EXTRAJUDICIAL SETTLEMENT OF CONSUMERS DISPUTES IN DOMAIN OF FINANCIAL SERVICES – EU AND CROATIA

Prof. Čulinović-Herc, Edita PhDUniversity of Rijeka, Faculty of Law, CroatiaAss. Prof. Žunić-Kovačević, Nataša PhDUniversity of Rijeka, Faculty of Law, Croatia

Level of integration in financial services – present state of play

• European priority - the integration of financial markets • required measure - efficient mechanism of

ADR for consumer disputes

• Financial Services Action Plan 1999

• Finacial Services Policy 2005-2010

General remarks on consumer dispute settlement issues

• Most EU countries have systems for Alternative Dispute Resolution (ADR) or other out-of-court mechanisms• Arbitration*

• European Commission in Green Paper on ADR in civil and commercial matters from 2002 eliminates arbitration from the term of ADR

• Ombudsman

• Board for consumer complaints • Board for complaints within supervisory

authority

FIN-NET

• The European Commission launched on 1 February 2001 an out-of-court complaints network for financial services to help businesses and consumers resolve disputes in the Internal Market

• Members of FIN-NET -linked through a memorandum of understanding • procedural framework for cross-border cooperation• basic principles for out-of-court dispute settlement.

• quality standards set out in Commission Recommendation 98/257/EC and Commission Recommendation 2001/310/EC• principles applicable to bodies responsible for out-of-court settlement of

consumer disputes• transparency • adversarial procedure • effectiveness • legality • liberty • representation • independence

Proposals for Croatian law – settlement of financial services disputes with consumers

• supervision of financial market - two supervisory authorities

• Croatian National Bank (cro. HNB).

• Croatian Agency for Supervision of Financial Services (cro. HANFA) - instituted supervision over non-banking segment of financial services

Supervision at the Croatian financial market

• Twin peaks model• Banking segment of financial services is

supervised by CNB• Non-banking financial services are

supervised by HANFA• i.e. brokers, investment funds, pension funds,

leasing factoring and insurance companies

• ! Supervision is not complete• Card issuers are beyond supervision

CNB (HNB)

• CNB legislation does not list consumer protection as goal of financial supervision

• Because of the reputational role of the CNB, consumer complaints vis-a-vis banks were monitored during 2002

• Statistics showed 1 complaint / day (365 in total)

• During 2004 – less then half complaints• (?) reasons - Consumer Protection Act

or greater competition in bank sector

Situation in EU countries

• In most of the EU countries consumer protection is listed as one of the goals of supervision

• Some countries introduced even dispute settlement bodies attached to supervisory institutions• e.g.: Spain - Banco de Espana has special department –

complaint board• UK approach: financial ombudsman for all financial

services (but supervision is unified!)• Consumer complaint is free of charge, the award

rendered in the procedure is binding for provider of financial service but not for the conusmer

• Not satisfied consumer reserves a right to file a suit

HANFA

• HANFA Act – consumer protection not listed as a goal

• (?) Capital market = market for professionals • Life insurance, pension funds – end user is

consumer• According to present set of competences

HANFA cannot settle claims with consumers (investors)

• HANFA’s authorities are of administrative nature (licence withdrawals, cancellation of transactions etc.)

ADR for financial services - proposal for Croatia

• (1) ADR body could be instituted and attached to one or both supervisory bodies (CNB / HANFA)• powers of the supervisory institutions need to be redefined• should be financed by state• Argument of professionalism

• (2) ADR body constituted by common consensus of supervisory institutions + associations of providers of financial services + consumer associations (i.e. all relevant subjects)• Financial sources partly from the state and partly from associations –

founders• Argument of representation of all interests involved• Providers who are not organized in associations (?)

• (3) ADR for financial services should fall into the competence of ADR body(ies) competent for all consumer complaints • Unified approach for all consumer complaints• Need for specialised panels (financial srevices are technically complex)• Mediation Centre or Court of Honour at the Croatian Chamber of Commerce• Permanent Arbitration Court

The way forward

• In the negotiation process it came up that Court of Honour will be ADR body generally competent for consumer complaints

• Some initiatives “from the bottom”• Croatian Association of Insurers lounched in

April 2007 Conciliation Center• Complaint is initiated by consumer against

insurer, it is free of charge• procedure is in front of conciliator, who acts

as neutral third party• Cost and fees – born by insurers and HUO

Conclusion& opened questions

• Need to insert the goal of consumer protection in relevant supervisory legislation

• ADR body should insure level of professionalism (legal experts acting in panels)

• Consumer should have right to seek protection at the court

• Award / decision of the ADR body should be binding on provider