Swiss Franc Loan Settlement – Is It Worth Entering Into One and Why Is It Worth Consulting a Lawyer Before Signing It?

Table of Contents:

What does a settlement involve?
Why do banks offer Swiss franc settlements?
A Swiss franc loan settlement or invalidation of the agreement – which is more beneficial for you?
Why is it worth seeking legal assistance before entering into a settlement?
Swiss franc settlement – summary

For several years now, banks have been presenting Swiss franc borrowers with settlement offers on a mass scale. If you are reading this article, you are probably also in a situation where, thanks to a bank’s proposal, you see an opportunity to establish more favorable loan repayment terms, but for various reasons you are still hesitating. Is a Swiss franc settlement really worthwhile for you? It depends. One thing, however, is certain – you must carefully consider your decision, because by hastily signing a settlement you will permanently deprive yourself of the opportunity to fight for your rights in court.

What does a settlement involve?

By definition, a settlement means that the parties (in this case, the bank and the Swiss franc borrower) make mutual concessions. They do so in order to end an existing dispute between them outside the courtroom.

You therefore need to be aware that a settlement offer is not a sign of the bank’s goodwill. By concluding it, the bank gains certainty that you will not invalidate the loan agreement in court and that you will continue to repay it – albeit on more favorable terms for you.

A Swiss franc settlement is therefore not only a form of compromise, but above all it leads to closing the case once and for all – in the sense that by signing it, you waive the right to pursue claims in the future. If, after several years, you realize, for example, that invalidating the entire agreement through court proceedings would have been much more beneficial for you, it will not matter. You will not be able to undo the consequences of your decision.

So if you are to remember one thing from this article, let it be this: a settlement is not merely a way to modify loan terms, but also an obligation to give up any potential court claims in the future!

Why do banks offer Swiss franc settlements?

Settlement offers from banks are largely driven by the fear of financial losses. Swiss franc borrowers are winning an increasing number of court cases. Agreements are being invalidated on a mass scale, which, from the banks’ financial perspective, could be tantamount to having granted thousands of borrowers interest-free loans.

Although banks are currently trying to minimize losses related to the invalidation of contracts by seeking indexation (valorization) of the borrowed capital, this is because many years have passed since the loans were granted and, due to inflation, the value of the borrowed capital has significantly decreased.

However, the issue of capital indexation is relatively new in the context of Swiss franc loans. There is therefore a chance that courts will not side with the banks. The Court of Justice of the European Union (CJEU) is also expected to rule on the issue of capital revalorization. And considering the Tribunal’s previous judgments, many experts predict that this ruling will also be unfavorable for banks.

Even if the CJEU were to allow banks to index the capital, it would still be in their interest to offer settlements – because signing them deprives borrowers of the possibility of pursuing a court case. One could even venture to say that every settlement concluded is a win for the bank. It allows the bank to avoid the risk of the contract being invalidated. And given statistics showing that 95–98% of Swiss franc borrowers’ cases end in success, this risk borders on certainty. Consequently, from the bank’s point of view, a minimal profit is better than incurring a loss.

Apart from protecting their own interests, banks also make settlement offers for image reasons. It is a way to maintain a positive image as a financial institution and to build customer trust by demonstrating a willingness to cooperate in difficult economic situations.

A Swiss franc loan settlement or invalidation of the agreement – which is more beneficial for you?

Is a Swiss franc settlement always beneficial for you? Not necessarily. Much depends on your expectations and priorities. If what matters most to you is a quick resolution, avoiding the stress associated with court proceedings, and rapidly freeing yourself from unfavorable loan terms, then a settlement may indeed be suitable for you. It is not without reason, however, that many Swiss franc borrowers prefer court proceedings rather than agreeing to compromises. What are the pros and cons of each solution?

Swiss franc settlement
Pros:

• A sense of stability – a settlement allows you to get rid of stress and the constant growth of debt associated with a fluctuating CHF exchange rate;
• Time savings – concluding a settlement with a bank takes an average of one month. This is indisputably much shorter than court proceedings, which can last even several years;
• Avoiding court proceedings – a settlement eliminates the need for lengthy litigation and helps avoid the stress of participating in a court case, which for most Swiss franc borrowers is a heavy burden.

Cons:

• Waiving claims – you give up the right to any potential claims related to previous indexation clauses;
• Finances – you will be in a worse financial position than in the case of invalidating the loan;
• You continue to repay a loan that could disappear from your life forever – most Swiss franc loan agreements can be completely invalidated, thus eliminating the loan entirely. If you enter into a settlement, the loan continues to exist, albeit on better terms than before.

Invalidation of the agreement
Pros:

• Financial profitability – in the event of invalidation, you must return to the bank either only the borrowed amount or, if the bank files a claim for indexation of the performance and the court accepts it, an amount corresponding to the indexed value of the borrowed capital. The bank, however, is obliged to return to you all funds it has received from you so far – paid installments, interest, margins, and other loan costs. As a result, in many cases the amount received from the bank will exceed what you owe it. You will therefore be able to settle the balance without difficulty and still recover part of your money;
• You get rid of the loan once and for all – which means complete financial freedom;
• A high chance of success – based on judgments issued in Swiss franc borrower cases, you have a very high likelihood of winning in court. And taking into account further landmark rulings issued by the CJEU in 2023, these statistics may become even more favorable. Recently, you also no longer need to fear that, in response to a lawsuit, the bank will demand remuneration for non-contractual use of capital.

Cons:

• Length of proceedings – court proceedings are time-consuming (they can last even several years) and involve significant stress;
• Finances – proceedings entail additional costs, such as attorney representation or court fees – although it should be clearly emphasized that you have the right to request that, if you win the dispute, the bank reimburse the costs you incurred.

 

Why is it worth seeking legal assistance before entering into a settlement?

As you can see, it is not true that entering into a Swiss franc settlement is never worthwhile. What matters, however, is that the decision be fully informed. Only if you understand the consequences of such a settlement and know what you are giving up by accepting the bank’s proposal can you consider the decision to be right and well thought out.

It should also be added that settlements are practically impossible to invalidate. While in the case of other contracts you may, for example, rely on a material error and thus avoid the effects of a concluded agreement, stricter rules apply to settlements. Under the applicable regulations, you may invoke only errors as to the factual state and only if they concerned both parties. It is therefore enough that the factual situation was clear to the bank at the time of concluding the settlement (which is practically certain) for it to be impossible to invalidate.

And how much can you lose on a settlement? It depends on the proposed terms. Sometimes they will align with the outcome of de-indexation, at other times they will be less favorable. A lawyer specializing in Swiss franc cases should present you with calculations for each of the three scenarios: invalidation of the loan, concluding a Swiss franc settlement, and de-indexation of the loan. You can also use our Swiss franc borrower calculator to assess the situation yourself.

However, the role of a lawyer is much broader than just presenting calculations. Such a professional is also tasked with carefully analyzing the settlement provisions and identifying clauses that may be unfavorable to you. Remember that even if you prefer a settlement over court proceedings, the terms can be negotiated. In this case, the lawyer’s task is to ensure that conditions are agreed upon that best protect your interests.

Swiss franc settlement – summary

The decision regarding a Swiss franc settlement should be carefully considered. Instead of acting on your own, it is worth consulting a lawyer. A specialist can not only help you understand complex legal issues, but also ensure that nothing escapes your attention. They will also conduct negotiations with the bank on your behalf and, if you decide to pursue court proceedings, represent you before the court. Consulting a lawyer is an investment in certainty, which can result in better-tailored settlement terms and peace of mind amid a difficult financial situation.