The EU consumer protection framework extends beyond contract performance
EU law safeguards consumers not only during the execution of a contract but also afterwards. In a case concerning a loan issued in Swiss francs, the Court of Justice of the European Union clarified that when a contract is annulled because one term is unfair, the situation from which the contract diverged must be restored. This decision highlights how EU rules influence both the outcome of litigation and the way national courts arrange the consequences of a contract ending.
Over several years, a mortgage loan indexed to the Swiss franc was in effect. Consumers argued that the lender could freely set the exchange rate for the indexation currency, a power that could render some terms unfair under Article 3(1) of Directive 93/13/EEC. They pursued legal action on that basis.
The core claim from consumers was that once the indexation clause is removed, the installment should be calculated in non indexed terms and the loan treated as if originally issued in Polish currency, with interest tied to a standard index such as LIBOR. They did not oppose dissolving the contract, but sought a fair adjustment in the wake of an unfavorable clause.
Procedural questions in the consumer case
Initial judicial steps in Poland focused on deeming the indexation provisions illegal while considering whether the contract could still function once those provisions were stripped out. The court explored whether the contract should be declared void and whether both parties should return benefits obtained under the agreement.
When consumers brought their lawsuit, they faced limited savings, prompting the Polish court to seek guidance from the European Court on two main points. First, should the consequences of annulment be assessed solely under national law to avoid Directive 93/13, and second, should consumers be compelled to independently verify whether ending the contract would impose particularly harsh losses if they favored termination? A further question asked whether a term that is unfair could be replaced with a broadly applicable legal provision that might not apply directly to the specific contract but could be applied by analogy.
The CJEU response reaffirmed that EU protection for consumers under Directive 93/13 extends beyond the performance period and remains relevant after it. The Court stated that when a contract is annulled for an unfair term, national laws may regulate the consequences, so long as EU rules are respected.
Crucially the ruling emphasized restoring the legal and factual position that would have existed had the abusive clause never been in place. This restoration is central to preserving the protective aim of the directive. The Court explicitly cautioned against applying national provisions that would distribute losses evenly between the parties, as such an approach would blunt the directive’s protective effect for consumers and could permit creditors to reuse unfair terms in future deals.
The Court also highlighted that the EU protection system functions only if the consumer does not object to the terms. A consumer cannot simply claim a term is unfair yet simultaneously consent to the term and accept termination decisions that follow. The national court, to enable genuine consent, must clearly explain the legal consequences of removing an unfair term. This includes considerations whether representation by a professional is involved, and it must cover the possibility that eliminating an unfair term could lead to the annulment of the entire contract with potential refunds owed.
In sum, the national court is charged with implementing measures that shield the consumer from particularly harmful outcomes arising from contract termination, all within the framework of national law and EU rules. The Court thus underscored the need for robust protections in the process of removing unfair terms.
Further commentary linked to the case referenced ongoing debates in Poland around Frankowicz entities and the broader implications for loan agreements with unfair terms.
These developments reflect a broader pattern of EU jurisprudence that aims to balance the rights of consumers with the realities of financial contracts governed by multiple national laws. The decision reinforces that once a contract is tainted by an unfair term, the path to resolution must consider the actual economic position of the consumer and the legitimate interests of both sides, while upholding EU standards for fairness and transparency.