Act Restricts Unilateral Amendments by Banks

Act Restricts Unilateral Amendments by Banks

Contributed by Gárdos, Füredi, Mosonyi, Tomori

October 09 2009

Introduction
Amendments
Banks' Obligations
Right to Rescind Agreement

Introduction
Parliament has adopted a bill that amends Hungary's banking legislation by restricting banks' rights unilaterally to amend or modify consumer loan agreements and allowing customers to rescind such agreements without charge.

One of the consequences of the onset of the credit crisis was that some banks in Hungary began to exploit their right (under their general terms) to amend certain elements of their contracts more frequently - a practice that prompted severe public criticism. Parliament responded by passing the Act on the Amendment of Certain Issues Regarding the Supervision of the Financial Intermediary System (13/2009), which included amendments to the Act on Credit Institutions and Financial Enterprises (112/1996), among others. The new provisions came into effect on August 1 2009. This update focuses on the changes regarding rules on consumer loans and their unilateral amendment by banks.

Amendments
The act deals separately with loan and financial lease agreements and with other agreements concluded between banks and consumers or micro-enterprises. As a rule, a loan agreement may not be amended by introducing new fees or costs or by changing the calculation or amount of fees. In the case of a consumer or retail loan agreement, the terms and conditions that may lead to the modification of fees must be expressly defined; otherwise, the contract is deemed null and void.

A bank may not make unilateral amendments to loan or financial lease agreements in respect of interest, fees or costs to its client's disadvantage, unless the terms of the agreement allow for such amendments in the event of a change in the underlying circumstances. A change in one condition may not lead to the amendment of more than one item (ie, interest, fee or cost).
The act introduces the principle of symmetry, whereby financial institutions must modify the terms of contracts in favour of their clients in the event of an advantageous change to the factors on which the interest rates and fees depend.

A bank may not amend other agreements unilaterally and to its client's disadvantage in respect of interest, fees or costs unless the conditions and circumstances of the contract specifically allow for such a modification. The onus is on the bank to prove that the contract allows for such an amendment.

Banks' Obligations
In general, a unilateral and adverse amendment to a loan agreement in respect of interest, (1) fees or costs must be publicly announced 60 days before it takes effect. Clients affected by the amendment must be notified in person, by post or as otherwise specified in the agreement. If the bank provides online services to its clients, details of the amendments must also be made available in this way.
Unilateral and adverse amendments to other agreements regarding interest, fees or costs must be publicly announced 15 days before they take effect.

Right to Rescind Agreement
In the event of such an amendment to a loan or leasing agreement, consumers or micro-enterprises are entitled to rescind the agreement without further cost. However, if such an agreement is covered by a mortgage bond, the bank has the right to pass on the costs incurred in terminating the mortgage bond.

For further information on this topic please contact István Gárdos or Gabriella Gubik at Gárdos, Füredi, Mosonyi, Tomori by telephone (+36 1 327 7560), fax (+36 1 327 7561) or email (gardos.istvan@gfmt.hu or gubik.gabriella@gfmt.hu).

Endnotes
(1) Except for the modification of interest where the rate is linked to the reference rate.

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