Author: Dr Péter Gárdos
The new Hungarian financial conciliatory body
The new Hungarian Financial Conciliatory Body
The new act on the Hungarian Financial Supervisory Authority (hereinafter: “HFSA”) introduced a new conciliatory body for the out of court settlement of consumer disputes: the Financial Conciliatory Board (hereinafter: “FCB”). The FCB started its activity on 1 July 2011. As of 1 March 2012 the FCB delivered more than 900 decisions. After briefly introducing the purpose and the procedure of the FCB, the present article focuses on the competence of the FCB, and whether the FCB’s decision has binding force.
Conciliatory bodies in the EU
It was as early as 1998 when the Commission of the European Communities published its recommendation on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes (98/257/EC, hereinafter: “Recommendation”). The starting point of the Recommendation was that “most consumer disputes, by their nature, are characterised by a disproportion between the economic value at stake and the cost of its judicial settlement”, and that “the difficulties that court procedures may involve may, notably in the case of cross-border conflicts, discourage consumers from exercising their rights in practice”. There is, therefore, need for out-of-court dispute resolution fora that might lead to quicker and cheaper settlement of consumer disputes. The purpose of the Recommendation was to collect the principles that should be respected by bodies created with responsibility for the out-of-court settlement of consumer disputes. Such principles are the principles of independence, transparency, effectiveness, legality, liberty, representation and the adversarial principle.
Following the Recommendation several directives were published that touched upon the issue of out-of-court settlement of consumer disputes. Some of these directives only urge the member states to establish such conciliatory bodies (e.g. article 53 of MiFID), while other directives followed a mandatory approach and ordered that such bodies have to be established. This approach was followed e.g. by article 24 of directive 2008/48/EC on credit agreements for consumers, which stated that “Member States shall ensure that adequate and effective out-of-court dispute resolution procedures for the settlement of consumer disputes concerning credit agreements are put in place, using existing bodies where appropriate.”
The directives do not regulate the competence and the rules of procedure of such bodies. These have to be regulated by the member states in the course of the implementation of the directives. The member states enjoy a wide range of discretion, as the only requirement for the legality of such rules is that they have to meet the basic procedural requirements set forth by the constitution of the given member state.
Besides the Recommendation and the directives, the Commission went one step further when it created FIN-Net, a financial dispute resolution network of national out-of-court complaint schemes in the European Economic Area countries responsible for handling disputes between consumers and financial services providers. One of the Hungarian members of FIN-Net is the FCB.
In accordance with the Recommendation, the Hungarian legislator introduced an out-of-court dispute resolution mechanism in the act on consumer protection (Act No. XLV of 1997). These bodies operated attached to chambers of commerce and industry. The Parliament went one step further when it established the FCB for the financial consumer disputes.
FCB’s rules of procedure
Article 78 of the HFSA Act states that the FCB’s competence covers the out-of-court adjudication of disputes between consumers and financial services providers arising in connection with the conclusion and the performance of the contract (hereinafter: “financial consumer dispute”).
The dispute resolution procedure is started upon the submission of the consumer’s request to the FCB. The FCB checks whether the request fulfils the requirements set by the HFSA Act and whether it has competence to hear the case. If yes, it informs the financial services provider, who, in turn is obliged to respond to the request. The FCB holds a hearing, in order to help the parties to reach a settlement, or - in lack of such settlement - to decide the case. The decision of the FCB may be (a) the termination of the procedure (e.g. in case the request is withdrawn), (b) the delivery of a recommendation, or (c) the delivery of a resolution.
The FCB delivers a recommendation if the request is grounded, but the financial services provider does not submit a declaration to the FCB stating that it accepts the FCB’s decision. Such declaration may contain that it accepts the decision of the FCB (a) without limitations, (b) with limitations regarding the scope, or (c) with limitations regarding either the amount of the claim, or the amount of the underlying contract. Currently there is only one provider who accepted the FCB’s decisions without limitations. As the financial services providers are free to choose whether they submit such a declarations, many providers do not submit declarations at all, and those submitting declarations, usually use significant limitations (usually below 1 million HUF, approximately 3,400 EUR). If the financial services provider submits such declaration, instead of a recommendation, the FCB delivers a resolution.
