The Gerichtshof der Europäischen Union (EuGH, Court of Justice of the European Union – CJEU) has clarified the requirements under EU law governing restitution in respect of a foreign-currency loan that is invalid due to unfair terms. According to the EuGH, judgment of 10 September 2026 – C‑510/25, Article 6(1) and Article 7(1) of Directive 93/13/EEC (EU Unfair Contract Terms Directive) do not, in principle, preclude a judicial interpretation of national law under which the reciprocal restitution claims of the consumer and the bank are offset against each other by the court of its own motion.
Dispute over Restitution in Respect of a Foreign-Currency Loan
Payments in Zloty and Swiss Francs
On 30 September 2005, two consumers entered into a Swiss franc-denominated mortgage loan agreement with a bank. On 26 October 2005, the bank disbursed a loan of 229,685.50 Polish zloty. At the time, this was equivalent to approximately EUR 54,275.
In performance of the agreement, the borrowers made payments in two different currencies. In total, they transferred PLN 296,613.33, equivalent to approximately EUR 70,000, as well as CHF 50,579.63, equivalent to approximately EUR 55,800.
The consumers considered the agreement void because it contained terms that they regarded as unfair; whether the terms are in fact unfair and the agreement is therefore void has yet to be determined by the national court. On 29 November 2021, they applied to the Regional Court in Warsaw for the bank to be summoned to conciliation proceedings and to repay the amounts paid under the agreement. The hearing held on 22 February 2022 did not result in a settlement.
The borrowers subsequently brought court proceedings seeking reimbursement of part of their payments. Their claim also covered amounts from the period during which the total sum of their payments had not yet reached the loan principal disbursed. In their view, the restitution claim became due on 23 February 2022 because the preceding hearing was to be regarded as a demand for payment under the Polish Civil Code.
The bank applied for the action to be dismissed and for the costs of the proceedings to be imposed on the borrowers. Among other things, it maintained that the loan agreement was valid.
Publication of the Request for a Preliminary Ruling
The Regional Court in Warsaw submitted its request for a preliminary ruling to the EuGH on 28 July 2025. It was published in the Official Journal of the European Union, C series, of 27 October 2025 under number C/2025/5574.
Two Different Accounting Models under Polish Law
The proceedings focused on two approaches recognised in Polish case law for unwinding a loan agreement that is void—a matter disputed by the bank in the main proceedings and still to be examined by the Regional Court in Warsaw.
Two-Claims Theory
Under the two-claims theory, two independent restitution claims arise. Each contracting party may reclaim the performance it rendered but did not owe because the agreement was void.
One party’s claim exists irrespective of whether that party is simultaneously the other party’s debtor because it must return the performance it received. The consumer’s claim and the bank’s claim for repayment of the loan principal are therefore initially considered separately.
Balance Theory
By contrast, the balance theory involves directly setting the parties’ respective performances against each other. Under this approach, the consumer’s payments are refundable only to the extent that their total amount exceeds the principal disbursed by the bank.
According to the Regional Court in Warsaw, this model requires the court to offset the reciprocal claims of its own motion up to the amount of the lower claim. A declaration of set-off by either party would therefore not be required. Ultimately, only one claim would remain in favour of the contracting party whose claim is higher.
Since 2019, the Polish Supreme Court had supported the two-claims theory, in particular because it considered that the balance theory had no basis in Polish law. Following the EuGH judgment of 19 June 2025 in Case C‑396/24, however, individual decisions of the Supreme Court held that Article 6(1) of Directive 93/13/EEC could justify applying the balance theory.
EU-Law Framework for Consumer Protection
Non-Binding Nature of Unfair Terms
Article 6(1) of Directive 93/13/EEC requires unfair terms in contracts between sellers or suppliers and consumers not to be binding on the consumer. The contract remains binding on the parties upon the same terms if it is capable of continuing in existence without the unfair provisions.
Under Article 7(1) of the Directive, Member States must provide adequate and effective means to prevent the continued use of unfair terms in consumer contracts. The EuGH derives two key objectives from this:
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The equality between the contracting parties that was undermined by the unfair term must be restored.
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Sellers or suppliers must be deterred from including unfair provisions in consumer contracts.
The invalidity of a term pursuant to which payments were made without legal basis must therefore, in principle, have a restitutory effect. This also applies where the term in question is not merely non-binding in itself but causes the agreement to be void in its entirety.
Procedural Autonomy of the Member States
EU law neither governs all procedures for reviewing unfair terms nor exhaustively determines the consequences of their invalidity. Where there are no specific provisions of EU law, the Member States therefore determine the relevant procedural rules.
This national freedom is limited by two principles. The rules must not treat claims based on EU law less favourably than comparable domestic claims. Moreover, they must not make the exercise of rights guaranteed by EU law practically impossible or excessively difficult.
The EuGH therefore made clear that Directive 93/13/EEC does not require Polish courts to apply either the balance theory or the two-claims theory. The choice between the two approaches remains with the national courts, provided that the level of consumer protection required under EU law is maintained in every case.
Set-Off by the Court of Its Own Motion Is Not Required under EU Law
The Directive requires Member States to provide effective mechanisms for enforcing consumers’ restitution claims. According to the EuGH, however, this does not, in principle, entail an obligation to implement restitution through set-off performed by the court of its own motion.
Conversely, EU law does not prohibit such an approach. A national court may, in principle, offset the parties’ reciprocal claims of its own motion if national law confers that power on it and the applicable procedural requirements are observed.
The Regional Court in Warsaw had pointed out, however, that Polish law permits set-off only at the initiative of a party and subject to certain conditions. These include a declaration of set-off that must be made to the other party. Whether national law nevertheless permits judicial set-off in the specific proceedings is a matter for the Polish court itself to determine.
