An increasing number of borrowers are choosing to challenge their WIBOR-based variable interest rate mortgage loan agreements in court. They accuse banks of violating a number of legal acts, ranging from the Polish Civil Code or the Mortgage Act to the MIFID I, MIFID II EU directives and the Benchmark Regulation.
The most far-reaching demand is to invalidate the credit facility agreements, which, if upheld by the courts (although such a scenario is highly unlikely), would be a huge challenge for the entire banking sector.
Are the borrowers’ claims legitimate?
What is the WIBOR benchmark and why is it being challenged?
Pursuant to Article 3(1)(22) of the Benchmark Regulation, ‘interest rate benchmark’ means a benchmark which (…) is determined on the basis of the rate at which banks may lend to, or borrow from, other banks, or agents other than banks, in the money market.
The WSE Benchmark indicates that “WIBOR® is an interest rate benchmark reflecting the level of interest rate at which banks could place cash (deposits) with other banks for a specified term.”
WIBOR is used to determine the interest rate in mortgage agreements. Typically, the interest rate is set as the aggregate of WIBOR and the bank’s fixed margin.
Borrowers’ claims against the legality of WIBOR revolve around the lack of transparency of the contractual provisions introducing interest rates based on WIBOR, as well as the shifting of the risk associated with the application of variable interest rates solely to the borrowers.
The banks’ customers argue that the details of the variable interest rate clause based on the 3M/6M WIBOR interest rate benchmark, including the impact of this clause on the borrower’s financial obligations, were not explained to them, either at the pre-contractual stage or at the conclusion of the mortgage loan agreement.
Furthermore, they consider that the agreements are contrary to good practice and grossly infringe their interests, as the structure of the variable interest rate clause results in an unequal distribution of the risk of interest rate increases between the parties to the loan agreement.
Notwithstanding the above, they also point to the 3M/6M WIBOR interest rate benchmark being inconsistent with the Benchmark Regulation.
According to borrowers, the 3M/6M WIBOR benchmark is not developed on the basis of interbank lending transaction rates but is usually based on hypothetical data – the rate at which banks would “lend” money to each other.
Therefore, in the opinion of borrowers, WIBOR does not meet the overriding objective of the regulation, i.e. it does not reflect economic realities, giving banks room for abuse and additional earnings at the expense of customers.
Challenging WIBOR. What is the feedback of the courts?
To date, there has not been a single final judgment finding WIBOR defective.
The courts do not agree with any of the claimants’ arguments, refuting all the claims raised by the borrowers and their attorneys.
Four questions for a preliminary ruling submitted by the Regional Court in Częstochowa on 31 May 2024 in Case No. I C 1226/23 may serve as a pretext for analysing the case law to date in this respect.
Is WIBOR subject to the Unfair Terms in Consumer Contracts Directive?
In answering the first question, the Court of Justice of the European Union will have to decide whether WIBOR is subject to Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.
Currently, the courts take the position favouring the banks that the rate is not subject to the Directive as it reflects the provisions of the Benchmark Regulation.
This means that such contractual provisions cannot be examined in terms of abusiveness, as the reference to WIBOR used in the contracts follows directly from the EU Regulation.
If the CJEU responds to the first question affirmatively, it will then have to assess whether the provisions define the main subject matter of the contract, or the adequacy of the price and remuneration on the one hand, as against the services or goods supplies in exchange, on the other, and whether they are expressed in plain intelligible language.
The prevailing view is that the provisions define the main subject matter of the contract and therefore they are not to be assessed in terms of the unfair nature of the contractual terms. In addition, the statements of reasons of the judgments provide that they are transparent, i.e. are expressed in plain intelligible language. As regards the transparency requirement, the courts also point out that the banks did not breach the information requirements as they duly and comprehensively informed borrowers about WIBOR.
An example of this is the judgment of the Regional Court in Warsaw of 23 October 2023 in Case No. XXV C 192/23, where in the statement of reasons, we find that “for the consideration to be completed, it should be pointed out (…) that the variable interest rate clause regulated in the disputed agreement should be treated as a clause concerning the main performance, and this clause, being transparent, would not be subject to examination for abusiveness pursuant to the exemption under Article 4(2) of EU Directive 93/13.”
Do agreements between customers and banks contain unfair provisions?
By formulating the third question, the Regional Court wanted to obtain an answer to the question of whether the contractual provisions concerning the variable interest rate based on WIBOR are contrary to the requirement of good faith and cause a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.
It is currently held that these provisions do not fulfil the conditions of unfairness described in Article 3(1) of the Directive. However, according to the Polish courts, they are not subject to the provisions of the Directive at all.
The judgement of the Regional Court in Legnica of 15 April 2024, issued in Case No. I C 1394/23, is an example of a judgement in favour of the banking sector, where in the statement of reasons we find that “regardless of the argumentation presented above about the lack of grounds for examining the credit interest rate rules on the basis of provisions on prohibited contractual terms, the conditions for unfairness set out in Article 3851 (1) of the Civil Code have not been fulfilled, as the agreement is in no way contrary to good practice, nor does it grossly infringe the interests of the consumer.”
In its response to the last question, the CJEU will have to assess whether a possible breach of the Directive may result in a mortgage loan agreement being continued based only on the bank’s margin, i.e. the transformation of a variable-rate loan agreement into a fixed-rate loan agreement.
The question seems theoretical since contractual provisions relating to WIBOR are not subject to the Directive at all.
Summary
Currently, the arguments of borrowers challenging the legality of WIBOR are not accepted by the courts.
However, this trend may reverse as more and more claims challenging WIBOR are filed with the courts. If the CJEU responds positively to the first two questions for a preliminary ruling, it is not out of the question that Polish courts will be flooded by claims, and banks will once again face a huge challenge for which they should prepare.
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