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Attorney Milena Nowicka
What does de-franking a loan involve?
When is it worth filing a lawsuit to de-frank a loan?
What does the loan de-franking process look like?
Is de-franking a loan worthwhile?
What should you choose – de-franking or invalidation of the contract?
Although in the context of Swiss franc (CHF) loans the most common topic is the invalidation of the contract, there is also another solution – de-franking the loan. Its effects are also beneficial for CHF borrowers, although they differ significantly from those resulting from complete release from a CHF-denominated loan. What exactly does “de-franking” mean? Who can benefit from this solution? And when will it be worthwhile for you? You will learn all this from this article.
De-franking a loan is a process that allows the influence of the Swiss franc on your mortgage loan to be eliminated. Put simply, it leads to the removal from the loan agreement of all clauses that make the cost of the loan or the amount to be repaid dependent on the CHF exchange rate.
Your loan is then treated as if it were a loan denominated in Polish zlotys (PLN). Installments, the total amount of the obligation, and loan costs are determined in zlotys. In this way, your loan is freed from its link to the Swiss franc – the very factor that for many years caused you stress and uncertainty and meant that, despite regular repayments, the debt did not decrease or decreased only slightly.
De-franking the contract does not mean that your loan no longer applies. You still have to repay it (unlike in the case of complete invalidation of the contract). The difference is that repayment takes place in zlotys and on much more favorable terms than before.
How is it possible that courts agree to de-frank loans? The key words here are “abusive clauses” or “unfair contractual terms.” These are provisions in a contract that grossly violate your rights and can be considered an abuse by the bank of its stronger position and an exploitation of the consumer-borrower’s lack of knowledge.
Examples of such abusive clauses include provisions that:
Considering the entire mechanism of CHF loan agreements, it can confidently be said that most of them contain such abusive clauses. The statistics speak for themselves – depending on the source, around 95–98% of cases end successfully for borrowers.
This means there is a significant chance that your agreement also contains clauses that entitle you to file a lawsuit to de-frank your loan.
So what happens when such provisions are indeed found in the agreement? Abusive clauses are treated as if they never applied from the very beginning. And if all provisions relating to the CHF exchange rate are removed from the agreement, the result is precisely the de-franking mentioned above.
As you might guess from the previous paragraph, de-franking a loan in most cases cannot be done without court involvement. There is, however, a chance that before you take such steps, the bank may approach you with a settlement proposal that assumes de-franking.
If you agree to the proposed terms, you may be able to avoid court proceedings. However, it is worth warning you right away: the decision to enter into a settlement should be considered very carefully, because by doing so you irrevocably deprive yourself of the possibility of pursuing a court path in the future. This is an issue we will examine in detail in a separate article.
Usually, however, court proceedings will be necessary. Before you decide to initiate them, you need to analyze your CHF loan agreement and check whether it contains unfair provisions. In most cases, abusive clauses will indeed be found there, although of course “most” does not mean “every agreement.”
At this stage, you must verify whether the contract contains provisions that violate your rights as a consumer. A helpful resource may be the map of unfair clauses provided by the Financial Ombudsman, which includes a list of prohibited provisions along with commentary. What is important, however, is that the mere fact that a particular provision does not appear in this map does not mean that your loan agreement has no chance of being de-franked.
That is why, instead of verifying the contract on your own, it is better to consult a lawyer specializing in CHF loans. This way you can be sure that nothing has been overlooked. You will also gain the support of a specialist who can represent you at the next stages.
It should be mentioned here that if such provisions are indeed found in the contract, you have the right to demand that the court declare these clauses invalid and thus de-frank your loan. Of course, to initiate the proceedings, you must prepare an appropriate filing in which you indicate which provisions violate your rights as a consumer and why.
Generally speaking, de-franking a loan is almost always more worthwhile than continuing repayment under the existing terms. One could even go so far as to say that whatever you decide – de-franking, invalidation of the contract, or entering into a settlement with the bank – it will always be a better solution than making no changes at all and remaining constantly dependent on the fluctuating CHF exchange rate.
As a result of de-franking:
De-franking will not always be the best solution for you. Abusive clauses may also give you the right to invalidate the entire contract. Therefore, you need to consider what will be better in your particular case: invalidation or de-franking of a CHF loan agreement. You can also use a CHF borrower calculator, which will show you specific amounts relevant to your individual financial situation.
And if you still have doubts about whether de-franking a CHF loan is possible in your case, do not know how to carry out the process, wonder whether it might be better to agree to a settlement instead, or have any other concerns – it is best to seek professional help. On your own, you may not be able to properly assess the situation and make the best possible decision. And the stakes are high – this is about your financial future.
