Supreme Court rejects CHF borrowers' claims for principal refunds after loan conversion

Croatia's Supreme Court has ruled that borrowers who voluntarily converted their Swiss franc (CHF) loans into euros are not entitled to claim reimbursement of overpaid loan principal stemming from previously unlawful interest rate provisions.

However, the court confirmed that borrowers retain the right to collect default interest on amounts they are otherwise entitled to recover.

The decision marks the latest chapter in a legal battle that has lasted more than a decade and affected tens of thousands of Croatian citizens.

In the mid-2000s, many Croatians took out mortgages and consumer loans denominated in, or linked to, the Swiss franc. As the franc sharply appreciated against the kuna and later the euro, monthly repayments surged. At the same time, banks increased variable interest rates, further raising borrowers' costs.

In 2012, the consumer advocacy group Udruga Franak launched a collective lawsuit against eight major banks. Croatian courts later found that the banks had used unlawful variable interest rate clauses, while the currency clauses linked to the Swiss franc remained valid.

To address the crisis, the Croatian government adopted legislation in 2015 requiring banks to retroactively convert CHF loans into euro-denominated loans, with banks bearing much of the financial burden.

In a 9-4 ruling, the Supreme Court found that the statutory conversion of CHF loans into euros effectively settled the contractual obligations between banks and borrowers with respect to the loan principal.

As a result, borrowers who accepted the conversion cannot seek additional compensation for overpaid principal related to the unlawful interest rate provisions.

The Franak Association strongly condemned the decision.

"Such a decision is absolutely unacceptable to us. It is illegal, unconstitutional and contrary to the European Convention on Human Rights. It is arbitrary and discriminatory and must be overturned by the Constitutional Court," said Goran Aleksić of Udruga Franak.

Aleksić said the association would continue pursuing legal remedies and challenging the ruling.