Ms. Ginestri, welcome to REWI Uni Graz, it is great to have you with us! Out of curiosity, how did you come across our Fellowship program and why did you apply?
First of all, it is a great pleasure to be part of this program, and I hope to make the most of it, knowing it will be an unforgettable experience. I was fortunate to meet Professor Walter Doralt during his lectures at Bocconi University, where he teaches as a visiting professor. During a seminar organized with other PhD students at Bocconi University, I had the opportunity to discuss my research project with him, and he encouraged me to take part in this program. My strong interest in comparative law leads me to believe that the academic environment at the University of Graz will provide a stimulating and enriching perspective for my studies. Engaging with internationally acclaimed faculty and collaborating with other dedicated researchers offers a unique chance for both professional and personal development.
Your PhD thesis concerns the concept of unfairness of contract terms, especially in the field of foreign currency loans. Could you outline the special legal problematics that arise in this area?
Unfair terms in foreign currency loans represent a stimulating test bench to evaluate the type and extent of protection that should be provided to consumers within business-to-consumer contracts. In this regard, aside from the clear issue of determining whether a clause can be deemed genuinely unfair under Article 3 of Directive 93/13/EEC, it is equally interesting to explore whether and to what extent it allows for the supplementation of the contract after removing the unfair term or permits the “amendment” of such terms within the limits of fairness.
This analysis necessitates addressing further questions such as (i) contractual supplementation through dispositive rules; (ii) the use of sanctioning techniques by the European legal system, and (iii) the consumer’s arbitrary choice of the appropriate remedy for unfair terms.
In conclusion, assuming that the contract is declared null and void in its entirety due to the presence of unfair clauses, it will be extremely important to verify whether or not performances rendered by the contracting parties shall be returned by the recipient to the payer, respectively. In particular, it is unclear whether, on one side, the borrower is obliged not only to return the capital but also to make an allowance for the usage of it; and whether, on the other side, the bank is bound not only to give back the instalments collected but also to make an allowance for the usage of them, besides covering any expenses incurred by the borrower.
What is your opinion on government interventions in the area of foreign currency loans like the ones we know here in Austria since the global financial crisis in 2008 (since then, according to the Austrian control authority FMA, the volume of foreign currency loans in Austria fell by EUR 42.68 billion or 88.9%)?
Even before the global financial crisis of 2008, particularly between 2004 and 2007, many countries, especially those in the non-euro area with floating exchange rate regimes, implemented strategies to raise the costs for banks offering foreign currency loans in the hope of decreasing their aggregate share in banks’ portfolios.
These measures marked the initial signs of a growing concern about foreign currency loans, which culminated in the European Systemic Risk Board’s (ESRB) recommendation on foreign currency lending issued on September 21, 2011. The ESRB highlighted the systemic risk posed by foreign currency loans to the European banking sector. Specifically, the ESRB recognized that, first, “foreign currency lending to unhedged borrowers has increased in a number of Union Member States” and that, second, “excessive foreign currency lending may produce significant systemic risks for those Member States and may create conditions for negative cross-border spillover effects”. Similarly, in 2011 the Hungarian Financial Supervisory Authority expressed concerns and advised Hungarian banks to swap CHF-denominated loans for euro-denominated loans to reduce systemic risk. Notably, new foreign currency lending to non-banks has been practically banned in Hungary since the summer of 2010. The European Bank for Reconstruction and Development also categorized foreign currency lending as a “key vulnerability” and thus worked on a major initiative in 2010 to flourish domestic currency and capital markets and to diminish unhedged foreign currency loans.
The need for such measures is evident. Foreign currency loans concealed a quid pro quo, consisting of the accumulation of a financial risk related to the fluctuations between the domestic and foreign currencies. More specifically, the particular riskiness of these loans originates in a dense intertwining of default risk and exchange rate risk, with exposure to these risks potentially leading to systemic problems in both cases of currency appreciation and depreciation.
If you were to take out a foreign currency loan, which (potentially) unfair contract terms would you look for and try to strike from the contract first and foremost?
In the context of foreign currency loans, it is necessary to make a distinction between loans denominated in a foreign currency and loans indexed to a foreign currency. While, in the first case, the value of the loan is expressed in foreign currency, but the disbursement and repayments of the capital are in domestic currency according to the exchange rate applied by the bank. In the second case, the parties agree that a loan denominated in the domestic currency (money of contract) shall be repaid in the same currency (money of payment), but for the amount needed to purchase the sum due in the foreign currency. It is precisely in the mechanism of denomination/indexation embedded in these contracts that the risk of unfairness resides. In fact, most of those foreign currency loans analysed by the CJEU provided that the calculation of the monthly instalments had to take place based on the selling rate of the foreign currency applied by the bank, while the amount of the loan disbursed was fixed based on the buying rate applied by the bank for the same currency. Therefore, the way in which exchange rates were determined concealed inherently the possibility for the bank to profit unilaterally from market fluctuations, charging any fluctuations due to the appreciation of the foreign currency against the domestic currency to the borrower and resulting in unfairness.