EN  ECB -PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 28 July 2014  
on new general measures stemming from the Supreme Court’s decision  on consumer loan 
contracts  
(CON/2014/ 59) 
 
Introduction and legal basis  
On 27 June 2014 the European Central Bank (ECB) received a reques t from the Hungarian Ministry of 
the National Economy (hereinafter the ‘consulting authority’) for an opinion on a draft law on certain 
measures relating  to consumer loan contracts (hereinafter the ‘draft law’).  
Several  amending proposals to the draft law were submitted to the Hungarian Parliament, none of 
which w as sent to the ECB1. Furthermore, the draft law was adopted by the Parliament on 
4 July 20142. Under these circumstances, the ECB has adopted its opinion based on the adopted law 
(hereinafter the ‘ law’).  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on 
the Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 
98/415/EC3, as the law relates to rules applicable to f inancial institutions insofar as they materially 
influence the stability of financial institutions and markets. In accordance with the first sentence of 
Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has 
adopted this opinion.  
 
1 Purpose of the law  
1.1 Following a Court of Justice of the European Union  preliminary ruling4 and a Hungarian 
Constitutional Court decision5 on this subject matter , the Hungarian Supreme Court delivered a 
uniform  decision6 (hereinafter the ‘Supreme Court decision’) outlining the basic conditions  of 
certain uniform  measures to be laid down  by the Hungarian Parliament for consumer loan 
                                                 
1  See in particular amending proposals T/465/7 and T/465/9.  
2  Law XXXVIII of 2014, published in Magyar Közlöny 98/2014 on 18 July 2014.  
3  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
4  Judg ment of the Court of 30 April 2014 in Case C -26/13 . 
5  Decision 8/2014 of the Constitutional Court of 20 March 2014.  
6  Uniform Decision 2/2014 of the Supreme Court of 16 June 2014.  See also D ecision 6 /2013  of the Supreme Court of 
16 December 2013 . 
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2 contracts denominated in forint or in foreign currency  entered into  by private persons in 
Hungary. The Supre me Court decision states  inter alia  that the use of exchange rate margins 
(i.e. bid/ask spreads) in relation to loans granted in foreign exchange (hereinafter ‘FX loans’) is 
unfair and that financial institutions must  apply the official exchange rate quote d by the Magyar 
Nemzeti Bank (MNB) when recalculating  loan instalments. The Supreme Court also established 
that increases  in the interest rates, charges and fees relating to consumer loan contracts 
unilaterally imposed  by financial institutions w ill be con sidered unfair unless they comply with  
a set of c umulative  principles (hereinafter the ‘seven principles’) laid down  in the Supreme 
Court decision. Against this background, the law regulates certain elements of forint and FX 
loans and financial leasing con tracts entered into by private persons, with retro active  effect. The 
measures introduced by the law are the first7 in a series of measures to be adopted by the 
Parliament which aim to address the Supreme Court decision. The law also introduces 
additional r equirements relat ing to the execution of the new measures stemming from th e 
Supreme Court  decision.  
1.2 To these ends, the law:  
 declares  null and void  the use of exchange rate margins by financial institutions to 
calculate loan advancement and loan instalm ents in FX loan contracts and financial 
leasing contracts entered into prior to the entry into force of the law, but not earlier than 
1 May 2004. As a result, the law requires financial institutions to calculate the amounts to 
be repaid to consumers using the official exchange rate published by the MNB. This 
calculation has to be made dating back to the start of th e contract but not earlier than 
1 May 2004, within 90 days of the entry into force of the law. The financial institutions 
concerned are required to submit the methodology used for this calculation to the MNB 
for verification within 60 days of entry into force of the law .  
 lays down the seven principles , and states that no  unilateral amendment  of the general 
terms and conditions of a loan contract o r a financial leasing contract meets the  seven  
principles, therefore making any  such amendment un fair, and thus, void. A financial 
institution that has adopted such an amendment will have to prove that the amendment 
complies  with the seven principles in civil legal proce edings initiated at the institution’s  
discretion within 30 days following the entry into force of the law in the case of  FX loans 
and 90 days in the case of forint loans. If such a procedure is not carried out, the 
unilateral amendment is considered to be unfair  pursuant to the law , and thus null and 
void,  
 lays down  specific rules on how financial  institutions can initiate such civil proceedings. 
These rules impose  a short  deadline for the financial  institutions to prove that the 
                                                 
7  See the preamble  to and Article 3(5)  of the law.  
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3 contractual conditions applied by them comply with the seven principles . The burden of 
proof is on the financial  institutions . 
 under certain conditions, disapplies  the statute of limitations, and suspends court 
proceedings in pending cases, as well as the execution of  foreclosures related to consumer 
credit contracts.  
 
