LUXEMBOURG (CN) – Courts in the European Union can adjust contracts such as mortgage loans that are unfair to consumers if they violate national laws, even if they don’t violate EU rules, an adviser to Europe’s highest court said Thursday.
However, changes can only be made if the contract can’t be maintained after the offending clause is removed, if canceling the contract would harm the consumer and if there is no provision for substitution, Advocate General Juliane Kokott wrote in her nonbinding advisory opinion for the European Court of Justice.
Thursday’s opinion for the Luxembourg-based court came down despite a nationwide shut down of businesses and other entities in an effort to stem the spread of the coronavirus known as COVID-19. All court staff are currently working from home, but the writing and distribution of rulings can be done remotely, a court official said.
In 2006, two people identified by the court only as N.G. and O.H. obtained a mortgage worth 90,000 Romanian leu ($20,8000) from Volksbank România, which was later taken over by Banca Transilvania. When they refinanced that mortgage two years later, the loan was denominated in Swiss francs.
As the pair were repaying the loan in Romanian leu, they were beholden to currency fluctuations. Between 2008 and 2017, the leu fell in value dramatically against the Swiss franc, leaving N.G. and O.H. with a much larger debt. After extensive correspondence with the bank, they eventually brought a complaint before Romania’s Special Tribunal Cluj, arguing that the bank did not properly inform them of the risks of the loan.
The tribunal disagreed, finding the terms of the contract are “drafted in plain, intelligible language so that any consumer could have foreseen that they might be exposed to the risk of fluctuations in the exchange rate.”
N.G. and O.H appealed and the tribunal found that Romania case law was unclear, so they referred the case to the EU’s highest court.
The question before the Court of Justice is not about whether mortgages can be denominated in foreign currencies, but whether courts in EU member states can alter such contracts if they find they violate national law, without violating EU regulations.
Kokott wrote in her advisory opinion that an EU directive on unfair consumer contracts “must be interpreted as meaning that a national court is not prevented from removing an unfair term and substituting it with a supplementary rule that replaces the formal balance between the rights and obligations of the parties with an effective balance which reestablishes equality between them.”
Though not required, rulings from the Court of Justice often follow the same legal reasoning as advisory opinions. The Luxembourg-based court has begun its deliberations in the case and a ruling is expected later this year.