The Factual and Legal Background

The case involved a Polish consumer who, in 2019, concluded a property loan agreement with a Polish bank for approximately €100,000 over a twenty-year term, subject to a variable interest rate calculated on the basis of the WIBOR 6M benchmark (Warsaw Interbank Offered Rate) plus the bank's fixed margin.

The consumer challenged the contractual term before a Polish court, arguing it was unfair under Directive 93/13/EEC. The consumer criticized the bank for failing to explain in a reliable, comprehensive, and intelligible manner how WIBOR 6M is calculated, what factors influence its value, and what role banks themselves play in determining the index. Without this information, the consumer argued, he could not adequately assess the financial consequences of the contract while bearing the entire risk of interest rate variations.

The consumer's position was particularly focused on two aspects: first, that the lending bank was itself a contributor to the WIBOR calculation, creating a potential conflict of interest; and second, that the benchmark methodology allowed for input data that did not necessarily correspond to actual transactions but could include price offers.

The Questions Referred to the CJEU

The Polish court referred four preliminary questions to the Court of Justice, seeking clarification on:

• Whether the Unfair Terms Directive applies to contractual clauses concerning variable interest rates based on regulated benchmarks
• The scope of the transparency requirement for such terms
• Whether specific features of benchmark methodology (contributor involvement, non-transactional input data) render a term unfair
• The consequences of finding such a term unfair

Key Holdings:

Can Terms Based on Regulated Benchmarks Be Challenged?

The Court confirmed that the Unfair Terms Directive applies even where a variable interest rate is based on a benchmark governed by EU Regulation 2016/1011, provided that national law merely establishes a general framework while allowing the lender discretion to choose the specific benchmark and fixed margin.

This is significant because it means that neither compliance with national mortgage lending requirements nor use of an EU-regulated benchmark automatically shields contractual terms from scrutiny under consumer protection legislation.

What Must Banks Disclose About Benchmark Methodology?

The Court addressed the core practical question: must banks explain in detail how benchmarks like WIBOR is calculated?

The answer is no. The transparency requirement does not impose specific obligations on creditors to provide detailed information about benchmark methodology. Instead, the Court held that for residential property loans, information obligations are comprehensively regulated by Directive 2014/17/EU, which requires banks to provide standardized pre-contractual information through the European Standardised Information Sheet (ESIS) and to inform consumers about the potential impact of interest rate variations on repayment amounts and total costs.

The division of responsibilities is clear: benchmark administrators must publish the key elements of their methodology under Regulation 2016/1011, while banks must ensure consumers receive the information required by mortgage lending legislation and may direct consumers to publicly available information about the benchmark.

Importantly, where banks provide additional information about benchmarks, that information must be accurate and must not give a distorted picture of how the index operates.

Does Use of a Benchmark with Bank Contributors Create Unfairness?

The consumer argued that the term was inherently unfair because the lending bank was itself one of the contributors providing input data to calculate WIBOR, creating a conflict of interest and allowing the bank to influence its own revenue.

The Court rejected this argument. Where a benchmark complies with Regulation 2016/1011 at the time of contract conclusion, its use does not create a significant imbalance to the consumer's detriment, even if the lending bank is a contributor or if input data consists partly of price offers rather than exclusively completed transactions.

The Court reasoned that Regulation 2016/1011 establishes a comprehensive framework governing benchmark provision, input data integrity, contributor conduct, and supervisory oversight by national authorities, designed to balance market functionality with consumer protection. This framework includes strict governance requirements, conflict of interest controls, mandatory codes of conduct for contributors, and enforcement powers for regulators.

Practical Guidance for Credit Institutions

Credit institutions operating in Cyprus and across the EU should take note of the following practical implications:

• Compliance Focus: Ensure full compliance with Directive 2014/17/EU information requirements, particularly regarding ESIS documentation and disclosure of potential impacts from interest rate variability. This compliance, combined with use of properly regulated benchmarks, provides robust protection against unfairness challenges.
• Limited Technical Disclosure: Banks are not required to explain technical aspects of benchmark calculation methodology, data collection processes, or the specific factors influencing benchmark fluctuation. Such information is the responsibility of benchmark administrators to publish.
• Accuracy of Voluntary Information: While detailed benchmark explanations are not mandatory, any supplementary information provided must be accurate. Avoid simplified descriptions that could misrepresent how benchmarks function.
• Regulatory Benchmark as Safeguard: Using benchmarks that comply with Regulation 2016/1011 provides significant legal protection, even where the lending institution contributes input data to the benchmark's calculation.

Implications for Cyprus

This judgment has direct relevance for Cyprus's banking sector, particularly in light of recent legislative reforms emphasizing transparency and borrower protection in credit servicing and management.

Credit institutions and credit servicers should review their standard documentation and consumer-facing materials to ensure alignment with the Court's guidance.

Conclusion

The Court's judgment strikes a practical balance between consumer protection and market functionality. By confirming that compliance with existing EU legislation is sufficient, the decision provides legal certainty while maintaining robust consumer safeguards through comprehensive regulatory oversight of benchmark integrity.

At GZG, we provide specialized advice on compliance with EU consumer credit legislation and regulatory developments affecting financial services. Contact us to discuss how this judgment may impact your lending practices or credit agreements.

Author: Michalis Antoniou, Junior Lawyer

Michalis Antoniou