2 General observations  
2.1 The appropriate time to consult the ECB  
The draft law was adopted on 4 July 2014, shortly after the ECB was consulted, and before it 
could adopt its opinion. As a consequence, it was not possible for the Hungarian Parliament to 
take the ECB’s views into account before legislating . Moreover, t he law differs substantially 
from the draft law as a result of several amendments submitted to the Parliament in the interim, 
none of which  was sent to the ECB  in draft form . Under these circumstances, this opinion is 
based on the law.   
The Hungarian authorities have therefore failed to comply  with their duty to consult the ECB. 
The adoption of the law  in no way relieves  the authorities of th eir duty to consider  this opinion , 
since this duty is important for the application and interpretation of the law and any possible 
future amendments.  
In this respect, the ECB emphasises  that even in cases of particular urgency or where the 
legislation has reached an advanced stage, the national authorities are not relieved of their duty 
to consult the ECB at an appropriate stage in the legislative process that allows suff icient time 
for: (a) the ECB to examine the draft legislative provisions and adopt its opinion in all required 
language versions; and (b) the national authorities to take into account the ECB’s views in 
accordance with Decision 98/415/EC. The ECB would therefore appreciate the consulting 
authority honouring its consultation obligation in lin e with Decision 98/415/EC in  future.  
2.2 Overview of the measures introduced by the Parliament  
The ECB has assessed the situation in the Hungarian financial market in relation to FX -
denominated loans in several opinions8. Prior to the global financial cr isis, borrowing in foreign 
currencies by households and non -financial corporations was popular in several Member 
States9, as lower interest rates applied to FX loans compared to interest rates applied to loans in 
the domestic currency, as well as the expec tation of domestic currency appreciation, supported 
the demand for FX loans. In Hungary, FX loans were denominated in euro, Swiss francs and 
Japanese yen.  
                                                 
8  See Opinions CON/2010/62, CON/2011/87 and CON/2012/27.  
9 For further information on lending in foreign currencies in the Union see the Annex to Recommendation 
ESRB/2011/1 of 21 September 2011 on lending in foreign currencies (OJ C 342, 22.11.2011, p.1).  
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4 To address risks borne by the banking system associated with the negative effects stemming 
from the depreciation of the forint  on private sector balance sheets , the Hungarian authorities 
implemented a series of measures from 2010. In March 2010 the authorities introduced lower 
maximum loan -to-value ratios for mortgages and car loans in foreign currencies , and in 
June 2010 they introduced more stringent debt -to-income ratios for FX loans. Moreover, a 
prohibition on foreign currency -denominated mortgage lending effective from August 2010 was 
introduced . In July 2011 the Hungarian authorities repealed  the prohibition , and announced very 
strict conditions for granting FX loans with essentially the same effect. In addition, two 
government initiatives aiming to reduce the increased burden of FX loans on households due to 
the depreciated forint were introduced  in the same year . These were the early repayment scheme 
and the exchange rate cap scheme.  
In the first quarter of 2014, FX loans to households accounted for more than 54% of the total 
loans granted in Hungary, and their total value  was just below 13% of the country’s annual 
gross domestic product.  
 
3. Specific observations  
3.1 As mentioned above, t he Supreme Court laid down  the seven principles (clarity, itemised 
listing, objectivity, factuality and proportionality, transparency, the right of termination and 
symmetry ), and laid down that, if these are met, the unilateral amendment of the general terms 
and conditions of a consumer loan contract is not to be considered unfair. For the sake of 
consistency and legal soundness, it could have been made clearer in Ar ticle 5 of the law that a 
decision as to whether a particular  condition  imposed by  unilateral amendment of the general 
terms and conditions applied by a financial institution is fair or not has to be assessed 
exclusively on the  basis of the  seven principle s10. If possible, guidance should be given to the 
affected parties on the application of the  seven principles, since  pursuant to the law the question 
of fairness would have to be decided in a civil procedure if a financial institution decided  to 
prove the f airness of the general terms and conditions it  has applied.  
3.2 Acknowledging that Directive 2014/17/EU of the European Parliament and of the Council11 
does not apply to credit agreements existing before 21 March 201612, the retro active  effect of 
the law doe s not seem to be in line with the general aim and principle  of Article 23(5) of 
Directive  2014/17/EU . This Directive allows Member States to further regulate foreign currency 
loans, on the condition that such regulation is not applied with retro active  effect. 
                                                 
