Victory for Swiss franc homebuyers as EU court rules in their favour

The European Court of Justice ruled that those who took out mortgages in Swiss Francs can now ask national courts to annul the contracts. JULIEN WARNAND/PAP/EPA

The European Union’s top court has ruled in favour of Polish homebuyers who took out mortgages in Swiss Francs, saying they can now ask Polish courts to convert their loans into PLN.

The European Court of Justice issued its ruling on Thursday in a case concerning "unfair clauses" in foreign-exchange-indexed mortgages issued by Poland's banks, paving the way for Swiss-franc-denominated mortgage contracts to be annulled. 

The ruling is seen as a relief for a nearly 600,000 borrowers who took loans in foreign currencies, particularly during the 2000-2008 period, attracted by lower interest rates than those offered in the Polish currency.

The total amount of all foreign currency loans is estimated at some 125 billion złotys, with instalments rising sharply after the strong rise of the Swiss currency following the financial crisis in 2008. Since then, the Swiss franc has risen against the Polish złoty by some 80 percent.

The court said: “In loan contracts concluded in Poland and indexed to a foreign currency, unfair terms relating to the difference in exchange rates cannot be replaced by general provisions of Polish civil law.”

It added: “If, after the removal of the unfair terms, the nature of the main subject matter of those contracts is likely to alter, in that they would no longer be indexed to a foreign currency while remaining subject to an interest rate based on that currency rate, EU law does not preclude that annulment of those contracts.”

The case was taken to court following a Swiss-franc-denominated mortgage taken out by a Polish couple from Raiffeissen Bank in 2008. 

While the funds were made available in Polish zlotys (PLN), the monthly payments were calculated in Swiss francs (CHF) but debited in PLN. 

At the time the loan was taken out, the amount due, and expressed in CHF, was based on the PLN-CHF buying rate on that day, whereas the monthly repayments were calculated according to the PLN-CHF selling rate at the time the payments were due. 

This meant that while the borrowers benefitted from the CHF rate initially, they were exposed to currency risk due to the fluctuating PLN-CHF rate.

A Polish court asked the CJEU whether it was possible to “annul the contract where the maintenance of the contract without the unfair terms would result in altering the nature of its main subject matter (…)."

According to the court: "In this matter, the Tribunal emphasized that cancelling the disputed clauses would result not only in abolishing the indexation mechanism and FX exchange rates, but also - indirectly - in the disappearance of the FX exchange rate risk, which is directly connected with the indexation of the loan in question to the currency. 

“Meanwhile the Tribunal reminded that the clauses concerning the FX exchange rate risk determine the main subject of an FX-indexed loan contract, as a result of which the objective possibility of keeping the contract in question in force seems at least uncertain.”

The court further ruled that "the consumer must be able (...) to refuse to be protected against the detrimental consequences caused by the annulment of the contract as a whole where the consumer does not wish to benefit from that protection." 

In July, The Polish parliament has passed a bill to support heavily indebted Swiss-franc borrowers. The bill was an abridged version of a project presented by President Andrzej Duda. According to the law, special fund set by the state-owned BGK will grant assistance of up to EUR 460 per month for up to three years for those who are falling behind with their mortgage payments.