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Advocate General’s Opinion on loans in a foreign currency

On 27 April 2017, Advocate General Wahl delivered his opinion in the case of Ruxandra Paula Andriciuc and Others v Banca Românească SA (C-186/16).

In proceedings regarding the fairness of “foreign exchange risk” terms between a lender and various borrowers, the Court of Appeal of Oradea, Romania referred the following questions to the Court:

  1. Must Article 3(1) of Directive 93/13 be interpreted as meaning that the significant imbalance in the parties’ rights and obligations arising from the contract must be evaluated strictly by reference to the time when the contract was concluded or does that imbalance also extend to the case where, during the performance of the contract, whether it is performed at regular intervals or continuously, performance by the consumer has become excessively burdensome in comparison with the time when the contract was concluded because of significant variations in the exchange rate?
  2. Must the plainness and intelligibility of a contractual term, within the meaning of Article 4(2) of Directive 93/13, be understood to mean that that term must provide not only for the grounds of its incorporation in the contract and the term’s method of operation, or must it also provide for all the possible consequences of the term as a result of which the price paid by the consumer may vary, for example, foreign exchange risk, and in the light of Directive 93/13 may it be considered that the bank’s obligation to inform the customer at the time of granting the credit relates solely to the conditions of credit, namely, the interest, commissions, and guarantees required of the borrower, since such an obligation may not include the possible overvaluation or undervaluation of a foreign currency?
  3. Must Article 4(2) of Directive 93/13 be interpreted as meaning that the expressions “the main subject matter of the contract” and “adequacy of the price and remuneration, on the one hand, as against the services or goods supplie[d] in exchange, on the other” include a term incorporated in a credit agreement entered into in a foreign currency concluded between a seller or supplier and a consumer, which has not been negotiated individually, pursuant to which “the credit must be repaid in the same currency”?

The Advocate General’s proposed that the questions should be answered as follows:

  1. Article 4(2) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that it is for the referring court to assess, having regard to the nature, the general scheme and the stipulations of the loan agreements concerned, as well as the legal and factual context in which those matters are to be viewed, whether the term in question, under which the loan must be repaid in the same currency as that in which it as advanced, reflects statutory provisions of national law, within the meaning of Article 1(2) of that directive. If not, the referring court must regard that term as falling within the ‘main subject matter of the contract’, which exempts the term from assessment of its potential unfairness. That may be the case in relation to a term incorporated in a loan agreement under which the borrower is required to repay the sum in the same currency in which it was advanced.
  2. The requirement for a contractual term to be drafted in plain intelligible language entails that the term relating to the repayment of the loan in the same currency must be understood by the consumer both on a formal and grammatical level, and also in terms of its concrete effect, in the sense that the average consumer, who is reasonably well informed and reasonably observant and circumspect, would not only be aware of the possibility of a rise or fall in the value of the foreign currency in which the loan was taken out, but also able to assess the potentially significant economic consequences of such a term for his financial obligations. That requirement cannot, however, go so far as to oblige the seller or supplier to anticipate and inform the consumer of subsequent changes which were not foreseeable, such as those manifested in the fluctuations of the exchange rates of the currencies at issue in the main proceedings, or to bear the consequences of such changes.
  3. Article 3(1) of Directive 93/13 must be interpreted as meaning that whether there is a significant imbalance in the parties’ rights and obligations arising under the contract must be assessed by reference to all the circumstances that the seller or supplier could reasonably have envisaged at the time of conclusion of the contract. On the other hand, whether such an imbalance exists is not to be assessed by reference to developments subsequent to the conclusion of the contract, such as variations in the exchange rate, which are outside the seller or supplier’s control and which he could not have anticipated.

The full opinion can be read here.