A recent Court of Appeal decision has provided major clarifications on the unfair nature of certain provisions in Swiss franc loans repayable in Swiss francs and their radical consequences for borrowers. This decision follows in the footsteps of a Paris Court of Appeal ruling, upheld by the Cour de cassation, which had also been rendered regarding a loan in Swiss currency, repaid in the same currency.
Cour d’appel de Paris, Pôle 5 – chambre 6, 30 mars 2022, n° 20/02033
Cour de cassation, Chambre civile 1, 12 juillet 2023, 22-17.030, Publié au bulletin
Cour d’appel de Lyon, 1re chambre civile a, 27 mars 2025, n° 21/08790
What Is an Unfair Term in a Loan Agreement?
Under consumer law, a term is considered unfair when its purpose or effect is to create, to the detriment of the consumer, a significant imbalance between the rights and obligations of the parties to the contract. This imbalance must be assessed at the time the contract is concluded, taking into account all of its terms.
Even if a term relates to the main subject matter of the contract or to the adequacy of the price, it may be deemed unfair if it is not drafted in plain and comprehensible language. This requirement of clarity goes beyond mere formal and grammatical intelligibility: it requires that the contract transparently set out the practical operation of the mechanism covered by the term, thereby enabling the consumer to assess the potentially significant economic consequences for them.
Landmark Decisions: Lyon and Paris on the Same Wavelength
Two recent rulings perfectly illustrate this consumer-protective approach:
The Lyon Court of Appeal Ruling of 27 March 2025 (Cour d’appel de Lyon, 1re chambre civile a, 27 mars 2025, n° 21/08790).
In this case, Mr. [T] and Mrs. [P] had taken out a variable-rate mortgage loan for the equivalent in Swiss francs of 451,000 euros, over a term of 300 months. The Court of Appeal held that clauses 4.3 (“Loan Repayment”) and 9 (“Provisions Specific to Foreign Currency Loans”) of the contract were unfair and should be deemed unwritten.
- Why were these clauses unfair? The Court found a lack of clear and comprehensible information from the bank regarding the currency exchange risk.
- An intrinsic risk existed from the time of subscription: the amount of 752,719 Swiss francs initially stated was likely to differ from the amount the borrowers would actually have to repay, because the conversion of funds into euros took place at the time of the first drawdown of funds and not on the date of acceptance of the offer.
- The contract also provided for exchange rate risk in the event of unpaid installments, allowing the bank to convert the amount into euros to debit it from a euro account, thereby exposing the borrower to currency fluctuations.
- Clause 9, relating to acceptance of future amendments to the terms based on foreign exchange regulations, was deemed imprecise and contributing to the aggravation of the risk.
- This exchange rate risk was borne exclusively by the borrowers.
- No concrete indication, simulation, or numerical example had been provided to enable the borrowers to visualize the potential magnitude of the risk.
- The Court emphasized that the fact that the borrower may have particular knowledge (for example, by being a cross-border worker) is irrelevant, as the assessment of the degree of information is based on the average consumer, normally informed and reasonably attentive and perceptive.
The Paris Court of Appeal Ruling of 30 March 2022 (Cour d’appel de Paris, Pôle 5 – chambre 6, 30 mars 2022, n° 20/02033), upheld by the Cour de cassation on 12 July 2023 (Cour de cassation, Chambre civile 1, 12 juillet 2023, 22-17.030, Publié au bulletin).
In a similar case involving an “in fine” mortgage loan in Swiss francs granted to Mr. Z X, the Paris Court of Appeal overturned the first-instance judgment and held that clauses 5.3 (“loan repayment”) and 10.5 (“change of parity”) were unfair and deemed unwritten. The Cour de cassation dismissed the bank’s appeal, thereby confirming this analysis.
- The reasons for their unfair nature were similar:
- Clause 5.3 contained contradictory information about the repayment currency, stating payment in euros/French francs but requiring a foreign currency account for the main debits.
- The contract lacked precise information on the procedures for repayment in Swiss francs and the application of exchange rates, even though the borrower did not receive income in Swiss francs.
- Clause 10.5, while stipulating that the borrower bears the consequences of any change in parity, was deemed “laconic and cursory.”
- In short, the borrower had not received sufficient information to assess the economic consequences and the risks of currency fluctuations on their obligations.
- Note: The Paris Court of Appeal, however, rejected the request to deem unfair clauses 5.2 and 6 relating to LIBOR 3-month indexation. These clauses were found to be clear and based on an objective index independent of the bank’s discretion.
Concrete Consequences for Borrowers
When essential terms relating to the main subject matter of the contract are deemed unwritten, this has major repercussions:
- Retroactive annulment of the loan agreement: The contract is treated as having never existed, requiring the parties to be restored to their pre-contractual position.
- Mutual restitution:
- The borrower is ordered to repay the bank the initial principal amount borrowed in euros, at the exchange rate applicable on the date the funds were made available.
- The bank, for its part, must return to the borrower all amounts received in performance of the loan (amortization payments, interest, contributions, commissions, insurance premiums), converted into euros at the exchange rate applicable at the time of each payment.
- A set-off is then ordered between these mutual claims, with statutory interest accruing from the date of the court decision.
- Damages for breach of the duty to inform: Although mutual restitution often compensates for the financial loss related to the exchange rate risk, a proven failure to meet the duty to inform may give rise to an award of damages for loss of chance of not having entered into the contract. The Lyon Court thus awarded 1,000 euros in damages for moral harm in this context.
