Hungary Can Amend Terms of Foreign-Currency Loans, Court Rules
Hungarian lawmakers can retroactively amend the terms of some loan contracts, the Constitutional Court said in response to a government request concerning about $15 billion in foreign-currency mortgages.
Private contracts can be amended by lawmakers under “extraordinary circumstances” involving a large number of similar cases and where one party’s interest is disproportionately hurt by changed circumstances, Constitutional Court President Peter Paczolay said today in Budapest.
“Contracts can be retroactively amended only in extraordinary cases when circumstances changed significantly in a way that couldn’t have been foreseen at the time of the contract’s signing,” Paczolay said at the public announcement of the ruling. “The changes must be made by taking into account the interests of both parties as much as possible.”
Prime Minister Viktor Orban, who faces elections on April 6, has said he wants to phase out household foreign-currency loans and help borrowers struggling to repay mostly Swiss franc-based mortgages following a drop in the forint. The cabinet in November postponed a decision on helping borrowers, citing the lack of legal clarity.
The forint, which has plunged 43 percent against the Swiss franc since mid-2008, weakened 0.2 percent to 312.66 per euro by 11:52 a.m. in Budapest, extending its loss this year to 4.9 percent. OTP Bank Nyrt., the country’s largest lender, rose 2.2 percent to 3,702 forint.
Hungarians held 1.75 trillion forint ($7.7 billion) of mortgages at the end of January and an additional 1.6 trillion forint in foreign-currency home-equity loans, which can be used for purchases other than housing, according to central bank data. In 2011, Orban forced banks to swallow $1.7 billion in losses on early repayment of some mortgages at below-market exchange rates.
Lawmakers, if they choose to amend private contract terms, must be able to prove the need for such a step and the Constitutional Court can rule on its validity, Paczolay said.
The supreme court, known as Kuria, rejected a blanket invalidation of these loans in December while an adviser to the European Court of Justice said Feb. 12 that local courts can force banks to replace unfair contract terms for customers The government has said it would wait a decision by the Kuria, which is awaiting an official EU ruling.