Melinda Pelikán September 21 2021 Deposit fees and negative interest rates on deposits in Hungary Wolf Theiss | Banking & Financial Services - Hungary Melinda Pelikán Banking & Financial Services IntroductionIs it permissible to charge negative interest on deposits or a deposit fee to customers?Is there a difference between term and overnight deposits? What about current accounts?Is there a difference between consumers and entrepreneurs?How can a deposit fee be structured?How can negative interest or a deposit fee be implemented for new and existing customers?What is the current market practice in relation to negative interest or deposit fees?IntroductionInterest rates have been negative in the Eurozone since 2014 when the European Central Bank (ECB) first introduced negative interest on the deposit facility used by credit institutions to make overnight deposits within the Euro system. At the moment, the interest rate for such overnight deposits is set at -0.5%.(1)This somewhat peculiar interest-rate landscape incentivises banks – which, under normal conditions, would seek deposits from customers as an inexpensive form of financing and would accordingly pay interest on them – to avoid taking in larger amounts of deposits and to pass on costs by charging customers negative interest or additional fees on their deposits.Since negative interest rates are usually not explicitly provided for in European legislation, credit institutions are confronted with several legal issues regarding the introduction of negative interest on deposits or a deposit fee. This article aims to provide an overview of the legal landscape in Hungary in this regard.Is it permissible to charge negative interest on deposits or a deposit fee to customers? Although legislation contains some discrepancies in relation to the imposition of negative interest, the common understanding is that applying negative interest on deposits is permitted in the case of legal persons. Conversely, the deposited sums of natural persons cannot be subject to negative interest, and in this case the minimum interest rate applied is 0.01% under mandatory Hungarian laws.The permissibility of the deposit fee, however, is not regulated. Therefore, it should be assessed in accordance with the rules applicable to the imposition of the fees by banks and with the legislation regarding the use of general terms and conditions (GTC), consumer protection law and general civil law.Is there a difference between term and overnight deposits? What about current accounts?Hungarian law distinguishes between deposit accounts and current accounts. In the case of deposit accounts, the depositor is entitled to deposit a specific amount of money into a dedicated bank account, and the bank undertakes to repay the same amount together with the accrued interest at a later date. Current accounts are usually used for the execution of payment services, and no interest payment obligation arises on the bank's side. However, in practice, most banks pay a minimal interest on monies standing to the credit of current accounts.Both fixed-term deposits and deposits of indefinite duration (overnight deposits) are applied for investment purposes, but deposits of indefinite duration are more flexible. However, it is worth mentioning that the depositor is entitled to request the pay-off of the fixed-term deposits prior to the end of a fixed term, but it usually implies that a lower interest rate will be paid to the depositor.In line with the above, current accounts do not necessarily bear interest or bear interest at a very low rate, since their purpose is to record and settle the monetary claims of a company. Fixed-term deposits usually grant a higher interest rate than the deposits of indefinite duration, but there is no essential difference between them.Is there a difference between consumers and entrepreneurs? While there is no explicit prohibition of a deposit fee in consumer business, charging a deposit fee for consumers is generally more delicate due to the applicability of consumer protection laws, in particular where GTC are used.How can a deposit fee be structured? Generally, the deposit fee could be structured as a fee or commission (charged as consideration for services of the credit institution) or as interest, in each case, at a fixed or (partly) variable rate. Since deposit fees are uncommon, there are no absolute or clear-cut limits to the amount of deposit fee charged. The deposit fee must be structured in an appropriate way and not grossly discriminatory against the customer and in compliance with consumer protection provisions, if applicable.In any case, a deposit fee must be based on a clear and unambiguous contractual basis.How can negative interest or a deposit fee be implemented for new and existing customers? For new customers, a deposit fee can either be agreed individually (advisable for customers who are consumers) or – although associated with a higher legal risk – through GTC (or similar standardised forms of agreement).In relation to existing customers, Hungarian law forbids the unilateral introduction of new fees and charges and the amendment to the means of calculations thereof, irrespective of whether the customer is an undertaking or a consumer. Therefore, such changes must be agreed individually. Furthermore, fees and commissions may be unilaterally modified by the bank to the disadvantage of the customers only if it is expressly permitted for the financial institution in a separate section of the individual agreement under specific conditions or circumstances. Amendments to contractual conditions relating to the fees must be published 15 days prior to the date of such amendments.What is the current market practice in relation to negative interest or deposit fees? Notwithstanding the fact that charging a deposit fee on the deposits is not prohibited, Hungarian banks do not charge it either to consumers or undertakings. The average interest rate on the deposits is between 0.01% and 1%. Given that the Hungarian state is continuously issuing short-term government bonds with attractive interest rates to consumers, it is not expected that a deposit fee will be introduced across the board in Hungary. However, in any case it is important to wait for the relevant case law, which is still lacking and will have a decisive influence on future developments.For further information on this topic please contact Melinda Pelikan at Wolf Theiss by telephone (+36 1 4848 800) or email ([email protected]). The Wolf Theiss website can be accessed at www.wolftheiss.com.Endnotes(1) Further information is available here.