Constitutional Court Confirms Law on Swiss Franc Loan Conversion

The Court rejected a request to declare as unconstitutional the law which forced banks to convert loans in Swiss francs into euros.

The proposal to institute proceedings to review the constitutionality of the so-called law on the Swiss franc, which converted loans in Swiss francs into euros, was rejected by the Constitutional Court on Friday. The Court found that the law had a legitimate aim, which was to increase the level of social protection, to prevent unfair commercial practices of credit institutions, and prevent a deepening of the debt crisis, reports Jutarnji List on April 7, 2017.

The applicants for the review of the constitutionality argued that the law did not respect the procedures for the adoption of the law in an expedited procedure, but the Court found that laws can be adopted in an expedited procedure if there are reasonable grounds.

The Constitutional Court pointed out that the government decided to adopt the law in order to permanently remove disturbances in the economy, to avoid a debt crisis, to unburden the courts, to ensure regular repayment of loans in francs, and to prevent unfair commercial practices of credit institutions. “The state had a positive obligation to take certain measures in the economy and interfere with the market in order to ensure the achievement of fundamental social rights and social security, and to equalize or minimize the extreme social differences arising as a result of the appreciation of the Swiss franc.”

Although the Constitutional Court found that a violation of duty to consult with the European Central Bank can lead to violations of the rules of democratic procedure, in this case that was not against democratic procedures because the treaty on the functioning of the European Union does not require the ECB to deliver an opinion.

The Constitutional Court also found that the conversion was suitable for achieving the legitimate aim it sought to achieve, because the data provided by the Ministry of Finance and the Croatian National Bank clearly showed that conversion has not caused distortive effects in the banking sector or in the monetary policy, and that negative effects of the conversion were significantly smaller than estimated.

The Constitutional Court found that it could not conclude that the conversion burdened the credit institutions with measures which could be considered intolerable.

The Court in particular pointed out that the “Croatian case” lacked even the mildest measures to prevent the exchange rate risk, in the form of early warning to consumers at the time the loans were approved, as it was done, for example, by the Austrian regulator of financial markets.

 

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