The CJEU has once again sided with the Frankovichs!

A new ruling by the CJEU in favor of the Frankovichs was issued on November 18, 2021. This is the third CJEU ruling issued in Polish franking cases. What questions were posed to the CJEU and how did the Court answer them? Find the answer in the article below!

What questions did the Warsaw District Court ask the CJEU?

The District Court for Warsaw-Wola in Warsaw has addressed two questions to the CJEU:

1. In light of the provisions of Article 5 of Council Directive 93/13/EEC of April 5, 1993 on unfair terms in consumer contracts and its recitals, providing for the obligation to draw up the contract in plain and intelligible language and the necessity to interpret doubts in favor of the consumer, must the contract provision specifying the rate of purchase and sale of foreign currency be formulated in an unambiguous manner, i.e. so that the borrower can independently determine this rate on a given day, or is it possible, in light of the type of contract, its long-term nature, and the fact that the amount of foreign currency is subject to constant (at any time) changes, to formulate the contractual provision in a more general way, namely referring to the market amount of the currency, preventing the introduction of a significant imbalance to the detriment of the consumer?

If the answer to the first question is positive, the District Court for Warsaw-Wola in Warsaw also asked a second question:

2. Is it possible to interpret the contractual provision on the determination by the bank of the buying and selling rates of foreign currency in such a way as to resolve contractual doubts in favor of the consumer and assume that the contract determines the buying and selling rates of foreign currency, not in an arbitrary manner, but in a free market manner especially in a situation, when both parties had the same understanding of the contractual provisions defining the buying and selling rate of foreign currency, or the borrower was not interested in the disputed contractual provision at the time of the conclusion of the contract and its execution, including not being familiar with the content of the contract at the time of its conclusion and throughout its duration?

CJEU confirms: indexation clauses in credit agreements must be formulated transparently

The CJEU’s answer to Question 1 clearly informs that: “Article 5 of Council Directive 93/13/EEC of April 5, 1993. on unfair terms in consumer contracts must be interpreted as meaning that the content of a clause in a credit agreement concluded between a trader and a consumer fixing the purchase and sale price of the foreign currency to which the credit is indexed must, on the basis of clear and comprehensible criteria, enable a reasonably well-informed and attentive and rational consumer to understand how the foreign currency exchange rate used to calculate the amount of the credit installments is determined, in such a way that the consumer is able at any time to determine for himself the exchange rate applied by the trader.”

As you can see, the CJEU makes it clear that the provisions of a credit agreement that deal with indexation are required to be formulated in a transparent manner. Moreover, it is necessary that they specify, in language that everyone understands, the objective method of determining the exchange rate. So that each borrower can independently determine the exchange rate that applies on a given day.

Thus, once again we can see that the Court of Justice of the European Union takes the side of borrowers, who repeatedly drew the attention of banks to the illegal nature of the conversion clauses they used in the so-called “franking agreements. This is because these clauses defined the rules for determining the exchange rate in a way known only to themselves and did not refer to objective criteria. This is a major step in helping the franking customers!

CJEU rejects the banks’ argumentation

Although the CJEU’s answer to the first question was negative, the Court decided to address the second question as well. Its position on the matter is as follows:

“Articles 5 and 6 of Directive 93/13 must be interpreted as precluding a national court, which has established the unfair nature of a term of a contract concluded between a trader and a consumer within the meaning of Article 3(1) of that directive, from interpreting that term in order to mitigate its unfairness, even if such an interpretation would correspond to the common will of the parties.”

In its response, the CJEU cited the reasoning of its April 29, 2021 judgment in Case C-19/20, which included a very detailed explanation of how, in a situation where “a national court could change the content of unfair terms in such contracts, such a power could jeopardize the long-term objective established in Article 7 of Directive 93/13. Indeed, such a power would contribute to eliminating the deterrent effect exerted on traders by the mere non-application of such unfair terms to consumers, since they would still be able to perceive an advantage in the application of the terms in question, knowing that even if they were to be invalidated, the contract could nevertheless be supplemented to the necessary extent by the national court, so as to guarantee the interest of the traders in question.”

Thus, the CJEU rejected the banks’ argument that it was possible for the court to supplement prohibited contractual terms by referring to the provision of Article 65 of the Civil Code, a general provision containing rules for the interpretation of declarations of intent. Lenders have so far indicated that, in accordance with the will of the parties, loan repayments should be settled according to the market value of the foreign currency instead of using abusive conversion mechanisms developed by the banks.

However, in a judgment handed down, the Court of Justice of the European Union denied that in the event that a valorization clause is found to be defective, the court can – through appropriate interpretation – seek to mitigate its unfairness, even when this would correspond to the will of the parties. This is a very important piece of information, which will certainly contribute to the positive resolution of franking cases in favor of borrowers and the assistance to the indebted.