When a financial institution grants a loan denominated in a foreign currency, it must provide the borrower with sufficient information to enable him to take a prudent and well-informed decision. If this does not appear to be the case, the court can examine the possibly unfair character of such a term, which is part of the main subject-matter of the contractual loan. These are the main elements in the ruling made by the European Court of Justice on Wednesday 20 September (C-186/16).
In 2007 and 2008, several Romanian nationals who received their income in Romanian lei (RON) took out loans denominated in Swiss francs with the Romanian bank Banca Româneascã in order to purchase immoveable property, finance other loans, or meet their personal needs. The exchange rate concerned changed considerably to the detriment of the borrowers. They brought actions before the Romanian courts seeking declarations on the term according to which the loan must be repaid in Swiss francs, regardless of the potential losses that those borrowers might sustain on account of the exchange rate risk. According to the borrowers, the bank presented its product in a biased manner, only pointing out the benefits to the borrowers without highlighting the potential risks and the likelihood of those risks occurring.
The Court of Appeal in Oradea, Romania, requested a reference from the European Court of Justice in the context of a preliminary ruling and the latter drew on the legal considerations provided by the Advocate General (see EUROPE 11779) who argues that the term in question is part of the main subject matter of the contract between the bank and borrower.
It is up to the Romanian court to examine whether the consumer in question is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him, which derive from an investment decision and make a prudent and informed choice. The advertising and information provided by the lender in the course of the negotiations of a loan agreement should also be taken into account, as well as information regarding exchange rate risks.
In the hypothesis that the bank has not met all its obligations, it is for the national court to examine the unfairness of the disputed term. The national court must determine, the possibility that the bank has failed to observed the requirement of good faith and, second, the existence of a significant imbalance between the parties to the contract. In that regard, the Court states that a contractual term may give rise to an imbalance between the parties, which only manifests itself during the performance of the contract. (Original version in French by Mathieu Bion)