Polish banks could on Thursday be liable for billions of dollars in compensation payments following a ruling from the European Union’s (EU) top court.
The European Court of Justice’s (ECJ), ruling on unlawful clauses in foreign currency mortgage loans potentially empowers around half a million Polish borrowers to seek payouts from banks in local courts.
According to consumers, loan provisions allowed banks to unilaterally set the exchange rate for the foreign currency used in calculating monthly installments.
The ECJ ruled that, according to EU law, a foreign currency mortgage might be stripped of unlawful clauses and remained in place or be terminated effectively, depending on the preference of the client.
“Under the directive, a contract from which the unfair terms have been removed remains binding on the parties as regards the other terms that it contains.
“At the same time, domestic law needs to allow a contract stripped of abusive clauses to remain in place, which appears to be legally impossible under Polish law,“ the court said.
However, the issue would now need to be tackled by the local courts.
The court added that the unlawful provisions in mortgages cannot be replaced by the general provisions of EU law.
Foreign-currency mortgages, due to their lower interest rates, were a popular alternative to more pricey zloty-denominated loans in the mid-2000s.
However, the loans became a problem when the zloty depreciated in the aftermath of the financial crisis, inflating the value of monthly installments and total amounts due by mortgage borrowers.
According to market estimates, the cost of such a ruling for banks could run up to 60-80 billion zloty (or 15-20 billion dollars).