An Important Point on Limitation Periods
It is essential to understand the evolution of case law regarding limitation periods. While an action to have a term declared unfair is not subject to any limitation period, the action for restitution of amounts unduly paid is subject to a five-year limitation period.
However, the Court of Justice of the European Union, and consequently the Cour de cassation, have clarified that this five-year limitation period for the restitution action only begins to run from the date of the court decision declaring the terms unfair. This approach is fundamental because it ensures that the consumer, who may previously have been unaware of the extent of their rights, is not deprived of their remedy. Regarding the action for liability for breach of the duty to inform, the limitation period runs from the day the victim became aware of the damage, as was the case for the early repayment of the loan in January 2022 in the Lyon case.
Conclusion
These decisions significantly strengthen consumer protection against the complex terms of foreign currency loans. They serve as a reminder of the imperative for banks to provide perfectly clear, transparent, and comprehensive information about all risks, particularly the exchange rate risk borne by the borrower. For any borrower who has taken out a loan in Swiss francs or any other foreign currency, it is now more important than ever to have their contract reviewed to verify the compliance of its terms and, where appropriate, to consider legal action to assert their rights.
Do not hesitate to contact me if you have any questions on this subject or if you would like an analysis of your situation.
FAQ: Swiss Franc Loans and Unfair Terms — What You Need to Know
This FAQ is designed to inform you about the issues arising from Swiss franc loan agreements repayable in the same currency, in light of recent decisions by the Lyon and Paris Courts of Appeal, as well as the Cour de cassation.
1. What is an unfair term in my loan agreement?
A term is considered unfair if its purpose or effect is to create a significant imbalance to the detriment of the consumer between the rights and obligations of the parties to the contract. This imbalance is assessed at the time the contract is concluded, taking into account all of its terms. Even if a term relates to the main subject matter of the contract (such as repayment), it may be declared unfair if it is not drafted in plain and comprehensible language. The requirement of clarity goes beyond mere grammar: the contract must transparently set out the practical operation of the mechanism so that you can assess the economic consequences.
2. Which terms have been found unfair in recent decisions?
The terms relating to loan repayment (for example, clause 4.3 in the Lyon case and 5.3 in the Paris case) and those concerning provisions specific to foreign currency loans (clause 9 in Lyon, clause 10.5 relating to “change of parity” in Paris) were declared unfair and deemed unwritten.
3. Why are these terms considered unfair?
These terms are deemed unfair primarily due to a lack of clear and comprehensible information about the exchange rate risk. Here are the specific reasons:
- Exchange rate risk at subscription and drawdown: The loan amount in Swiss francs could differ from the amount borrowers would actually have to repay, because the conversion of funds into euros took place at the time of the first drawdown rather than on the date of acceptance of the offer.
- Risk in case of unpaid installments or early repayment: The contract exposed the borrower to exchange rate risk in the event of unpaid installments, allowing the bank to convert the amount into euros to debit it from a euro account, or upon early repayment with funds in euros.
- Imprecision and aggravation of risk: Terms such as those relating to acceptance of future amendments based on foreign exchange regulations were deemed imprecise and contributing to the aggravation of the risk.
- Risk borne exclusively by the borrower: The exchange rate risk was borne entirely by the borrowers, with no clear mechanism to enable them to understand its magnitude.
- Absence of simulations or numerical examples: No concrete indication, simulation, or numerical example had been provided to enable the borrowers to visualize the potential magnitude of the risk.
The bank could not reasonably expect the borrowers to accept such disproportionate risks given the lack of transparency.
4. Do my financial knowledge or status as a cross-border worker matter?
No, the degree of information required and the unfairness of the term are assessed by reference to the average consumer, normally informed and reasonably attentive and perceptive. Your particular knowledge of financial engineering or currency parity is irrelevant to this assessment.
5. What are the consequences if these terms are found unfair?
When essential terms relating to the main subject matter of the contract are deemed unwritten, this results in the retroactive annulment of the loan agreement. The contract is treated as having never existed, requiring the parties to be restored to their pre-contractual position.
6. How do mutual restitutions work?
- The borrower must repay the bank the initial principal amount borrowed in euros, at the exchange rate applicable on the date the funds were made available.
- The bank must return to the borrower all amounts received in performance of the loan (amortization payments, interest, contributions, commissions, insurance premiums), converted into euros at the exchange rate applicable at the time of each payment.
- A set-off is then ordered between these mutual claims. Amounts owed after set-off will bear statutory interest from the date of the court decision.
7. Can I claim damages?
Yes, a proven breach of the bank’s duty to inform may give rise to an award of damages for moral harm, even if the mutual restitutions compensate for the financial loss related to the exchange rate surcharge. The Lyon Court thus awarded 1,000 euros in damages for moral harm in this context.
8. Is there a time limit for bringing legal action (limitation period)?
This is a crucial point:
- An action to have a term declared unfair is not subject to any limitation period.
- The action for restitution of amounts unduly paid is subject to a five-year limitation period. However, this five-year period for the restitution action only begins to run from the date of the court decision declaring the terms unfair. This interpretation ensures that the consumer is not deprived of their remedy.
- As for the action for liability for breach of the duty to inform, the limitation period runs from the day the victim became aware of the damage (for example, the day of early repayment of the loan).
9. Is my contract annulled if only some terms are unfair?
If the terms deemed unwritten constitute the main subject matter of the contract, the contract cannot survive without them, resulting in its retroactive annulment.
