Informative report on efforts regarding the resolution of cross-border financial consumer disputes and other activities carried out in 2011
Regulatory background of the resolution of cross-border financial consumer disputes Pursuant to paragraph (3) in Section 110 of Act CLVIII of on the Hungarian Financial Supervisory Authority (hereinafter the HFSA Act), the Financial Arbitration Board shall prepare an annual summary report on its activities pertaining to the settlement of cross-border consumer disputes arising from financial services and submit this informative report to the President of the Hungarian Financial Supervisory Authority (hereinafter the HFSA) by 31 January of the year following the period under review. Once the HFSA s president approves of the report, the chairman of the Financial Arbitration Board shall publish the document and send it to the minister in charge with finances. The procedural rules of settling cross-border financial consumer disputes are outlined in a separate subtitle in Chapter V of the HFSA Act. According to Section 106 of the HFSA Act, a cross-border financial consumer dispute is defined as a legal dispute where the consumer s place of permanent or temporary residence (hereinafter jointly referred to as place of residence) and the seat, premises or place of business (hereinafter jointly referred to as seat ) of the financial service provider are located in different underwriting states of the European Economic Area (EEA) treaty. EEA states include all member states of the European Union along with Iceland, Norway and Liechtenstein. Pursuant to Directive no. 1/2011 of the Financial Arbitration Board s Chairman as approved by the President of the Hungarian Financial Supervisory Authority, duties related to the settlement of cross-border financial consumer disputes are assigned to Council no. 4 of the Financial Arbitration Board. In the course of procedures pursued by the Financial Arbitration Board, it is irrelevant whether the consumer s place of residence or the financial service provider s seat are located in two different EEA member states upon contract signing, during the contract term or only at the time of Financial Arbitration Board procedures (dispute settlement); in all such cases, Council no. 4 of the Financial Arbitration Board shall be in charge with conducting the procedures. Based on the legal definition of cross-border financial consumer disputes, two alternative scenarios exist. One, where the consumer resides in Hungary and the service provider is seated abroad. E.g. a Hungarian consumer relies on a 2
financial service provider seated in Germany to invest on the Frankfurt stock exchange. In this case, the effectiveness of the procedure chiefly depends on voluntary submission (to the Board s authority), as without a declaration of such submission the role of the Financial Arbitration Board is limited to mediation only, as it is the case with other alternative European dispute resolution forums. The chart below outlines the scheme of this procedure along with the possible outcomes. 3
In the other scenario, the consumer resides abroad while the financial service provider is seated in Hungary. E.g. a German citizen takes out insurance for his holiday home by Lake Balaton at a Hungarian insurer. In this case, the dispute settlement procedure is as follows: The lack of returned receipt confirmation slips (e.g. in the case of Ireland and the United Kingdom) slightly complicates the settlement of classic cross-border cases that are typically handled in writing and where hearings are omitted. With a view to the circumstances outlined above, the number of compliant resolution requests that indeed related to cross-border financial consumer disputes received by the Financial Arbitration Board s council in charge were much lower than expected (two in total). Regarding banking services, one case 4
is still under procedure: A consumer residing in Ireland wished to have his banking card replaced. The domestic financial service provider involved in the related dispute placed an out-of-court settlement offer. The council in charge is awaiting a statement of acceptance from the claimant (and the receipt conformation slip). Should these documents fail to arrive, the council will close the case based on the documents available to it. Another request could have resulted in a classic cross-border financial consumer dispute in the area of insurance services. The case involved a service provider seated abroad and a consumer residing in Hungary. According to paragraph (1) in Section 107 of the HFSA Act, the launch of procedures by the Financial Arbitration Board is not only subject to the formal compliance of the request but also to preliminary and unconditional submission by the financial service provider regarding the dispute to the Financial Arbitration Board s resolution. Considering that the request did not state clearly the claimant s intention to settle the cross-border financial consumer dispute, the council in charge informed the claimant on the specific legal requirements pertaining to disputes and, simultaneously, called on him to supply all missing mandatory elements of the submission. The claimant failed to fulfil this appeal by the statutory deadline, thus Council no. 4 of the Financial Arbitration Board terminated the procedures and rejected the claim. With a view to his intention, the claimant probably did not know that he initiated a cross-border financial consumer dispute and once he became aware of it he desisted from the claim. As no declaration of submission specific to the case was available from the financial service provider seated abroad, in the appeal to the claimant to supply the missing elements of the submission, the council in charge also attached the English and Hungarian-language forms downloadable from the Financial Arbitration Board s website which can be used to initiate the settlement of a cross-border financial consumer dispute. This approach complied with paragraph (2) of Section 107 of the HFSA Act. The forms were not returned by the claimant. Therefore, as the legal prerequisites were missing, the Financial Arbitration Board could not forward the completed form to the organization in charge within FIN-Net, the network that connects the alternative dispute resolution forums of EEA member states. 5
