FX loan arrangements from legal perspective

Interview partner Dr. Szilvia Drimál, Drimál Law Office

1. How the legislation changes on FX-loans are reshaping the legal industry?

In no way. Lawyers are seeking the legal breaches, those legal arguments on the basis of which FX-loan agreements may be contested even after the recent legislation changes. The volume of the FX-loan lawsuits is not such that could cause a real reshaping.

2. Many law firms have received requests from unsatisfied clients bearing the damaging consequences related to exchange-rate fluctuations in recent years, from the State in order to litigate banks and the other way around. Which side of your law firm has taken? Why?

Those law firms which represented the State or the banks in the legal actions against each other came from a small group. All the other law firms have the possibility to be contacted by the desperate debtors who need help and advice to solve their crucial problems caused by FX-loans. I am one of these attorneys.


3. Can banks be held responsible for highly increased expensive foreign-currency mortgages? –regarding related contracts


Banks are financial service companies and are traditionally and expectedly in the possession of the special financial knowledge and instruments which are needed to manage risks, hardly foreseeable conditions, and decide if a loan applicant is acceptable, or a financial product is ready to be marketed. In the case of FX-loans the problem is that the CHF/HUF exchange rates increased substantially, in an unforeseeable extent. Who shall be responsible for that increase? Who shall bear the damages of that extent? Why banks did not calculate with this possibility? The banks have a professional responsibility for the present situation. The Hungarian society expected that the banks should shoulder that responsibility by themselves or by the court sentences or by the new legal acts. It is not what happened. Now banks have to return only that sum of money to their clients which were collected by them in an evidently dishonest way. All the exchange rate risks are still taken by the customers, although in most cases they were not aware of the level of risk that they were bearing.

4. Regarding lack of relevant regulations and no precedents in such cases at that time, how could help a legal advisory firm in these issues?

Before the recent legal amendments attorneys referred to the unlawful regulations of the loan contracts and asked for the cancellation of the invalid contract articles in the lawsuits. Application of the law developed in that way. Developments created the basis of the recent legislation. But legal development did not have enough time to resolve all the unlawfulness. Legislation simply did not consider some important questions included the responsibility for the exchange rate changes and the related risk management.
The new legislation changed the legal circumstances and by turning the FX-loans into HUF loans on a defined rate declared that the responsibility for the exchange rate changes shall be entirely held by the customer. The new acts amended the loan contracts by the power of the law, without the need of the approval of the contractual parties. It is the law. Attorneys and courts apply the law. So probably everyone feels that the situation is not correct, there is no real help on legal basis.

5. To what extent have the requests of legal advice services increased in these couple of years?

As the exchange rate worsened for debtors, more and more of them asked for legal advice. The extent depended on the law firm specializing itself in the very special field of law of FX-loan contracts. There are/were law firms which took some hundreds of legal actions against banks based on a common template of statement of claim. But it is really not general, most law firms gave advice to their clients and brought lawsuits only if the clients had no other possibility.

6. Have the increased numbers of inquires from customers – borrowers, state, banks – pump prices up at law firms?

Not at all. As I have already mentioned, law firms working for banks and the state are few, most attorneys work for the debtors. Debtors are usually in a very bad financial situation, so they are not able to pay high legal prices, often they are not even able to pay the general legal prices. For working in these cases it is necessary to create low fix prices according to the types of the cases (legal advice, writing letters, lawsuits).

7. Concerning legal advice, bringing a lawsuit, or basically the whole procedure if needed, what pricingis set / or was set before the forintositation/ for an average customer struggling under unbearable repayment instalments?

The first meeting (looking over the documents, checking the possible legal ways) usually costs 10-30 thousand HUF, representation in a lawsuit is about 100-200 thousand HUF at Budapest law firms in these cases.

8. Regarding suing banks under FX loan agreements, how many lawsuits did result successfully for your company?

I usually did not bring lawsuits against banks. I carried out negotiations with them, and I described our objections in a letter informing them what they can expect if they sue my client. If the bank initiates the lawsuit, the expenses shall be advanced by the bank and not my client and the bank has to prove its statements, not my client – these are important. In the cases where I notice the bank of our objections, none of the banks made any kinds of legal actions against my clients or their guarantors or the owners of the mortgaged real estates. Most of my clients chose that way instead of suing.

9. What about the whole “legal market” specialised on FX loan agreement cases in this question?

Generally only a small part of the lawsuits of debtors initiated by law firms were successful, but these successes developed the law application so they were important successes. The new law suspended all these lawsuits, they could continue in these weeks, after receiving the bank settlements by debtors, but in completely new legal circumstances.

10. In your view, has the latest law on the mandatory conversion of FX loans into HUF loans at current market rates brought a solution for the borrowers or can it be expected further lawsuits on this issue?

No, it hasn’t. As I have already mentioned the main problem with FX-loans is the extreme exchange rate. The latest laws obliged the customers to bear all the damages deriving from exchange rate changes until the date of conversion on the rates of 7th November 2014. In most cases it means that the debtors now owe the banks 150-200% as much money as they effectively received from the bank 5-10 years ago although they paid the instalments meanwhile.

Borrowers and law firms are looking for the possibilities to fight against the conversion of FX-loans as it is socially unfair and the burden on the customers is simple unbearable. People will lose their homes. Lawsuits can only be started on the basis of the law. In this case the law is unfair. I am not sure that further lawsuits are the instruments to resolve these problems.

Zsuzsa Szabó