Validity of Floating Interest Rate Loan Adjustments In Norway

The complaints were filed in the wake of three decisions by the EFTA court with respect to credit terms from Icelandic banks (E-13/22, E-1/23 and E-4/23).

The majority of the board concluded that the relevant terms are invalid under Norwegian rules implementing the EU Unfair Contract Terms Directive.

In Norway, the majority of consumer lending – both mortgage and unsecured lending – is based on floating rates. 

It has been long standing and quite uniform market practice with credit terms allowing for the bank to unilaterally adjust the interest rate, typically connected to changes in central bank interest rates and funding costs, but that any adjustments must be objectively justified ("saklig begrunnet").

The majority of the board emphasised that the conditions for interest rate adjustments were vague and did not fulfil reasonable requirements to clarity, predictability and verification. The majority furthermore placed particular importance on the fact that the terms were unclear with respect to both whether a rate adjustment was justified and the extent to which an adjustment could be made.

On this background, the majority concluded that the terms were unreasonable in accordance with Section 36 and 37 of the Norwegian Contracts Act.

The majority did not, however, decide on what legal consequences the unreasonable contract terms should have.

The cases are highly important to the Norwegian bank sector, as the majority if not all banks active in the Norwegian market typically have operated with very similar standard credit terms.

The decisions for the board are not legally binding unless accepted by the banks in question. This is very unlikely, and the two banks now have 21 days to provide their comments to the decisions. We expect these cases to continue to court proceedings.