Zoltan Laszlo Kiss, Jelena Pavlović, Goran Aleksić, Patricia Suárez

Slovenia: State Council announces consumer protection by law

Posted on 05/05/2019 · Posted in News, Slovenia

Press release of Združenje Frank

At its 17th regular session on April 10, 2019, the National Council of the Republic of Slovenia discussed, inter alia, the conclusions of the international conference “A European perspective on the systemic solutions to the problem of loans in Swiss francs“, held on March 4, 2019, in a joint organization of the National Council and Association Združenje Frank.

The key aim of the conference was to inform the Slovenian public and the politics of the systemic nature of this issue, the possible consequences for the budget of the Republic of Slovenia, in case that the decisions on possible violations of the European Convention for the Protection of Human Rights and Fundamental Freedoms were put upon the European Court of Human Rights and to give an overview of the solutions to this problem in other European countries.

The conclusions of the international conference, the content of which was previously coordinated with the Association Združenje Frank as the initiator and coorganizer of the conference, was discussed on April 3, 2019 by the Commission of the National Council for Economic Affairs, Crafts, Tourism and Finance. The Commission fully endorsed the conclusions of the conference and proposed the same to the State Council.

At the 17th session of the National Council, the Commission proposal was presented to the state councillors by the President of the National Council of the Republic of Slovenia, Mr. Alojz Kovšca.
In the presentation, Mr. Kovšca emphasized the immediate need for appropriate and effective mechanisms for protection of the consumers and the willingness of the National Council of the Republic of Slovenia to work with the Association Združenje Frank Association on the preparation of the legislative initiative.

He repeated the claim that, due to the aggressive marketing of the loans in question in Slovenia, it can be reasonably assumed the banks were well aware of the historical cases and consequences of the foreign currency loans for the households. Again, the fact was exposed, that the issue of loan agreements, nominated in Swiss francs, was created as a systemic problem, and it is therefore only appropriate to be solved at a system level. The other fact is that the customer in relation to the bank represents a layman, and because of the information asymmetry, the bank is obliged to acquaint the borrower with all the relevant information on the essential characteristics of the loan, which has been pointed out also by the Court of Justice of the European Union in its decisions.

The examples presented at the conference and the documentation collected by the various European associations of the CHF loans borrowers and the Slovenian Consumer Association confirm that the banks did not properly fulfil their explanatory duties, and they did not take into account the forecasts and expectations of the domestic and global institutions regarding the appreciation of the Swiss franc. Namely the banks had the available simulations, which were not provided to customers. These simulations have shown that even relatively small and slow, only a few percent appreciation of the Swiss franc against the euro at the annual level, leads to significant negative effects of the accepted risk over the longer period of time. In Slovenian legal proceedings banks have so far failed to provide documentary evidence of the explanatory duty fulfilment.

It was also reiterated that, at the time of the issue of disputed loans in the Southern, Central and Eastern Europe, banks had access to warnings from
international organizations and forecasts by financial institutions of the expected appreciation of the Swiss franc. According to some forecasts (Bloomberg Forecast 2006), the value of the Swiss franc against Euro could have doubled by over the two decades. When borrowing the loans consumers were not informed about longterm Swiss franc forecasts, which raises doubts about the fair business practice of the banks as it seems that they took advantage of a narrow time scissors or the short period when the value of the Swiss franc was at a historically low level and the interest rate lower than the euro´s. Loans were marketed in an aggressive way
with ads that were unilaterally exposing only the advantages of a foreign currency loan (“A CHF loan is cheaper, so you can afford a more spacious home”) and openly misleading (“Lean on a foreign currency”).
Similarly, banks did not take into account the warnings of the national regulators regarding exchange rate risks and did not reduce or suspend controversial offering of the foreign currency loans.

Združenje Frank, the Consumers’ Association of Slovenia and consumer associations in other countries have collected extensive documentation on warnings received by financial institutions from supervisory and regulatory institutions. None of this key information was transferred to the customers.
For example, in Austria the central bank (OeBN) and the Financial Market Agency (FMA) have warned banks from the year 2000 onwards, and in 2006, when it became clear that the banks did not fulfil the explanatory duties, issued a brochure for consumers. Foreign currency loan contracts were considered unfit for mass sales. At the same time, the Polish regulatory authority issued recommendations in which banks were expected to increase the creditworthiness criterion, considering the 20% of the domestic currency depreciation and foreign interest rates growth to
a domestic level, and informing the borrowers about the currency rate risks in a form of scenario that includes at least a 20% of the domestic currency depreciation.
Slovenian regulator remained passive and reacted late although it was familiar with the measures of other regulators in the region. Implementation of the principles of consumer protection represents a serious development challenge for both Slovenian public institutions and private sector.

Slovenia has made almost no progress in recent years in the direction of finding a solution to the CHF–loans problem despite the activities of the Association Združenje Frank and the Slovenian Consumers’ Association (ZPS). Our neighbours, Hungary, Croatia and Montenegro have already adopted a systemic solution. In the absence of a systemic solution, a large number of Slovenian borrowers opted for a court order and filed lawsuits. Most of the judgments in Slovenia are negative, unlike Spain, where around 90% of judgments are expected to be decided on
behalf of the borrowers
after the completed audits. The lawsuit is in principle open to all borrowers, but for sociological reasons it is actually only accessible to a small population group. An additional increase in the number of lawsuits would also increase the burden on Slovenian courts.
Mr. Kovšca also mentioned the systemic solutions in some other countries and said that the proposers of the laws in Hungary, Croatia and Montenegro, and the constitutional and European judges, who assessed the constitutionality of those laws, were referring to the same constitutional principles as those acknowledged by the Slovene Constitution. These are the welfare state, human dignity, care for legal and social security, the right to private property, the social function of property, and the principle of proportionality. The European Court of Human Rights has already rejected the complaints of five Hungarian banks, warning the banks that the convention rights are intended primarily for human as an individual.

According to the ECHR, the adoption of a legal solution in some countries did not violate the principle of retroactivity or the rule of law. ECHR refers to the free field of state discretion and to the principle of subsidiarity, since the legislator is primarily responsible for taking into balanced account the interests of consumers, banks and the national economy in crisis.

At the organization of the international conference, the National Council received a letter from BEUC, a European Consumer Organization, representing 43 national consumer organizations from 32 countries. BEUC supports the legal solution to which Združenje Frank calls for the purpose of consumers protection, and estimates that the financial burden of the law for the banks would not be very high and spread among a larger number of banks that concluded loan agreements in Swiss francs. Also important is the estimation that the adoption of the law would have positive effects on the restoration of confidence in the financial sector and public institutions that was severely affected by the crisis and the way the consequences of the crisis were addressed. It would also contribute to the establishment of responsible behaviour by financial service providers and reduce the likelihood of reemergence of such practices in the future. In the event that the case would get an epilogue before the ECHR and the court would confirm a violation of consumer rights, the costs of the banks action would be borne by the Slovenian state.

In the light of many up-to-date actions of banks and public statements by the of the Bank Association of Slovenia, which are full of the same repetitive manipulations and half-truths, stands out the statement, with which the Icelandic research journalist and economist Sigrún Davíðsdóttir concluded her presentation at the international conference, saying “the banks cannot be trusted”!