Swiss franc (CHF) credit or loan agreements are loan agreements with currency clauses, meaning that the borrower takes out a loan in another currency and undertakes to repay it in that currency. In the run-up to the 2008 financial crisis, many consumers took out loans in a foreign currency – Swiss francs – because Slovenian banks offered Swiss franc-denominated loans as a more favourable option compared to euro-denominated loans. The low interest rate and the relatively stable exchange rate of the Swiss franc made these loans attractive to many Slovenian citizens.

In 2015, the Swiss central bank abruptly lifted the cap on the value of the franc against the euro, causing a sharp jump in the value of the Swiss currency. The currency change had the effect of increasing the consumer’s contractual obligation to the bank, with consumers starting to significantly overpay their contractual obligation under the credit agreement.

The question has arisen whether consumers were aware of all the risks of entering into a loan contract in a foreign currency at the time of conclusion of the loan contract and whether the banks fulfilled their duty to explain, since the change in the CHF currency led, inter alia, to a deterioration of the individual consumer’s financial situation. In recent years, the CJEU and the Supreme Court have issued several judgments departing from the transitional case law which was more favourable to banks. The following will explain the legal provisions and case law on the nullity of credit agreements in CHF and under which conditions a credit agreement is null and void and the consumer is entitled to reimbursement of the overpayment of the credit.

The aim of European consumer law, and thus also of Slovenian consumer law, is to create a real balance between the contracting parties by eliminating the imbalances created by unfair contractual terms in order to balance the weaker position of consumers.[1]

Council Directive 93/13/EEC provides in Article 3(1) that a contractual term which has not been individually agreed between the parties shall be considered unauthorised if, contrary to the requirement of good faith, it causes, to the detriment of the consumer, a significant imbalance in the contractual rights and obligations of the parties. Article 24(1) of the Consumer Protection Act (hereinafter ZVPot) provides that contract terms shall be considered unfair if:

• they result in a significant imbalance in the contractual rights and obligations of the parties to the detriment of the consumer, or
• cause performance of the contract to be unreasonably prejudicial to the consumer; or
• cause the performance of the contract to differ substantially from what the consumer reasonably expected; or
• are contrary to the principle of good faith and conscience.

 According to Article 23(2) of the ZVPot, a disputed contractual term which constitutes an essential element of a long-term foreign exchange credit agreement may be considered unfair and therefore void. An invalid contractual term which constitutes a key, essential element of the contract results in the nullity of the contract as a whole.

However, the duty to explain is crucial for the assessment of an unfair contract term. If it is not carried out with due professional care, the main object of the obligation becomes unclear and opaque, and the bank acts contrary to the principle of good faith and fair dealing (Article 24(1)(4), first indent, of the ZVPot).

According to the case law of the CJEU[2], the key purpose of pre-contractual information in foreign currency credit is for the financial institution to clearly inform the consumer of the possibility of significant negative financial consequences,including those that may be difficult for the consumer to bear, and that the consumer understands the actual risk to which he is exposed throughout the contractual period in the event of a significant depreciation of the currency in which he receives his income relative to the calculation currency. This includes specific explanations of the risks in the event of a significant fall in the value of the currency which is the official means of payment in the consumer’s country of residence and of the possibility of an increase in foreign interest rates. This means that consumers should be able to assess the economic consequences of the terms of the contract or agreement.

According to the case-law finalised by the Supreme Court, a bank does not fulfil its duty to explain the currency risk merely by including a currency clause in the contract. The key issue is whether the currency risk has been sufficiently explained to the borrower. The bank should therefore have presented what exchange rate fluctuations might actually occur, how the value of the monthly instalment will increase over time and what the approximate exchange rate between the domestic and foreign currencies might be. The bank must provide such information as would cause the average consumer not only to be aware in the abstract of the exchange rate fluctuations and the possibility of changes in the amount of the instalments of the credit, but also to be aware in the concrete of the actual consequences of a large depreciation of the domestic currency (and of the increase in foreign interest rates) on the amount of his credit obligations for the entire repayment period of the credit.[3] The Supreme Court has also clarified that the economic education of the customer is irrelevant for the assessment of the fulfilment of the duty to disclose.[4] “The duty to disclose is standardised and therefore objectified and a consumer, even if economically educated, is not in an informationally equivalent position to a bank which deals on a daily and systematic basis with monetary transactions and which possesses the accumulated knowledge of the many bankers, financiers and other banking experts who make up its staff structure. “[5]

In the event that the bank failed to comply with the above-mentioned duty to explain, this would constitute an unfairness of a contractual term and, consequently, the nullity of the contract at issue. However, a null and void credit agreement in Swiss francs has no legal effect and neither party has a claim for performance. Anyone who has performed an obligation under a void contract has therefore performed something which he was not obliged to perform and is therefore entitled to reclaim his performance by way of a claim of condication. This means that the bank must repay the amount overpaid under such a credit agreement. The nullity of a credit agreement in Swiss francs means that the agreement is considered null and void from the outset or null and void to the extent that it contains unfair terms.

Consumers who find themselves in a situation where banks have failed to comply with their duty to explain when concluding Swiss franc credit agreements can seek a declaration that the credit agreement is null and void, repayment of the overpayment and the termination of the lien securing the claim. Pending a final decision, the consumer also has the possibility of an interim injunction by which he can obtain a suspension of the payment of instalments under the credit agreement, pending a final decision by the court on his claim that the credit agreement itself is void.

[1] Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

[2] C-776/19 – C-782/19

[3] Decision RS Up-54/19, point 20

[4] SCCJ Judgment II Ips 32/2019

[5] SCCJ Judgment and Order II Ips 56/2023