the form of unspecified currency conversions. These agreements were concluded as a result of unfair market practices and taking advantage of the consumer's weaker position.
An example of such an illicit clause is, for example, the following:
"The capital and interest instalments shall be repaid in Polish zloty after having been converted at the CHF selling rate from the exchange rate table of XYZ Bank S.A. applicable on the repayment date at 14:50."
What claims are available to Francophiles?
Affected borrowers have the option of requiring the bank to declare the foreign exchange conversion provision non-binding. In some cases it is possible to the cancellation of the entire contract.
This is already happening...
In their justifications, the courts point to the prohibited provisions of a credit agreement granted in PLN and indexed to a foreign currency, contrary to Article 385 [1] of the Civil Code, in which the principles of determining the exchange rate of that currency are specified. As a rule, this leads to the elimination of the indexation mechanism from the content of the legal relationship binding the parties. In such a case, the parties are bound by the agreement in the remaining scope, also as regards the manner of determining the interest rate of the loan.
Recently, the Court of Appeal in Warsaw in its judgment I ACa 7/18 declared the index-linked loan agreement invalid as contrary to the principles of social co-existence. It emphasised that the bank had not duly fulfilled its obligation to provide borrowers with reliable information regarding the cost of the loan. First of all, the bank presented the index-linked loan as cheaper than the PLN loan. In addition, it quoted an understated annual percentage rate of charge and unreliably informed borrowers about the currency risk.
What does this mean in practice?
The effect of the invalidity of a contract concluded with a bank is to the need to repay reciprocal benefits. The parties must return all that they have rendered to each other. The matter is simple if the borrower has repaid the loan in full. Then the settlement of mutual benefits will not cause difficulties. The case becomes more complicated when the borrower is in the process of repaying the loan. In this case, the mutual benefit settlement must take into account the amount of the loan not yet repaid. The interest paid by the borrower as well as the capital must be returned to the borrower in full.
With regard to the recognition of the provisions of the agreement regarding the conversion of the loan into CHF as prohibited, these provisions are treated as non-existent. The parties may agree by means of an annex to the agreement, as appropriate, on other, more favourable credit repayment conditions. These may apply from the very beginning, i.e. from the date of signing of the agreement. This in turn means that the bank can request return of the overpayment of both capital and interest.
Beware of the statute of limitations on claims
To pursue a claim against the bank The borrower has 10 years from the date of payment of the first loan instalment. In order to interrupt the 10-year limitation period, the bank must be invited to a settlement attempt before the court. Such action will interrupt the running of the limitation period. The period will start to run from the beginning. This will allow you to calmly and thoughtfully file a claim for payment. There is a possibility that the bank will recognise the claims contained in the settlement application or acknowledgement demand. Unfortunately, such a situation is, for the time being, rare.
Attention!
It should be remembered that filing a complaint with the bank will not interrupt the limitation period.
State aid and credit in francs
The main objective of the presidential draft amendment to the Act of 9 October 2015 on support for borrowers in financial difficulties who have taken out a housing loan is to enable indebted persons to reduce the value of their loan through so-called conversion. This is to be based on the fact that banks with loans denominated or indexed (valorised) in another currency are to pay 0.5% of the value of the granted loans every quarter into the so-called Conversion Fund. Bank Gospodarstwa Krajowego will take care of the Fund. This money is to be used to finance the conversion of loans into zloty.
Example:
The bank signed an agreement with the borrower whereby it converted his franc loan into zloty so that the amount of the outstanding loan was lower. By how much? It all depends on the negotiating skills of the parties. The bank then reports the fact of the agreement to the Conversion Fund. This pays him the amount by which he reduced the loan.
In this way, the banks' funds paid into one pool are to be used for loan conversions. The more agreements are concluded, the more money the bank will receive from the fund. It will thus bolster its reputation as a sound lender. At the same time, it will reduce the risk in its loan portfolio with money also coming from other banks.
The draft amendment has its opponents and supporters. For the time being, it is still in the debate phase in the finance committee. It remains to be seen whether the presumed entry into force date of 01.07.2019 will be met.
Help for Francophiles - what is it really? Summary
Help for Francophileswho have taken out a loan indexed or denominated to the franc is by no means just about all of us bearing the costs of a failed transaction with the bank. It is the result of their right to demand fairness from their bank. Fairness guaranteed not only by law, but also by the principles of social co-existence. Should the average Smith bear the financial consequences of such "assistance"? Certainly not. Rather, the State Treasury's assistance should be directed at the banks. They will find themselves in a difficult position after cases of judgments favourable to franking customers become an everyday occurrence. This is what the amendment to the law on assistance to borrowers is intended to do. Unfairness to the consumer in such situations has already been stigmatised on several occasions by judgments of the CJEU. The Polish courts are finally starting to follow suit.
