Author: László Gárdai, infovilag.hu
After more than a decade and a half of legal, economic, and social turmoil, a recent ruling by the Court of Justice of the European Union may bring closure—and new hope—for foreign currency mortgage holders. According to the decision, if borrowers were not properly informed about exchange rate risks, their contracts may be deemed invalid. This ruling could radically reshape the legal interpretation of foreign currency lending in Hungary. The article reviews the origins of the crisis, the responsible parties, and the potential implications of the latest developments.
The foreign currency loan trap made life miserable for hundreds of thousands of Hungarians. Now, 15–17 years later, there’s a faint hope for compensation—though the outcome remains uncertain. The following summary recounts the key events so far.
The Birth of the Problem
At the dawn of the 2000s, nearly every possible mistake was made in introducing foreign currency-based lending. The boom in Swiss franc–denominated loans began after 2002, when state-subsidized forint-based housing loans were gradually phased out. Between 2003 and 2005, left-wing governments drastically reduced these subsidies, paving the way for foreign currency loans. Beyond misguided government policy, regulatory negligence also played a role.
Even the Banking Association misled consumers by stating on its website that exchange rate risks wouldn’t cause serious losses for borrowers. A study by the ECONOMUS Economic Research Foundation later found that excessive competition among banks contributed significantly to the crisis.
The Hungarian National Bank’s leadership also made repeated errors during this period. Not only did it fail to stop the trend—it indirectly encouraged it. Between 2000 and 2008, Hungary’s household debt increased more than twelvefold. The number and value of new housing loans soared, peaking in 2008.
To maintain consumption, Hungarians took out foreign currency loans not only for housing but also for general-purpose spending. Between 2005 and 2008, household borrowing rose by 125%, while the share of foreign currency loans grew from 29% to 70%. Free-purpose mortgage loans—among the riskiest instruments—became widespread, exceeding 2 trillion forints by 2008. Officials and financial experts alike underestimated the enormous risks of foreign currency lending. The low interest rates abroad made these loans appear more attractive than forint loans, hiding their dangers from inexperienced borrowers. By 2004, 80–90% of all new loans were already foreign currency-based.
The Turning Point
This year brought a shift. After many lawsuits, the European Court of Justice ruled in a case concerning a 2007 Swiss franc–based car leasing contract that the agreement was invalid due to insufficient information about exchange rate risk. Borrowers are entitled to reclaim all payments and fees. However, lawyers say the ruling primarily affects future cases, not past ones. Borrowers with ongoing repayments might consider legal action only if they can prove inadequate disclosure.
Though some estimate there were around three million such contracts, the ruling may directly affect only a small number. Opinions on its scope vary widely.
Diverging Legal Interpretations
According to attorney László Marczingós, who won the case before the EU Court, the decision fundamentally rewrites previous interpretations—arguing that all foreign currency loan contracts are invalid. The EU Court stated that an “unfair contractual term must be considered as never having existed,” meaning it cannot have legal effect for consumers. This could reopen many cases and force a review of all domestic rulings.
Lawyer and former judge Péter Szepesházi agreed, claiming that “practically every foreign currency–based contract in Hungary is invalid” due to the dual exchange rate clause. He hopes Hungarian judges will increasingly deviate from the Supreme Court’s guidance.
Economist and professor Péter Róna, who labeled these loans as “defective products” two decades ago, said the Court has now confirmed this view—arguing that exchange rate risk cannot be shifted onto consumers.
Financial analyst István Palkó (Portfolio.hu) offered a more cautious take: the ruling highlights when contracts may be invalid due to unfair terms, but each case must be judged individually. Most contracts, he said, did warn of exchange rate risks.
Political and Institutional Reactions
Economy Minister Márton Nagy noted that even closed cases could be retried, though this depends on court decisions. The key question, he said, is whether banks properly informed borrowers of risks.
The Hungarian National Bank declined to comment but said it respects and monitors the ruling. The Justice Ministry blamed former Socialist governments (Gyurcsány and Bajnai) for pushing risky loans onto families by removing safer, state-backed programs.
Opposition parties have weighed in too: the Democratic Coalition proposed a compensation law based on original exchange rates, while independent MPs Ákos Hadházy and András Jámbor urged suspension of all ongoing cases.
Expert Reflections and Historical Context
Former central bank president György Surányi called the original sin of foreign currency lending the fault of the Járai-led National Bank. He recalled opposing speculative capital inflows and advocating restrictions on foreign currency loans for those without matching income. As forint interest rates rose, foreign currency borrowing became more attractive—creating a dangerous illusion of “free lunch.” For several years, borrowers even felt they were winning, as repayments shrank in forint terms—until the exchange rate turned.
Surányi noted that the Orbán government’s 2001 housing subsidy program was flawed and triggered a cycle of policy reversals. When later suspended, the gap between forint and foreign rates widened dramatically, and loans denominated in Swiss francs—whose value nearly doubled—became a ticking time bomb.
He argued that banks should have limited loans to euros and that consumer protection should have banned unilateral contracts. Borrowers, too, bore some responsibility, often taking multiple loans without factoring in possible payment increases.
Ultimately, Surányi warned that fully reversing these contracts today would be “almost absurd” and could devastate Hungary’s banking system—potentially worse than the 2008–2009 financial crisis.
Legal Limits
Law professor Zoltán Bodnár stressed that the EU Court ruling applies only to the 2007 Swiss franc car leasing case and does not retroactively invalidate all foreign currency loans. Finalized cases remain closed, and each borrower must prove in court that they received inadequate risk information.
Since most loans were converted to forints in 2015, the exchange rate risk no longer exists, meaning few borrowers have standing to sue.
Disclaimer:
This article was produced with the financial support of the European Union. The views and opinions expressed are those of the author(s) and do not necessarily reflect the official position of the European Union or the European Education and Culture Executive Agency (EACEA). Neither the European Union nor the EACEA can be held responsible for them.