Limits and Consequences of Set-Off
Reimbursement of the Difference and Default Interest
If the reciprocal claims are offset, the party with the higher claim retains a claim in the amount of the difference. If the consumer’s payments exceed the loan principal disbursed, the excess amount may therefore be awarded to the consumer.
To preserve the Directive’s restitutory and deterrent effects, the national court must also ensure that the consumer can claim default interest on the portion of the payments exceeding the loan principal. Subject to verification by the Regional Court, the EuGH considered that this requirement was likely to be satisfied in the main proceedings. The bank had essentially conceded that interest on the excess amount could be claimed from the day following the demand for payment resulting from the attempted conciliation.
Restitution must apply to both parties to the agreement. However, the seller or supplier may not claim compensation from the consumer beyond repayment of the principal disbursed and statutory default interest from the date of the demand for payment. Conversely, the restitutory effect must not result in the consumer’s unjust enrichment.
No Remuneration for the Use of Capital
Subject to statutory default interest, the bank may not claim additional remuneration for the consumer’s ability to use the loan principal. In the EuGH’s view, a bank is therefore not placed at an advantage by delays in the proceedings. Instead, extending the litigation would prolong the period during which it cannot generate income from the capital provided.
Accrual of the Bank’s Restitution Claim
The Regional Court had also raised the possibility that set-off by the court of its own motion could eliminate the bank’s limitation risk. In this regard, the EuGH pointed out that the reciprocal restitution claims first require the agreement to be void.
As long as the consumer does not challenge the validity of the loan agreement, the bank has no restitution claim that could become time-barred. The limitation issue therefore cannot be assessed independently of the agreement’s preceding invalidity.
Procedural Costs Must Not Undermine Consumer Rights
Set-off may result in the consumer being only partially successful with an application seeking full repayment. Under national law, this could result in the consumer being ordered to bear all or part of the costs of the proceedings.
However, the EuGH also took into account that set-off may avoid further proceedings concerning repayment of the loan principal. Multiple proceedings could generate additional costs and therefore run counter to the consumer’s interests.
The allocation of costs falls, in principle, within the procedural autonomy of the Member States. However, it must not be structured in such a way as to deter consumers from seeking a judicial finding that a contractual term is unfair and having that term declared inapplicable. The Regional Court must therefore examine whether the Polish rules on costs can be interpreted in conformity with the Directive.
Particular Difficulties Involving Multiple Currencies
In the main proceedings, the principal had been disbursed in zloty, while the borrowers had made their payments partly in zloty and partly in Swiss francs. The Regional Court considered that this could constitute an obstacle to set-off because the Polish Civil Code requires reciprocal performances to be of the same kind.
By contrast, the bank referred to national rules governing the conversion of foreign-currency amounts into zloty. The EuGH did not itself decide this issue. The Polish court must determine whether national law permits set-off taking into account all payments made in both currencies while ensuring the necessary restitutory effect.
The Consumer’s Wishes Remain Decisive
The protection established by the Directive does not operate against the consumer’s wishes. After being properly informed, a consumer may waive the right to rely on the unfair and non-binding nature of a term. In doing so, the consumer may also avoid the agreement being void in its entirety.
If a court intends to combine the agreement’s invalidity with set-off of the reciprocal claims of its own motion, it must first inform the consumer objectively and comprehensively of the possible legal consequences. This is particularly necessary where the invalidity of the entire agreement may give rise to restitution claims on the part of the bank.
If the duly informed consumer does not object to the agreement being declared void, the subsequent judicial set-off infringes neither the consumer’s wishes nor the principle of adversarial proceedings, according to the EuGH.
EuGH Does Not Establish a Binding Accounting Model
The Court did not rule in favour of any particular model. Its judgment in Case C‑396/24 had likewise not given general precedence to either the balance theory or the two-claims theory. It had merely objected to a bank being able to demand repayment of the entire nominal loan principal irrespective of repayments already made and the amount still outstanding.
In C‑510/25, the EuGH has now held that Article 6(1) and Article 7(1) of Directive 93/13/EEC do not, in principle, preclude a judicial interpretation of national law under which:
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the court offsets the reciprocal claims of the consumer and the bank of its own motion,
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the consumer receives only the portion of their payments that exceeds the principal disbursed, and
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default interest is awarded on that excess amount.
This remains subject to the conditions that national law permits such set-off, that its procedural requirements are observed and that consumer protection is neither weakened nor deprived of practical effect.
According to its submissions, the defendant bank understands the decision to mean that, under such an accounting method, the consumer can be awarded only the amount exceeding the principal disbursed, plus default interest accruing on that amount. Under this interpretation, no interest accrues in the consumer’s favour while the consumer’s repayments remain lower than the principal received. By contrast, the Polish Financial Ombudsman emphasises that the EuGH did not make a binding choice between the two accounting models; in particular, the decisive point is that set-off must not impair the consumer protection guaranteed by Directive 93/13/EEC.
Significance for Contract Law Practice
The decision leaves national courts a degree of discretion when unwinding void consumer loan agreements. That discretion ends where the restitutory effect, the deterrent effect in relation to unfair terms or the effective enforcement of consumer rights is impaired.
For the parties to the main proceedings, the Regional Court in Warsaw will decide on the costs because the preliminary-ruling proceedings form part of the dispute concerning the validity of the agreement, which remains pending before that court and has not been finally determined. Costs incurred by other parties in submitting observations to the EuGH are not recoverable.
Restitution in respect of invalid contracts can raise complex issues of legal classification, particularly where reciprocal payment claims, foreign currencies and default interest are involved. MTR Legal Rechtsanwälte advises companies, investors and private individuals on related contract-law matters. Further information is available under legal advice on banking law.