10  These criteria are laid down in Article 4(1)(a) -(g) of the law.  
11  Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for 
consumers relating to resid ential immovable property and amending Directives 2008/48/EC and 2013/36/EU and 
Regulation (EU) No  1093/2010 (OJ L 6 0, 28.2.2014, p. 3 4). 
12  See Article 43(1) of the Directive.  
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5 3.3 Noting that point 6 of the explanatory memorandum  to the draft law  acknowledges the 
significance of the potential economic impact of the new measures, the ECB suggests that the 
Hungarian authorities carry out a thorough analysis of the possible eff ects of the measures 
having retro active  effect, as such measures  could put a significant strain on the banking sector, 
potentially adversely affecting the stability of the Hungarian financial sector as a whole, and 
possibl y resulting in  adverse spillover e ffects on the economy. Preliminary estimates by affected 
banks suggest that the potential one -off impact of the measures could be more significant than 
the losses that the banking system incurred in 2011 as a result of the early repayment scheme. 
While the  banking sector’s current capital position is stronger than before the implementation of 
the early repayment scheme, the potentially significant costs of the new measures  may in some 
cases require material capital injections from the owners of the financia l institutions to restore 
regulatory capital ratios and lending capacity to levels prevailing before the law was adopted13. 
The ECB reiterates14 that in this context it is of the utmost importance that a meaningful 
dialogue takes place between the Hungarian authorities and all the relevant stakeholders, 
including authorities in other Member States. Consultation with such stakeholders might shed 
light on macro -prudential issues which are not apparent at national level. Furthermore, an 
exchange of views with th e MNB, which is the authority responsible for macro -prudential 
issues, could help to coordinate effective action without impacting financial stability. In 
addition, the Hungarian authorities should ensure a proper and timely consultation of competent 
Europ ean authorities, including the European Commission, the European Banking Authority, 
the European Systemic Risk Board and the ECB on any further measures as anticipated in 
Article 3(5) of the law.  
3.4 To this end, when  laying down  further  measures applicabl e to the method of repayment or write 
down of the amounts to be repaid to customers as a result of the law, and the method  for 
potentially converting FX loans, the ECB suggests that due consideration should be given to  the 
interests of the general public, including financial institutions and borrowers, as well as the 
authorities responsible for ensuring the stability of the financial system in Hungary. In 
particular, further measures to be applied to the planned conversion of FX loans should also 
take into account the need to preserve financial stability, ensure an appropriate burden sharing 
among all stakeholders and avoid moral hazard in the future.  
3.5 With regard to the high percentage of the entities operating in the Hungarian banking sector 
owned by fo reign banking groups, and depending on the nature  of the further measures 
applicable  to the method of repayment or write down of the amounts to be repaid to customers, 
cross -border spillover effects on banking groups’ consolidated profits and capital posit ions may 
                                                 
13  The MNB estimates that the one -off cost of the measures could be between EUR  2.3 billion and 2.9 billion for the 
banking sector. This estimate compares with the EUR 1 billion loss faced by the Hungarian banking system as a 
result of the early repayment scheme.  
14  See paragraph 3.7 of Opinion CON/2012/27.  
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6 occur. In the past few years , losses stemming from other government measures, including the 
bank levy, the financial transaction  tax and the early repayment scheme for FX loans, were 
offset by capital injections by foreign parent banks to ensure t he stable functioning of their 
subsidiaries, highlighting their long -term commitment to the financial sector. Moreover, t he 
MNB, as the competent banking supervisor, may wish to consider how it would address a 
capital shortfall in a Hungarian credit instit ution  result ing from application  of the law.  
3.6 In addition to the possible significant adverse financial impact on the banking system, the 
possibility of negative effects on the Hungarian economy and financial markets cannot be 
excluded. This should also  be taken into consideration in establishing the further measures on 
the conditions of the financial settlement between credit institutions and their customers and on 
the conversion of FX loans into forint so that these measures do not jeopardi se macro -economic 
and financial stability in Hungary.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 28 July 2014.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI