The European Court of Justice limits the manoeuvring room for borrowers of foreign currency loans
On 3 December 2015 the preliminary ruling of the European Court of Justice (“ECJ”) was issued in response to the question whether transactions made by a credit institution, consisting in the exchange of amounts denominated in a foreign currency into national currency, in order to calculate the amounts of the loan and the repayment in accordance with the provisions of a loan agreement concerning exchange rates may be classified as a financial instrument within the meaning of the Markets in Financial Instruments Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 (“MiFID”).
The proposal was presented to the Court in a dispute between a bank and borrowers concerning a consumer loan agreement denominated in a foreign currency. According to the borrowers, the loan agreement, in so far as it contains provisions on exchange rates resulting in the transfer of foreign exchange risk onto borrowers constituted the provision of an investment service by the bank. The adoption of the borrowers’ standpoint would result in the bank being required under the MiFID to, among others, fulfil disclosure obligations relating to the risks, including assessing the suitability or appropriateness of the service provided.
In its judgment the Court held, however, that the exchange transactions involving the determination of the amount of a loan based on the currency purchase rate applicable upon the release of the funds and the determination of instalments based on the selling rate of that currency, applicable to the calculation of each instalment, do not constitute an “investment service” within the meaning of the MiFID.
First of all, the Court stated that the exchange transactions specified in the loan agreement, which are only supplementary to the granting and repayment of the consumer loan denominated in a foreign currency, are not covered by the material scope of the MiFID. The Court also noted that the only function of such transactions is the lender’s provision of capital and the borrower’s repayment of the capital along with interest. However, the performance of any investment project is not its function, because the consumer’s intention is to obtain funds for the purchase of consumer goods only, and not to manage the foreign exchange risk, or speculate on currency exchange rates.
This judgment is of practical importance for Polish borrowers of loans denominated in foreign currencies (including the so-called “Frankowicz”). It means that these borrowers will not be able to claim that the loans that have been granted to them in fact constitute a financial instrument and are subject to additional regulations of the MiFID, which include certain disclosure obligations of the bank.