There is no remedy against the decision of the FCB. The annulment of the decision is possible in cases similar to the annulment of arbitral awards (e.g. the FCB did not have competence to hear the case, the procedure of the FCB or the composition of the council failed to meet the requirements of the act, or the request should have been dismissed without hearing). If the FCB delivers a recommendation, the annulment of the recommendation may be sought from the court if the decision is wrong.
The Recommendation states that “the decisions taken by out-of-court bodies may be binding on the parties, may be mere recommendations or may constitute settlement proposals which have to be accepted by the parties.” The HFSA Act choses a different solution. Regardless of its content, the decision of the FCB is not binding on the consumer; it does not limit the consumer’s right to seek remedy from the courts.
Competence of the FCB
The competence of a dispute resolution body is of utmost importance as it makes it possible for the claimant to establish whether his claim falls under the competence of the given body. Its importance is also shown by the Recommendation. The Recommendation states that the principle of transparency requires “a precise description of the types of dispute which may be referred to the body concerned”. The HFSA Act fails to meet this requirement.
In accordance with the provision of the Act stated above, in order to understand the competence of the FCB, the term “dispute (...) arising in connection with the conclusion and the performance of the contract” has to be analysed. Sadly, neither the Act, nor its official commentary gives any hint to the interpretation of this term. One interpretation could be that conclusion and performance covers all aspects of a contractual relationship, therefore the FCB’s competence extends to all disputes arising in connection to the contract concluded between the consumer and the financial services provider. Another interpretation could be that the legislator deliberately chose this formula as it intended to limit the FCB’s scope of competence. This would imply that the FCB does not have competence to adjudicate e.g. whether a contract was concluded by the parties, whether such contract was lawfully terminated by one of the parties, and it is further questionable whether the FCB has competence to hear cases about the alleged invalidity of contracts concluded between consumers and financial services providers.
Not surprisingly, the FCB attempts to interpret its competence as broadly as possible. Among the more than 900 decisions delivered by the FCB, less than 10 deal with the competence of the FCB, and there are only 5 decisions in which the FCB accepted that it does not have competence to hear the case. (Such cases related e.g. to issues of validity of a notarial deed, tort liability, succession.) The FCB stated that it does have competence to hear cases on contractual liability and issues relating to the termination of the contract.
The regulation not only fails to meet the transparency requirement of the Recommendation (which also follows from the Hungarian Constitution), but also creates a situation where a clearly contractual dispute can be decided by panel not consisting of lawyers. The members of the panels are not listed on the FCB’s website; the cases are distributed by the head of the HFSA. He enjoys full discretion, as neither the Act on the HFSA, nor the procedural order regulates how the cases should be distributed among the panels.
Binding force of the FCB’s decision
If we compare the legislation about the binding force of the conciliatory bodies’ decisions, we find that these solutions differ significantly. The regulation of the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken states that the decision is neither binding on the financial services provider, nor on the claimant. The binding nature of the decision of the Ombudsmann der Privaten Banken depends on the amount in dispute. If based on the amount in dispute, the case would belong to the competence of the local courts; the decision is binding on the financial services provider, while it is not binding on the claimant. In case of disputes belonging to the competence of the county courts, the decision is not binding on any of the parties.
The FCB’s rules follow a mixed approach. The FCB’s decision is never binding on the claimant. Irrespective of the FCB’s decision, or even before the FCB delivers its decision, the claimant may go to court. The financial services provider may choose whether it consents to the FCB’s jurisdiction. In case of consent, the resolution is binding on the financial services provider; the claimant may seek directly juridical enforcement of the decision. In lack of such consent, the FCB delivers a recommendation, which is not binding on the financial services provider, who may seek review of the recommendation from the courts.
A further problem of the FCB’s procedure is that the relationship between the courts and the FCB is not regulated. Whereas it is not possible e.g. that the claimant launches an arbitration, as well as ordinary court procedure for the same claim, the same is not excluded in case of financial conciliation. This leads to the situation that two binding decisions may exist on the same issue: one by the FCB and one by the competent court.
Conciliation is undoubtedly an important and useful tool for the quick and cost-efficient settlement of small-claim consumer disputes. The new Hungarian legislation makes an important step in this direction, however, the existing rules are not in conformity with the transparency requirement and important procedural rules are missing. The legislator should (a) clarify the competence of the FCB, (b) provide some basic rules for the composition of the panels and the distribution of the cases, (c) avoid the currently existing parallelism between the FCB and the ordinary courts. These amendments might lead the financial services providers to consent to the jurisdiction of the FCB.
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