Ruling of the Court of Justice of the European Union dated October 3, 2019, in case C-260/18 (Dziubak vs Raiffeisen Bank International AG)
On October 3, 2019, the Court of Justice of the European Union issued the ruling in the prejudicial mode regarding a mortgage linked to the Swiss franc granted by a Polish bank. The submitted prejudicial questions were to determine, among other things, if a generally applicable custom can be used where there is no provision in domestic law that could replace an abusive exchange rate clause. In accordance with CJEU’s ruling, the question of abusiveness will be decided by Polish courts. CJEU did not refer to this issue. In addition, CJEU did not make a clear-cut decision regarding the consequences of an exchange rate clause being considered abusive by a domestic court. However, the possibility of a credit agreement being performed further in PLN and with interest calculated according to LIBOR was found doubtful by the Court. If an exchange rate clause is found abusive, a domestic court must decide whether the agreement in question can be performed further or should be declared invalid, taking into account the client’s will and the consequences of invalidity for the client. CJEU approved the application of a disposable norm (in the bank’s opinion article 358 of the Polish Civil Code referring to the NBP fixing rate can be considered to be a disposable norm), if the invalidity of the agreement would be unfavourable for the client. CJEU rejected the application of general provisions referring to a custom or equity principles.
There are individual court proceedings initiated against mBank by its customers in connection with CHF loan agreements. Out of the individual proceedings, 2,902 proceedings with the total value of claims amounting to PLN 430.1 million related to indexation clauses in CHF loan agreements and include claims for declaring invalidity of the loan agreements in part (i.e. to the extent that the agreement contains contractual provisions related to indexation) or in whole. The final rulings to-date in the indexation clauses proceedings are favourable to the Bank in the majority of the cases.
As far as the legal proceedings relating to indexation clauses in mortgage and housing loans in CHF are concerned, in the opinion of the Management Board of the bank, the current state of judicial decisions is unstable and the line of verdicts is not consistent, hence it is extremely difficult to estimate the level of provisions for the legal risk associated with this portfolio of loans. The bank believes that currently observed market practice of implementing of portfolio approach towards creation of provisions for legal risk relating to such cases is to some extent the response to ongoing public debate and position of audit firms. These methodologies are burdened with numerous doubts and assumptions that reflect current court cases statistics and the level of understanding of extremely diversified judgments that cannot yet be interpreted as a shaping line of verdicts at this stage. In the opinion of the Management Board of the bank a large part of court judgments unfavourable to banks results from misunderstanding of the essence of banking activity, which is reflected in the content of justifications for judgments issued. They undermine the basic paradigms of banking activity and regulatory directives to which banks are subject, which can lead to a deep redefinition of banking activity and questioning the current understanding of such categories as loan and interest.
Detailed information concerning proceedings before a court, arbitration body or public administration authority are described in the Note 32 of the mBank S.A. Group IFRS Consolidated Financial Statements 2019. mBank Group’s approach to the calculation of legal risk provisions related to the indexation clauses in the CHF loans agreements is described in greater detail in Note 4 Major estimates and judgments made in connection with the application of accounting policy principles.
Real estate financing – Recommendation S of PFSA
On December 3, 2019, the Polish Financial Supervision Authority (PFSA) passed amendments to Recommendation S, a best-practice guideline for the management of mortgage-backed credit exposures. The amended recommendation sets out new principles for offering fixed rate or semi-fixed rate mortgages by banks and allows clients to change their existing floating rate loans into fixed rate (or semi-fixed rate) loans. In addition, the recommendation introduces a new “key for debt” option, under which a client who transfers the ownership of a real property financed by a bank loan to the bank has his/her debt cancelled by the lender. However, the new Recommendation S does not oblige banks to offer this new solution, but only sets out the best practice for its application. When launching a new product, in particular fixed rate (or semi-fixed rate) loans, banks are obliged to provide clients with full information about the product and the risk it carries as well as to sell the product to clients according to their needs and understanding. Commercial banks must comply with the amended Recommendation S by December 31, 2020.
Act on Amending the Act on Assistance to Home Loan Borrowers in a Difficult Financial Situation and Certain Other Acts
On July 4, 2019, the Sejm passed the Act on Assistance to Home Loan Borrowers in a Difficult Financial Situation, which entered into force on January 1, 2020. The new regulation modifies the eligibility criteria for borrowers, in particular, by raising the minimum income entitling borrowers to apply for assistance, increasing the monthly support from the Fund from PLN 1,500 to PLN 2,000, and extending the period of assistance from 18 to 36 months and the period of interest-free repayment from 8 to 12 years. In addition, the act provides for a partial cancellation of debts owed to the Fund, in particular, for borrowers who repay their instalments in a timely manner. Moreover, a borrower who sells a property financed by a bank loan may apply to the Borrower Support Fund for an interest-free loan when the proceeds from the sale are too low to cover the borrower’s debt in whole, on the terms and conditions applicable to borrowers applying for assistance in the repayment of credit instalments. The said regulations apply to borrowers who took out loans in the Polish złoty and in foreign currencies.
Ruling of the Court of Justice of the European Union dated September 11, 2019, in case C-383/18, announcement of the Polish Bank Association on starting work on amending the Consumer Credit Act, resolution of the Supreme Court dated December 12, 2019
In its judgement of September 11, 2019, the Court of Justice of the European Union ruled that Article 16 (1) of Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers and repealing Council Directive 87/102/EEC must be interpreted as meaning that the right of the consumer to a reduction in the total cost of a credit in the event of early repayment of the credit includes all the costs imposed on the consumer. The CJEU ruling, its consequences, and their implications are currently subject to economic and legal analyses. Detailed information about actions taken by mBank to comply with the ruling is provided in Note 4 to the mBank S.A. Group IFRS Consolidated Financial Statements 2019.
Act of August 30, 2019, on Amending the Bankruptcy Act and Certain Other Acts
The purpose of amendments to the Bankruptcy Act passed in 2019 is to simplify and facilitate the consumer bankruptcy process. The amended regulations apply to consumers unable to repay their debts. They serve to write off the debts of insolvent debtors and help creditors recover (collect) their receivables. Most of the new regulations will enter into force on March 24, 2020. The potential consequences of their introduction include a rising number of consumers declaring bankruptcy and new restrictions on debt collection under bankruptcy proceedings that may be imposed on banks.