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Hungarian Banks Challenge Government-Imposed Interest Rate Cap at Constitutional Court

The Hungarian Banking Association has filed a complaint against the government’s prolongation of the interest rate cap on mortgage loans, citing constitutional concerns.
Several members of the Hungarian Banking Association have approached the Constitutional Court in Hungary, seeking to establish the unconstitutionality of the regulation commonly known as the interest rate cap on residential loans.

This cap was initially introduced by the government in 2021, justified by the COVID-19 pandemic.

According to a statement from the Banking Association, the regulation mandates that financial institutions may only charge a prescribed interest rate of 2.02%, aligned with the three-month BUBOR rate as of October 27, 2021, regardless of the terms established in existing contracts.

This cap applies to variable-rate residential mortgage loans and has since been extended to include residential financial leasing contracts and non-subsidized mortgages with interest rates fixed for periods of up to five years.

Despite the expiration of the pandemic state of emergency, the government has extended the interest rate cap beyond its original deadline of December 31, 2024. This extension comes even amidst decreasing inflation, which has dropped from 18% to 6.5%, maintaining a capped interest rate that does not reflect the current economic landscape.

The latest amendment extended the cap once again, now valid until June 30, 2025.

In their statement, the Banking Association expressed concern regarding the economic, legal, and ethical implications of the interest rate cap.

They noted that banks had previously informed their clients about the risks associated with variable interest rates and had facilitated options for clients to switch to fixed rates, which some customers accepted.

The Association argues that the government’s actions interfere with private legal relationships in an unconstitutional manner, asserting that this intrusion is unnecessary and disproportionate.

Member banks, including OTP Bank Nyrt., OTP Jelzálogbank Zrt., Erste Bank Hungary Zrt., K&H Bank Zrt., and Raiffeisen Bank Zrt., have formally requested that the Constitutional Court declare the interest rate cap regulations and their extensions as violating the Fundamental Law of Hungary.
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