Several leading Hungarian banks, including OTP Bank, Erste, K&H, and Raiffeisen, have approached the Constitutional Court of Hungary to contest the constitutionality of the government's regulation known as the interest rate cap for household loans, as communicated by the Hungarian Banking Association.

The interest rate cap was introduced by the government in 2021 as a response to the COVID-19 pandemic, specifically targeting variable-rate residential mortgage loans.

Under this regulation, financial institutions are restricted to charging an interest rate of 2.02%, based on the 3-month BUBOR rate as of October 27, 2021, irrespective of the original terms of existing contracts.

This rule was subsequently extended to include financial leasing contracts for residential purposes and non-subsidized mortgage loans with fixed interest periods of up to five years.

Despite the lapse of the COVID-19 emergency status, banks have noted that the interest rate cap remains in effect, even as the broader interest rate environment has increased.

Initially set to expire on December 31, 2024, the government has extended the interest rate freeze for a sixth time to June 30, 2025, citing reasons such as declining inflation and a drop in the benchmark interest rate from 18% to 6.5%.

The banks' statement highlights concerns regarding the economic, legal, and ethical implications of the prolonged interest rate cap.

They have emphasized that they have provided their customers with necessary information about the risks associated with variable-rate mortgages and have offered options to switch to fixed-rate agreements, which some customers have utilized.

The banks argue that the regulation’s interference in private law relations lacks constitutional justification and is both unnecessary and disproportionate.

They have formally requested that the Constitutional Court evaluate the measures to determine their compliance with the constitution.