Each request for resolving cross-border financial consumer disputes must fulfil the general conditions set out in paragraph (2) in Section 85 of the HFSA Act. With a view to this rule and in accordance with paragraph (1) in Section 83 of the HFSA Act, the council of the Financial Arbitration Board assigned to settle cross-border disputes decided to reject an ungrounded request on one occasion as there was no preceding complaint investigated and rejected by the service provider. Another typical procedural hurdle related to a dispute that involved a service provider seated abroad and a domestic consumer. A Hungarian court already passed a non-appealable ruling on this case; the council in charge decided to reject the request on grounds of Section 88 of the HFSA Act. Other matters of international relevance In addition, Council no. 4 of the Financial Arbitration Board also provides general information to consumers regarding claims that relate to non-eea states. A domestic consumer wishing to initiate a cross-border dispute was informed that according to Section 106 of the HFSA Act, the Financial Arbitration Board cannot launch proceedings against a financial service provider based in Switzerland. (Switzerland is not an EEA member state it is only linked to the area through bilateral and multilateral international agreements.) Financial mediation proved to be successful over the Atlantic: consumer with a permanent domestic residence moved to the United States for good after the termination of his bank account contract in Hungary. However, he had a subsequent financial dispute with his financial service provider and turned to the Financial Arbitration Board to help resolve the case. In their reply sent out before the statutory deadline, the financial service provider fully accepted the customer s claim and therefore requested the termination of procedures; with a view to fulfilment by the financial service provider, the council in chare accepted the request for termination. A consumer living abroad for years submitted a request to the Financial Arbitration Board from Canada, asking for assistance in settling a dispute related to the transfer of her widow pension. The consumer was duly informed by the organization in charge based on the submitted information. 6
The Financial Arbitration Board s participation in international regulatory efforts The effectiveness of cross-border financial consumer dispute resolution is still in its infancy. The directive of the European Parliament and the Council on alternative dispute resolution, resolution 2006/2004/EC, the amended directive 2009/22/EC (consumer ADR directive) and the regulation of the European Parliament and the Council on the online resolution of consumer disputes (consumer ODR regulation) strive to regulate the operation of alternative dispute resolution forums. The Financial Arbitration Board provided an opinion on these drafts. Concerning the resolution of financial consumer disputes, the EU legislation process is quite complex. The operation of FIN-Net, the network coordinating the alternative dispute settlement schemes of EEA countries is supervised by the Internal Market and Services Directorate General. However, with a view to the special, consumer protection nature of these procedures, draft regulations that profoundly impact the forums are prepared by the Consumer Affairs Directorate (Directorate B ), namely department 4, Financial Services and Redress, within the Health and Consumers Directorate General. Considering that the representative of the Health and Consumers Directorate General presented the Commission s proposals 1 for alternative (and online) dispute resolution at FIN-Net s semi-annual meeting held in Malta on 21 October 2011, it is important to underline that the assessment of these drafts calls for due foresight and care both from the Commission and member state the representatives owing to their dual mandate. Participation of the Financial Arbitration Board in FIN-Net In response to his initiative taken in accordance with paragraph (4) of the HFSA Act, the Financial Arbitration Board s chairman was notified by the European 1 Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on online dispute resolution for consumer disputes (Regulation on consumer ODR) 2011/0374 (COD), Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on consumer ADR) 2011/0373 (COD). 7
