The European Court of Equity recently issued a judgment demonstrating the precedent that the Cyprus courts will take for the remaining pending disputes among lenders and borrowers on the island regarding credit agreements and loans being lent in foreign currencies.
The issue was analysed in the framework for a Directive for the consumer protection from unfair terms in arrangements settled predominantly in Swiss Francs (CHF).
The risk of exchange in the EU creates an imbalance of liability between the parties’ rights and contractual commitments. Addressing such imbalances should occur when the terms of the agreement are initially being drawn up and signed. The extent of the terms must be drafted in understandable, coherent English or Greek, so the borrower is cautioned of potential dangers, particularly regarding exchange rates. At the moment, the liabilities are held entirely onto the borrower; additionally, the increased price of the CHF has created an obligation on Cyprus banks to inform and advise borrowers about any potential future regarding any changes in the exchange rate and therefore also loan payments.
The Court of Appeal of Oradea in Romania made reference to the aforementioned judgment and submitted 3 preliminary questions to the ECJ regarding almost 70 borrowers who received loans in Swiss Francs.
Article 1 of Directive 93/14 of the Unfair Contract Terms Act states that a contractual term which has not been individually negotiated will be viewed as unfair if it opposes the requirement of good faith or causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. It also provides that the unreasonableness of a contractual term must be measured, taking into account the nature of the goods or services for which the contract was settled.
To this end, the requirement means that a clause whereby the loan should be reimbursed in the same foreign currency as contracted with lenders such as the Bank of Cyprus; this must be comprehended and acknowledged by the purchaser using a verbal and written contract that a normal and reasonably competent borrower would understand both of the likelihood of fluctuations in currency value; and in turn have the capacity to evaluate potentially significant economic consequences as per their budgetary commitments.
Contact us for more information on loan repayments and currency fluctuations in Cyprus.