Clauses in loan contracts providing for the principal to be repaid in the foreign currency in which the loan was granted are not necessarily abusive, as long as the clause is worded clearly and understandably for the borrower and may be considered to be part of the main purpose of the contract rather than an accessory clause.
This is the conclusion reached by Advocate General Nils Wahl on Thursday 27 June, in a case (C-186/16) in which the Court of Justice of the EU was called upon to give a prejudicial ruling on the legality of such a clause in various types of loan contract (property, credit refinancing or personal loans) entered into in Swiss francs in 2007-2008 by several Romanian consumers with a bank of the country.
The contracts explicitly required the sums due to be repaid in Swiss francs; however, as the exchange rate between the Swiss franc and the Romanian leu more than doubled between 2007 and 2014, the borrowers brought the matter before the Romanian courts, claiming that the requirement to pay back the loans in Swiss francs shifted the exchange rate risk to them and should therefore be considered abusive, with particular reference to Directive 93/13/EEC of the Council on abusive clauses in contracts entered into with consumers.
Under this directive, clauses may be considered abusive if they create a significant balance, to the detriment of the consumer, between the rights and obligations of the parties stemming from the contract.
This abusive nature must be assessed in light of the nature of the goods and services covered by the contract and with reference, at the time it is concluded, to all circumstances surrounding it and the other contractual clauses. However, the assessment may not refer to the definition of the main purpose of the contract if the clause is drafted clearly and comprehensively.
On this basis, the Romanian courts asked the Court of Justice whether in this case, the repayment clause in question could be considered as relating to the main purpose of the contract and whether it was clear and comprehensible enough for its abusive nature not to be examined. It also requested clarifications as to the point in time at which the existence of a significant imbalance between the rights and obligations of the parties should be assessed.
In his conclusions, the Advocate General said that the repayment clause in question is indeed part of the main purpose of the contract, as it cannot be considered ancillary, and should therefore be excluded from the assessment provided for by the directive. He notes that firstly, foreign-currency loans generally attract a lower interest rate than national currency loans in return for the exchange rate risk that may be run by the consumer, should the national currency devalue. Secondly, the bank that granted the foreign-currency loan on more favourable terms is within its rights to have it repaid in the same currency.
As to whether the clause is clear and comprehensible, the Advocate General explains that this assumes that the consumer can understand it, not formally and grammatically, but also practically. The clause in question must therefore be worded in such a way that the average consumer is aware of the possible increases and depreciations of the foreign currency in which the loan was granted and the potential consequences to which these fluctuations expose them.
According to the Advocate General, however, this clarity requirement does not go so far as to require the bank to anticipate fluctuations in the exchange rates of the currencies in question, to notify the consumer of these and bear the consequences of them.
Lastly, on when the existence of a significant imbalance between the rights and obligations of the parties should be assessed (assuming the Court takes the view that the clause in question is not part of the main purpose of the contract), he concludes that this imbalance can be assessed only when the contract is concluded, on the sole basis of the circumstances predictable at that time.
The bank may not be held liable for any changes taking place after the contract was concluded, as these are by their nature unpredictable and outside its influence, as is the case with exchange-rate fluctuations. (Original version in French by Francesco Gariazzo)