In June 2025, a foreign currency (Swiss franc) loan agreement was annulled by the Pest Central District Court, since the creditor bank had failed to properly inform the debtor (who had been a consumer) about the exchange rate risk arising from the agreement. As a consequence, the whole agreement is invalid retroactively from the date of its conclusion, so that the bank is only entitled to recover the amount it lent to the debtor; beyond that, all repayments, interest and charges must be repaid to the debtor.
The decision is based on a judgement of the Court of Justice of the European Union (CJEU) dated 30 April 2025 (whose judgements are practically binding for national courts) which ruled that a foreign currency leasing (or loan) contract is completely invalid if it contains an unfair term, according to which the risk of exchange rate fluctuations shall be borne by the consumer. Such a term is unfair only if it is not individually negotiated by the parties. Therefore, the whole contract shall be annulled with the restoration of the original situation, i.e. the debtor is only obliged to repay the amount received in Hungarian Forint (HUF) and has no further obligation to pay the bank.
According to EU law, a contract in which an unfair term was used will only continue to bind the parties if it is capable of continuing in existence without the unfair term, which means that all the other provisions of the contract shall remain valid. In its abovementioned decision, the CJEU stated that a foreign currency leasing (or loan) contract cannot be performed without the application of the unfair term regarding exchange rate fluctuation. This is why the CJEU has decided that not only the unfair term, but the entire leasing agreement shall be annulled.
The decision of the CJEU and of the Hungarian Court will probably pave the way for the annulment of entire foreign currency loan agreements if it is proven that the consumer debtor was not properly informed. However, only a few debtors will be able to prove that, as in most cases, banks have informed their customers in detail about the risks arising from exchange rate fluctuations.
However, according to experts, many foreign currency loan contracts contain another unfair term about which consumers were not properly informed before signing the contract. This unfair term is that different exchange rates are set for the loan disbursement and for repayment (hereinafter the "Exchange Rate Difference"), which allows banks to make additional profits. Such contracts might be declared invalid too, with the consequence that the debtor owes nothing to the bank beyond the repayment of the capital received. Contrary to this interpretation, in Hungary today, loan agreements concluded with consumers in which the unfair term relating to Exchange Rate Difference is used, cannot be declared invalid on the basis of a Hungarian act adopted in 2014. This act stipulates that the unfair term shall be replaced by a provision under which the official exchange rate of the Hungarian National Bank shall be applied, and otherwise, the agreement remains valid.
It is up to the Hungarian courts to develop a consistent and fair practice that complies with both European and Hungarian law; however, it is also possible that the Hungarian legislator will have to adopt new legislation in order to comply with EU laws.
By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm
