Financial disputes body scores early successes, but controversies remain

Author: András Rácz

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Financial disputes body scores early successes, but controversies remain

April 27 2012

Main features
Competence
Enforceability
Controversies
Early results


Since July 1 2011 a new alternative dispute resolution body, the Financial Conciliation Body (FCB), has been operating under the aegis of the Hungarian financial regulator. The aim of the FCB is to facilitate the out-of-court settlement of financial disputes between consumers and financial service providers, including banks and other credit institutions.

Main features

One of the main features of FCB proceedings is their speed: the conciliation process must be concluded within 90 days of its commencement and there is no remedy against the result (except in the event of a serious error by the FCB). This makes the procedure similar to arbitration. FCB proceedings are also cheaper than court proceedings, not least because consumers do not pay stamp duty. The need for a quick and affordable form of dispute resolution in the financial sector is borne out by the FCB's popularity - around 600 petitions were submitted in its first 100 days of operation.

The FCB acts through seven panels or 'councils', each composed of three members - two lawyers and an economist. The council primarily tries to facilitate the settlement of the dispute. If a settlement is reached, the FCB issues a resolution to approve it. In the absence of settlement, the FCB decides the dispute by a majority vote.

Competence

The FCB has competence over disputes between consumers and financial service providers which relate to either the conclusion or the fulfilment of the parties' contract. The law gives the FCB no competence over counterclaims by service providers.

Enforceability

The enforceability of a decision depends on whether the service provider has previously agreed to be bound by the authority of the FCB. If so, the decision is treated in the same way as an arbitral ruling; if not, it is regarded as a recommendation and cannot be enforced. Nonetheless, the FCB may publish its position on the case if the service provider fails to comply with the recommendation.

Banks and other financial service providers may limit the FCB's authority over them to a certain extent or to certain issues (eg, insurance-related matters). Most financial service providers in Hungary have already agreed to be subject to the FCB's authority, but only up to a relatively small amount (around €3,300). However, irrespective of this limited obligation, service providers must cooperate with the FCB in conciliation proceedings and may be fined by the regulator if they fail to do so. Two banks have already received fines of Ft5 million (around €20,000) for failure to cooperate. The size of the fines indicates that the regulator intends to take a consumer-friendly approach.

Controversies

There are at least two major problems with the FCB procedure.

First, the FCB interprets its competence extensively, arguing that it has competence over any kind of dispute which is connected to the parties' contract - including the validity of the contract itself. This appears to exceed the intended scope of its powers, as the law does not provide for such broad competence.

Second, an FCB decision is not binding on the consumer, even if the service provider has submitted to the FCB's authority. As a result, a consumer who is dissatisfied with an FCB decision may have recourse to the courts, whereas a dissatisfied service provider may not. It is at least arguable that this provision is the result of a misinterpretation of Chapter VI of European Commission Recommendation 98/257. Chapter VI states that a consumer's recourse to an out-of court dispute resolution procedure may not be the result of a commitment made before the dispute arose if such commitment has the effect of depriving the consumer of his or her right to bring an action before the courts for the settlement of the dispute.

Early results

The regulator has published statistics on the FCB's initial results. In around 50% of disputes, the FCB achieved a settlement between the parties, dismissing the consumer's claims in a further 37% of cases. Recommendations (rather than enforceable rulings) were issued in 10% of cases. Only 3% resulted in a loss for the service provider.

Given the large number of successful settlements, albeit in low-value cases, this model of dispute resolution is expected to become more popular, as it offers a quicker and more cost-effective solution than the courts.

For further information on this topic please contact András Rácz at Gárdos, Füredi, Mosonyi, Tomori by telephone (+36 1 327 7560), fax (+36 1 327 7561) or email (racz.andras@gfmt.hu).