Court upholds annulment of currency clause for loans

Court upholds annulment of currency clause for loans Izvor: Reuters/Damir Sagolj

Croatia's High Commercial Court has overturned an appeal of eight lenders that had been sued over loans indexed in Swiss francs (CHF), and upheld a ruling of the Zagreb Commercial Court about the legal nullity of the foreign currency exchange clause in the case of the CHF-indexed loans.

The 70-odd-page ruling, which was made public on the High Commercial Court's web site on Wednesday, said that the court has rescinded the appeal of Zagrebacka Banka, Privredna Banka, Erste Bank, Raiffesenbank Austria, Addiko (previously known as Hypo Alpe-Adria-Bank), OTP, Splitska Banka (previously known as Societe General- Splitska banka), and Sberbank (previously known as Volksbank).

On 4 July 2013, the Zagreb Commercial Court had delivered a ruling in favour of the Consumer Protection Association (UZP) that sued the eight banks with regard to the Swiss franc foreign currency clause and the banks' unilateral decisions to increase interest rates as the currency exchange rate ballooned.

The judgement was handed down by Judge Radovan Dobronic who said then that the banks had violated consumers' rights when they failed to fully inform them about all the parameters necessary to decide on taking loans.

The class action suit against the eight banks was the first of its kind in Croatia.

The Commercial Court had ruled in favour of the suit filed by the consumers' association on behalf of 100,000 citizens who had taken out loans pegged to the franc, with three quarters of them being housing loans. The latest ruling refers to loans taken between 2004 and the end of 2008.

The loans were offered at a variable interest rate, at a time when the franc was relatively weak in relation to the euro and other currencies. But the Swiss franc rose sharply in value after the global financial crisis started in 2008, leading to increasingly higher monthly instalments for clients.

On top of that, the banks raised interest rates, citing higher costs of capital and money market rates. As a result, monthly instalments for consumers rose on average by about 50 percent.

Croatian media reported that the ruling means that consumers can now file lawsuits individually, seeking annulment of their loan contracts, with estimates saying this may end up costing the eight lenders some 10-15 billion kuna, or anywhere between €1.35 billion to €2 billion.

(€1 = 7.40 kuna)

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