Last week, the Constitutional Court of the Republic of Slovenia adopted a decision to suspend the application of the Swiss francs law until the final decision of the Constitutional Court is made on the conformity of the Law with the Constitution.

On the 10 March 2022 the Constitutional Court of the Republic of Slovenia adopted a decision to suspend in whole the implementation of the „Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs“ until the final decision of the Constitutional Court on the conformity of the Law with the Constitution is made. This decision was adopted unanimously. The implementation of this Law has been suspended until the final decision of the Constitutional Court on the conformity of the Law with the Constitution. During this time, the deadlines set for individual liabilities of banks do not apply.

The initiators, ten banks licensed by the Bank of Slovenia to provide banking services, are challenging the „Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs“ in full. They claim that it is inconsistent with Articles 2 and 155 of the Constitution because the law allegedly unconstitutionally interferes with civil law relations (credit agreements in Swiss francs), which have already been fully fulfilled or exhausted, or are supposed to interfere in the still valid credit agreements, as well as in credit agreements on which a final judgment has already been made. In the latter case, it is also alleged to be inconsistent with Article 158 of the Constitution.

The initiators are of the opinion that the legislator has unconstitutionally interfered with the contractual freedom protected in Article 35 of the Constitution when it provided for the renewal of credit agreements and inclusion of a currency cap in contracts. However, the legislator allegedly did not have a constitutionally permissible goal for such an intervention. The regulation referred to in Article 6 of the “Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs“, according to which creditors must pay any damage to any damage to his property, together with default interest, according to the initiators, which run from the day of the overpayment, constitutes an interference with the right to private property protected in Articles 33 and 67 of the Constitution. It is said to be a confiscation of property without compensation, which is also contrary to the case law of the law of the European Court of Human Rights. According to the initiators, the “Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs“ also interferes with their freedom of economic initiative, protected in Article 74 of the Constitution, whereby the intervention cannot pass the test of proportionality. The “Law on limitation and distribution of foreign exchange risk between creditors and borrowers concerning loan agreements in Swiss francs“ imposes a number of obligations on creditors, from the preparation of the prescribed documentation to the return of the overpayment and the delivery of land registry permits, the regulation of relations with guarantors, debtors, etc. On the other hand, the legislator did not prescribe to borrowers the deadline by which they must return the signed contracts on the regulation of mutual relations. The European Central Bank also pointed out that a fair distribution of the burden among all stakeholders must be taken into account in order to avoid a moral hazard in the future.

A separate request for the review of the constitutionality of the Law was also submitted by the Bank of Slovenia. NLB announced yesterday that they believe that the Constitutional Court will establish the inconsistency of the Law with the Constitution and annul it in its entirety. NLB was one of the banks which together with eight other banks filed an initiative to review the constitutionality of the Law. At the beginning of February, we have written on how this law might influence the Slovenian banking system. You can read more about it see here.