Commission s director general for internal market and services in a letter dated 16 June 2011 that the Financial Arbitration Board became a full member of the financial dispute resolution network of national out-of-court complaint schemes in the EEA countries that are responsible for handling disputes between consumers and financial services (FIN-Net). Accordingly, the council in charge with cross-border matters prepared and submitted to the secretariat in Brussels the information sheet outlining key information on the Financial Arbitration Board. This way, this information is now available on the directorate general s home page for all consumers concerned. The Financial Arbitration Board s representative attended FIN-Net s semiannual meeting held in Malta on 21 October 2011 and presented the key features of the new Hungarian alternative dispute settlement forum there. The presentation was met with vivid interest which focused in particular on the diverse built-in guarantees in new legislation and the special, real-life tested legal vehicles made available for the Financial Arbitration Board. Foreign interest (both from Central and Western European delegates) was mainly aimed at the Financial Arbitration Board s integrated dispute resolution mandate that encompasses diverse financial (banking, investment and insurance) products and at the related consumer protection signalization rights, but it also extended to the option to attach resolutions outlining obligations and agreements in enforceable documents and the special legal consequences of non-compliance with the Financial Arbitration Board s recommendations. The event provided attendees with an opportunity to obtain direct information on draft EU regulations in the making, current experiences of partner organizations and planned legislation in other member states. In order to foster our integration into FIN-Net, the Financial Arbitration Board initiated that the fall 2012 meeting of the network be held in Hungary. The related negotiations are currently underway. Other international roles of the Financial Arbitration Board Effective 1 January 2012, the Financial Arbitration Board is a full member of the International Network of Financial Services Ombudsman Schemes. The summary information sheet outlining the Hungarian scheme will be published on the organization s home page in the near future. In addition to indicating 8
global recognition for the Financial Arbitration Board s activities, membership enables the Board to help enforce consumer rights quickly and effectively not only through statutory guarantees but also through participation in a general information gathering and contact keeping system which represents a highly cost efficient arrangement. This organization was established in 2007 and encompasses 50 organizations from 31 countries, with Anglo-Saxon members being dominant. Hungary s Financial Arbitration Board is the 50 th member of the network. Membership enables the Financial Arbitration Board to present its activities to the international professional community and to join international professional debates on the latest developments and trends in alternative financial dispute resolution. Such participation takes place through newsletters and web pages on network member home pages which are only accessible for financial ombudsmen. As a guest presenter, the representative of the Financial Arbitration Board attended the 19 th international conference of the Permanent Arbitration Court and Mediation Centre at the Croatian Chamber of Commerce (CCC). The presentation focused on the general government s role in consumer protection and, in conjunction with the related quick and cost efficient procedure, the reasons for the new regulation in effect since 1 July 2011, the establishment of the Financial Arbitration Board in accordance with the general principles of the EU, its independence and impartiality, the importance of cooperation between the parties and strict compliance with legal and professional requirements. The quick and effective procedure of the Financial Arbitration Board, the underlying legal guarantees, the uniqueness of its system of resolutions and legal remedy drew extensive interest from the nearly one hundred participants from three continents. In his plenary comments after the presentation, the chairman of the Permanent Arbitration Court at the CCC clearly cited the Hungarian example as the best practice for the out-of-court settlement of financial consumer disputes. The organizers also asked the Financial Arbitration Board s representative for permission to have an updated version of his presentation published in the CCC s 2012 yearbook. 9
The Financial Arbitration Board s participation in other international relations On request from the World Bank, Western European experts prepared a study on the current and future opportunities of alternative dispute resolution in Europe. Having reviewed the draft, the chairman of the Financial Arbitration Board requested that the paper be updated to reflect changes in effect in Hungary since 1 July 2011. As a guest presenter, the representative of the Financial Arbitration Board attended the College of Supervisors meeting held in Budapest with the participation of the Hungarian Financial Supervisory Authority and Banca d Italia. In his presentation, our delegate reviewed the consumer protection aspects of the legal regulations on the Financial Arbitration Board in the light of the cooperation obligation of financial service providers. The Financial Arbitration Board strives to provide as thorough and comprehensive information as possible to consumers both in its verbal and written communications. Accordingly, the council in charge with international matters prepared the English version of information booklets for foreign consumers inquiring about the Financial Arbitration Board s procedures. Furthermore, in order to resolve financial consumer disputes quickly and in a cost efficient manner, the Board is available to provide thorough and extensive information on any specific matter. The Financial Arbitration Board s website can be accessed via the HFSA s home page at http://www.pszaf.hu/ and directly at http://www.pszaf.hu/pbt. A publication of the Financial Arbitration Board of the Hungarian Financial Supervisory Authority 1013 Budapest, Krisztina krt. 39. Hungary Phone: (36-1) 489-9100 E-mail: pbt@pszaf.hu Internet: www.pszaf.hu/pbt Hungarian Financial Supervisory Authority All rights reserved 10