NEW CJEU RULINGS ON CHF MORTGAGE LOANS
In the early 2000s, banks in Poland began to offer mortgage loans denominated in foreign currencies (or linked to foreign currencies), mainly Swiss francs (CHF), which where cheaper than zloty loans. They proved hugely popular: hundreds of thousands of Poles took out such mortgages in the following decade or so. But when Switzerland’s central bank scrapped the franc’s peg to the euro in January 2015, the zloty weakened sharply against the Swiss currency almost overnight, causing borrowers’ monthly mortgage payments to soar. (Today the Swiss franc is still worth much more in zloty terms than it was during the CHF mortgage boom.) This sparked a tidal wave of litigation against banks, with borrowers alleging that their loans contained unfair (or “abusive”) terms regarding currency conversion and risk and had been marketed deceptively. The unprecedented legal battle, in which claims are collectively worth tens of billions of zlotys, continues to hover like a black cloud over Poland’s banking sector. On 15 June the Court of Justice of the European Union (CJEU) issued two new rulings in the matter. In this article we will discuss these rulings and where the controversy stands now.
I. The multibillion zloty battle
First, though, it is necessary to say a bit more about the essence, and the course so far, of the dispute between consumers and banks. It has two aspects: legal (abusive clauses, adhesion contracts) and financial (the time value of money). The main basis cited by plaintiffs is the Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (henceforth the Directive), whose provisions have been transposed into the Polish Civil Code. Its crucial assumptions are: the consumer is in a weak position vis a vis the seller or supplier in terms of bargaining power and knowledge; contractual terms which have not been individually negotiated are not binding on the consumer if his or her rights and obligations are set forth in a way that is contrary to good practice and grossly infringes his or her interests; penalties for violating consumer rights should have a dissuasive effect on the seller/supplier. The controversy has revolved around the following issues: the general legality under the Banking Law of the inclusion into loan agreements of foreign currencies and currency conversion mechanisms; the consumer’s awareness of the currency risk and how it was presented to them by the bank; the statute of limitations on claims; the consequences of a loan being annulled for the mortgage lien; the manner of settlement of the parties’ mutual claims (“the two claims theory” vs. “the balance theory”); and the time value of money and the consequences of recognizing a loan agreement’s terms regarding currency conversion as unfair (with no fewer than three scenarios at play: 1) the loan is converted back to zlotys according to the central bank’s average exchange rates, without the lending bank’s spreads; 2) the loan is pronounced null and void in its entirety and the parties return their mutual performances (in zlotys); 3) the unfair clauses cease to be binding and the central bank’s exchange rates apply from now on.)
As noted, the financial scale of the dispute is unprecedented. In 2021, the Financial Supervisory Commission (KNF) estimated its cost for the banking sector at PLN 100bn (€22.4bn) under a “medium” scenario. Before 15 June, the CJEU had already issued eight or nine rulings in the matter. The landmark one was the judgment issued on 3 October 2019 in the case “Kamil Dziubak and Justyna Dziubak vs. Raiffeisen Bank,” which opened the way for banks in Poland to declare CHF loan agreements null and void in their entirety from the outset. As of the time of writing, i.e. in June 2023, well over 10,000 lawsuits are before the Polish courts, and statistics show that judges rule in consumers’ favor more than 90% of the time. They take the view that the terms regarding currency conversion are abusive, notably because they were not individually negotiated and place the entire risk of currency fluctuations on the consumer, who was not made aware of the risk; that the loan agreement should be annulled in its entirety as long as it is not possible to convert it into zlotys using an external, objective measure (automatically substituting the central bank’s exchange rate is not acceptable, according to the courts); that the parties should settle their claims according to the two claims theory (which is more favorable to consumers); that banks’ claims against consumers for the return of the capital paid out have expired their statute of limitations; and that the consumer is entitled to claim return of the surplus between the instalments paid and the capital received.
Let us now turn to the two new CJEU rulings.
