Can the borrower win against the bank by repaying the loan in full in the indexation currency?

It turns out that it can, and below is an argumentation as to why this is the case!

To better understand the situation described, it is best to imagine that the Borrower has a CHF-indexed Loan Agreement, concluded with the Bank in 2011. The Agreement assumes that the Borrower will repay the balance of the loan in CHF, as determined by the Bank using the currency purchase rate set out in its Exchange Rate Table. The Agreement assumes that the currency of repayment is CHF. The above provisions result in the Borrower repaying the loan in CHF from the beginning of the Agreement.

The above scheme often raises the question whether the Borrower, paying the loan directly in CHF, has any arguments at all to seek legal protection in court?

It would seem that since the Bank is not free to shape the currency selling rate in the Exchange Rate Table, and indeed the example Agreement does not refer to the currency selling rate at all, since the loan is repaid directly in CHF, the content of the Agreement cannot be challenged. Also against undermining the content of the Agreement is the compliance of the Agreement with the content of the anti-spread law and the Bank’s argument that repayment of the loan directly in CHF eliminates the currency spread and thus the Borrower does not bear the exchange rate risk.

Do the above arguments mean that the Agreement cannot be considered invalid?

In answering this question, it should be noted that the anti-spread law does not ‘repair’ unfair contractual terms. The fact that the Loan Agreement provides, in accordance with the anti-spread law, for repayment of the loan in CHF does not render the Agreement valid. The possibility of repaying the loan in CHF only means that the Borrower minimises the costs of servicing the loan. It should also be noted that the indexation of the loan and the possibility of repaying the loan directly in the indexation currency does not eliminate the exchange rate risk. The need to exchange currency confirms that exchange rate risk exists, except that the beneficiary of the currency exchange is not the Bank, but another entity. An indexed loan agreement is not a foreign currency loan agreement, but is denominated in GBP. This means that exchange rate risk is inherent in the agreement, regardless of where the Borrower purchases Swiss francs. Therefore, regardless of who benefits from the currency exchange (spread), it is the Borrower who bears the exchange rate risk, about which the Bank should inform the Borrower in an appropriate manner. It should be remembered that the mere fact that the Borrower signs the form declaring awareness of the exchange rate risk does not constitute proper information of the Borrower about the exchange rate risk.

Secondly, in the case described in the introduction, the focus should be more on understanding the nature of the loan agreement rather than on the loan repayment procedure itself. Understanding what a CHF-indexed loan is shows that the possibility of repaying the loan directly in the currency does not significantly affect the legal validity of the Agreement.

It should be recalled that a CHF-indexed loan agreement consists in determining the loan balance and then the amount of loan instalments in CHF. In the situation described, in order to determine the loan balance in CHF, the Bank needs to determine the currency purchase rate. However, the agreement does not indicate an objective mechanism for determining the currency purchase rate. The borrower is not able to determine the purchase rate and thus the loan balance on its own. Without a fixed loan balance, it is impossible to determine the interest and, therefore, the amount of the loan instalments. The above shows that it is the determination of the loan amount in CHF that is crucial for the validity of the indexed loan agreement described, and not the possibility of repaying the loan in the index currency. It should be reiterated that in order to be able to repay the loan in the indexation currency, it is first necessary to correctly determine the loan balance and then the amount of individual instalments. Only after these elements have been determined can the loan be repaid. With reference to the above, I would like to point out that it is already an established view that:

Thus, leaving the Bank free to determine the balance of the loan in CHF is an illicit provision. By eliminating the prohibited provision concerning the currency purchase rate from the Agreement, the Agreement cannot be executed. Without the determination of the loan balance, it is also impossible to subsequently determine the amount of interest and thus the loan instalments.

It should be noted that the court cannot, in place of the gap created, apply the provision of Article 358 § 2 of the Civil Code, i.e. establish that the balance of the loan in CHF will be determined using the average exchange rate of the National Bank of Poland. This cannot be done because the provision of Article 358 § 2 of the Civil Code is not a dispositive provision that would allow such a procedure. In addition, the provision of Article 358 § 2 of the Civil Code does not regulate the situation in which conversion of the amount of the obligation from PLN into a foreign currency takes place, but it regulates the possibility to determine the exchange rate of the foreign currency in the case of performance of a service in PLN. After all, a CHF-indexed credit agreement assumes the conversion of the credit amount expressed in the agreement in PLN into the CHF currency. The provision of Article 358 § 2 of the Civil Code cannot therefore apply here. Finally, the dispositive provision can only be applied if the Borrower would be grossly disadvantaged by the invalidity of the Agreement. However, it should be noted that if the Consumer declares that even in such a situation he accepts the invalidity of the Agreement, the national court should annul the Agreement and not fill in the gaps in the Agreement with a dispositive provision.

The above shows that a contractual mechanism for repayment of a loan indexed to CHF, providing for repayment of that loan in CHF, does not render such an Agreement valid. It should also be recalled that the above-mentioned Agreement may be invalid not only due to the elimination of prohibited provisions from it. The Agreement may also be invalid due to the fact that it lacks unambiguous criteria for determining the currency purchase rate. Without these criteria, the Bank gained the right to shape the amount of the Borrower’s obligation at will, and this can be seen as shaping the legal relationship in a manner contrary to the nature of the legal relationship. The court in this situation may declare this Agreement invalid even before the individual control of the contractual template.

Author: Mateusz Kołodziejak, advocate