The National Bank of Hungary (MNB) has published methodological guidelines for the conversion of consumer loan contracts due to the nullity of the exchange rate margin, the legality of which will be verified ex officio.
Financial institutions must send the conversion methodology
According to the methodological guidelines published on the MNB’s website on Tuesday, financial institutions must send the conversion methodology they use within sixty days after the entry into force of the Act (July 26, 2014) and the conversion within ninety days after the entry into force of the legislation.
The MNB intends to assist financial institutions with their statutory tasks. Adherence to the methodology described is not a statutory obligation, but only a guideline that will serve as a basis for the MNB’s methodological review, the central bank said.
The MNB recalls that under the Act on the Settlement of Certain Issues relating to the Uniformity Resolution of the Financial Institutions on Consumer Loan Agreements, the use of the exchange rate margin is null and void;
The conversion guidelines are based on the assumption that from 1 May 2004 the obligation to apply the official exchange rate of the MNB to contracts covered by the Act has been in force.
The overpayment due to the unfair application of the exchange rate
Gap was the result of poor settlement of debt at the time of disbursement and repayment charges. In fact, at the time of disbursement, the customer’s foreign currency loan and installments in foreign currency would have been lower than actually stated, the central bank writes in its guidance.
The conversion should be based on the guideline that no counterparty should be treated worse than financial institutions using the MNB’s mid-rate for disbursing the loan and calculating the repayment burden.
In practice, this means that overpayments are calculated at all times as (prepayment) of capital or as a continuous reduction of outstanding debt.
On this basis, all relevant contracts should be recalculated retroactively.
The customer’s initial foreign currency debt
The resulting installment in the first month’s currency must be determined. After that, the amount of overpayment in forint during the first month’s repayment shall be calculated, then the remaining foreign currency debt reduced by this shall be calculated further.
All other parameters are calculated according to the contract. Repeat this algorithm to calculate the next month’s installments, overpayments and debt down to the date of settlement or, if the contract is terminated earlier, the date of termination. The difference between the current foreign currency debt and the foreign currency debt resulting from the translation represents the cost of the unfair application of the exchange rate margin.