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)
Date: 2014-07-28
Institutions: European Central Bank
Subjects: Hungary, consumer credit, consumer protection, exchange rate, financial stability, interest, national law

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 request 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  was  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  financial  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  
2  
3  

4  
5  
6  

See in particular amending proposals T/465/7 and T/465/9. 
Law XXXVIII of 2014, published in Magyar Közlöny 98/2014 on 18 July 2014. 
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). 
Judgment of the Court of 30 April 2014 in Case C-26/13. 
Decision 8/2014 of the Constitutional Court of 20 March 2014. 
Uniform Decision 2/2014 of the Supreme Court of 16 June 2014. See also Decision 6/2013 of the Supreme Court of 
16 December 2013. 

 
 
 
 
 
                                                 
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contracts  denominated  in  forint  or  in  foreign  currency  entered  into  by  private  persons  in 

Hungary.  The  Supreme  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 quoted 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 will be considered unfair unless they comply with 

a  set  of  cumulative  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 contracts entered into by private persons, with retroactive 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  requirements  relating  to  the  execution  of  the  new  measures  stemming  from  the 

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  instalments  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  the  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  or  a  financial  leasing  contract  meets  the  seven 

principles,  therefore  making  any  such  amendment  unfair,  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 proceedings 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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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,  the  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 their 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 sufficient 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 line 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 crisis, 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 expectation of domestic currency appreciation, supported 

the  demand  for  FX  loans. In  Hungary,  FX  loans  were  denominated in euro,  Swiss francs  and 

Japanese yen.  

8  
9 

See Opinions CON/2010/62, CON/2011/87 and CON/2012/27.  
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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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,  the  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 Article 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 principles10. 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 fairness 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  retroactive effect of 

the  law  does  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 retroactive effect. 

10  
11  

12  

These criteria are laid down in Article 4(1)(a)-(g) of the law. 
Directive 2014/17/EU of the European Parliament and of the Council  of 4 February 2014 on credit agreements  for 
consumers  relating  to  residential  immovable  property  and  amending  Directives  2008/48/EC  and  2013/36/EU  and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34). 
See Article 43(1) of the Directive. 

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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  effects  of  the  measures 

having retroactive 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 

possibly resulting in adverse spillover effects 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 financial 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  the  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 

European  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 applicable 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  foreign  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 positions may 

13  

14  

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. 
See paragraph 3.7 of Opinion CON/2012/27. 

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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  the  stable  functioning  of  their 

subsidiaries,  highlighting  their  long-term  commitment  to  the  financial  sector.  Moreover,  the 

MNB,  as  the  competent  banking  supervisor,  may  wish  to  consider  how  it  would  address  a 

capital shortfall in a Hungarian credit institution resulting 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 jeopardise 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 

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