PITEE asks EBRD to help bring about “fundamental change” in Hungarian legal culture

March 19, 2015

Orbán Viktor; Chakrabarti, Suma

Hungary suffers from the absence of democratic traditions, a stable and broadly acknowledged constitutional culture and the rule of law. The FX mortgage crisis is a chance to bring about fundamental change in Hungarian legal culture. – PITEE

A Budapest advocacy group calling itself the “Consumer Protection Association for Financial Services” (PITEE) informs the Budapest Beacon that it has sent a letter to the European Bank for Reconstruction and Development criticizing the memorandum of understanding signed between EBRD and the Hungarian government this year.

The letter, which is addressed to EBRD president Sir Suma Csakrabarti (pictured above on the left), claims the bank seeks to provide Hungarian banks with legal protection against additional costs in relation to the conversion of mortgages denominated in foreign currency into Hungarian forints, but that such a clause disregards the principle of separation of powers.

The letter, dated March 13, 2015, goes on to ask the bank’s president to help persuade Hungary’s government to “commit itself to ensuring the independence of the judiciary and the rule of law.”

We reproduce below the actual text of the letter:

Dear Sir Suma,

I am writing to you in relation to the EBRD’s intended involvement in the Hungarian Erste Bank. A draft of the memorandum of understanding was
published by the Hungarian Government a few weeks ago.

Please note that Section 1 b) of the draft MoU is a source of irritation for consumer protection lawyers. I would like to explain to you the reasons why, and I would like to ask you to get Hungary’s government to commit itself to ensuring the independence of the judiciary and the rule of law.

According to Section 1 b) of the draft MoU, the conversion of mortgages denominated in foreign currency into Hungarian forints should be done in such a way as to avoid imposing further costs related to exchange rate risks on the banking sector. In other words, the MoU between the EBRD and the Hungarian Government should provide Hungarian banks with legal protection against additional costs related to exchange rate risks.

Please note that this provision disregards the principle of separation of powers, because neither the Government nor Parliament has the competence to decide whether the consumers or the banks should bear the costs related to exchange rate risks.

Perhaps I am stating the obvious, but in stable democratic countries, where the independence of the judiciary is respected and court decisions are based on the rule of law, there is no room for the Government to intervene in private law matters with legislation. The question of
whether the banks or the consumers should bear the costs related to exchange rate risks is a matter of private law. Therefore, this question belongs to the competence of the courts. This is clearly stipulated in Art. 6 of the European Convention on Human Rights and in Art. 47 of the Charter of Fundamental Rights of the European Union.

You may be aware of the fact that approximately 12,000 lawsuits between banks and consumers have been stopped by laws recently passed by the Hungarian Parliament. Erste Bank is the defendant in a number of these lawsuits. All of these lawsuits were initiated by consumers because they believe they have convincing arguments to put the exchange rate risks on the shoulders of the banks. The Government is using a carrot and stick approach now to put an end to these lawsuits. The recently adopted laws contain various provisions which force consumers to abandon their claims and, by so doing, prohibit courts from delivering judgements in favour of the consumers.

We are not aware of any other European country which would impose laws with the direct intention of obstructing court proceedings and reducing the remit of the judiciary.

On 27 December 2014 we filed a complaint to the European Commission on the basis of Art. 258 of the Treaty on the Functioning of the European Union. We are asking the European Commission to open an infringement proceeding against Hungary if the recently enacted laws remain in force.

Additionally, we are supporting consumers who bring their cases to the European Court of Human Rights. If the Hungarian Government obstructs court proceedings and denies fair trials for consumers, then the costs related to exchange rate risks should be borne by the Government.

We agree with you that a sound banking sector is the basis for long-term sustainable economic growth. But we also believe that it is impossible to build a sound banking sector in a country where the Government disrespects European values and repeatedly interferes with private law matters.

We know that the purpose of the EBRD is to foster the transition towards open, market-oriented economies and to promote private and
entrepreneurial initiatives in Central and East European countries which are committed to and applying the principles of multiparty democracy, pluralism and market economics.

In view of the EBRD’s mission, we are asking you to use your influence to convince the Hungarian Government to stop interfering in private law
matters, to restore the proper administration of justice, to enable court cases to proceed and to grant consumers the right to turn to the
European Court of Human Rights if Hungarian courts reject their claims.

Hungary suffers from the absence of democratic traditions, a stable and broadly acknowledged constitutional culture and the rule of law. The FX mortgage crisis is a chance to bring about fundamental change in Hungarian legal culture.