The Ministry of Justice has submitted a bill on fair banking in the recent days. They aim to stricken the conditions of providing loans for consumers by financial institutions. The loan and financial lease agreements concluded by and between consumers and financial institutions are under the scope of the bill.
The Hungarian legislators implied the current EU directives concerning the loan agreements concluded by and between consumers and financial institutions in its Act CLXII of 2009 (hereinafter called as Fhtv.). Significant changes occurred in the judicial application (foreign currency loans, stricter requirement for such loans) since it came into effect, therefore it was more than required to catch up with the current situations and modify it.
In compliance with the new Ptk. regulations, the bill stipulates that and stricken the financial institutions’ obligation of providing information for consumers. As a result, the financial institution shall provide a full range of information on the loan selected by the consumer and the other similar loans, and shall provide a sample for loans on their websites. The conditions of providing detailed information will be specified in a separate decree of the Ministry of Economics.
According to the bill, financial institutions may modify unilaterally only the interest, the interest surcharge, the costs and the fees. Other conditions may not be modified unilaterally disadvantageously for the consumer. The unilateral modification right of the financial institution shall be explicit. The condition is invalid if does not comply with the conditions of unilateral modification.
Unilateral modification will be bound by the duration for the loan agreement. Different rules will apply to agreements with a 3-year- duration and different ones to agreements with more than 3 year duration.
The bill differentiates between fix-interest and changing-interest loan agreements concerning loans with duration of less than 3 years. In case of a fix-interest loan the interest shall not be modified. On the other hand, in case of a reference-rate loan, the reference-rate may change- as it is regarded as an automatic change and not a unilateral one -, but the base-rate/margin shall not change.
The bill also differentiates in case of loans with duration over 3 years. In case of reference-rate loans, the reference-rate and the base-rate may also change. The base-rate may only change in 3 years interest-periods. An index shall be applied to indicate the change in the base-rate and the financial institution shall inform the consumer about it prior to concluding the loan agreement. The interest in loan agreements with changing-interest shall be modified in 3 years interest periods as well.
A maximum number of five modifications are set by the bill under the entire duration of the concluded loans regarding the modification of interest-rate and base-rate.
The creditor may modify only the explicitly specified costs in the loans. The modification shall be proportionate to the increase of the cost. Fees may be modified according to the harmonised index of consumer prices (HICP) set by the Hungarian Statistic Agency (KSH). Costs and fees may be modified annually till 1st April.
The bill also sets limitations to the maximum extent of the default charges in case of late-performance on the consumer’s side.
The consumer is entitled to terminate the contract free of charge and all costs if the interest or the base-interest changes disadvantageously for him after the interest period.
The consumer is entitled to prepayment under the interest period, if he reimburses its costs for the financial institution. The extent of the reimbursement is specified by the 2008/48/EC directive.
The bill sets the partial invalidity as the general rule, as full invalidity constitutes in a disadvantageous situation for the consumer. According to this, if the lack of legally required conditions does not affect the validity of the contract then the creditor financial institution shall reimburse the consumer’s damage according to the liability for any loss caused by non-performance.
Certain provisions of the bill shall apply for the surety and for the lien holder as well, since the status of the surety is normally worse than the debtor’s. Therefore the creditor shall provide adequate information for the surety and for the lien holder prior to concluding the suretyship or lien. The surety and the lien holder are also entitled to prepayment of the loan.
The bill grants the right with the approval of the MNB for the interest-representation bodies of the financial institutions to apply sample business policies, in order to - by initiating the banks to provide and apply same business policies and general contractual terms similarly to the German and Austrian practice - ease the consumer’s situation by enabling them to assess the general contractual terms in the market.
According to the bill financial lease agreements concluded by a consumer and financial institution are regarded as loans and are still under the scope of the bill. The legislator does not intend to make a change in its term or in the consumer’s term. On the other hand, with regard to the recent legislation practice we cannot say for sure that this may not change in the foreseeable future and every loan agreement– including financial lease – will come under the scope of the bill and other relevant legal regulations, thus protecting not only the consumers but all representatives of the business market.