II. CJEU hands more victories to consumers
The first of the two rulings issued by CJEU on 15 June, registered under reference C‑520/21, was in response to a request for a preliminary ruling from the Warsaw City Centre District Court (Sąd Rejonowy Warszawa-Śródmieście) regarding Case I C 1297/21. The question was whether, “where a loan agreement entered into by and between a bank and a consumer is found to have been null and void from the outset because it contains unfair terms, the parties, in addition to the reimbursement of the sums paid in the performance of that agreement (the bank – loan principal, and the consumer – monthly payments, fees, commissions and insurance premiums) and statutory interest for late payment from the date of the demand for payment, may pursue any other claims (including remuneration, compensation, reimbursement of expenses or indexation of the amounts paid),” on the grounds that the other party used the money for a certain period of time without any legal basis.
In its ruling CJEU makes four key points: 1) the Directive does not govern the issue expressly, and so it is for the national courts to determine it by reference to national legislation; 2) a dissuasive effect on the bank is key, and there is nothing in the Directive to prevent the award of compensation to the consumer; 3) the principle of proportionality should be observed; 4) the principle of legal certainty should be observed. CJEU concludes that, under the Directive, the consumer has the right to seek compensation from the bank going beyond reimbursement of the monetary consideration paid under the invalid loan agreement (i.e. monthly payments, fees etc.); but that the bank is not entitled to seek compensation from the consumer going beyond reimbursement of the loan principal paid out under the invalid loan agreement.
The second ruling issued by CJEU on 15 June, registered under reference C-287/22, was also given in response to a request from a Polish court for a preliminary ruling. The question was whether the court can grant “interim measures ordering the suspension of the performance of a mortgage loan agreement in a foreign currency pending a final decision on the repayment of sums unduly paid pursuant to the unfair terms contained in that agreement”. In other words, can the court allow a borrower to stop making mortgage payments until it issues a final ruling? In this case, too, CJEU ruled in favor of consumers, concluding that the court can order the suspension of mortgage payments. Here are key parts of the judgment: “In addition, the Court has had occasion to state that it may be necessary to grant such measures, inter alia, where there is a risk that that consumer will pay, in the course of legal proceedings the duration of which may be considerable, monthly instalments of a higher amount than that actually due if the term concerned were to be disregarded”; and “in the absence of an interim measure suspending his or her contractual obligation to pay those monthly instalments, a consumer, in order to avoid a final decision on the invalidity of the loan agreement concerned consisting only in the partial restoration of his or her situation, would have to either extend the scope of his or her initial application, after payment of each monthly instalment, or, following a decision annulling that loan agreement, bring a new action, the purpose of which would be to settle the monthly instalments paid during the first proceedings. In that regard, it should be noted that, in its written observations, the Polish Government observes that, under Article 25a of the ustawa o kosztach sądowych w sprawach cywilnych (Law on legal costs in civil proceedings) of 28 July 2005 (Dz. U. No°167, item 1398), consolidated version (Dz. U. of 2022, item 1125), any extension of the scope of an action is subject to legal costs.”
III. It is not game over yet
The latest CJEU rulings have reinforced the view that, from a legal standpoint, the dispute has largely been resolved in consumers’ favor. Banks are having to set aside more and more capital to cover pending and future claims. But some important points remain to be clarified, making it difficult to estimate the total cost for the sector. In its ruling regarding C‑520/21, CJEU is not specific about the nature of the “other claims” that the consumer is entitled to pursue from the bank (it uses the term “compensation”). And we are still awaiting its ruling in a case registered as C-756/22, which contains similar but more precise questions than C‑520/21 about “other claims”, including specifically about indexation of the amount paid, which CJEU has decided to consider separately. Meanwhile, not all consumers decide to take the court route.
The chaos and uncertainty stem from a lack of a systemic solution to the problem of the kind that has been adopted in Hungary, where an act of Parliament allowed for the conversion of all F/X mortgages back into the local currency at the central bank’s exchange rate. Plans to insert a similar mechanism into the so-called anti-spread act of 2011 – most recently entertained two years ago – have come to nothing and are unlikely to be revived. The only alternative for banks are out-of-court settlements, a route that KNF is recommending. So only time will tell what the total bill for the banking sector ends up being.
By Jan Akimenkow, trainee attorney-at-law
Originally published in PMR Construction Insight: Poland, No. 7 (268), July 2023
 “The Act of 29 July 2011 amending the Banking Law and some other acts” (Journal of Laws of 2021, no. 165, item 984).