Consumer Rights Strengthened
Application of the New Rules
The use of electronic payment instruments is beginning to grow in Hungary. Plastic cards, office and home banking methods, and reloadable payment instruments are not as widely used as they are in the European Union. However, 1999 saw a 33% increase in sales of plastic cards as compared to 1998. Clearly, interest in electronic payment methods is growing.
The Hungarian legislature is keen to increase consumer confidence in electronic payment instruments and transactions. To this end, it recently introduced new regulations in accordance with international obligations based on EU norms. The regulations offer precise definitions of the tasks and liabilities of the issuers and holders of electronic payment instruments.
The possibilities of issuing cash equivalents were defined in the Credit Institutions and Financial Services Companies Act CXII of 1996 (ACI) and the former Banking Act of 1991. These acts permit the use of instruments such as cheques and bank cards within specific financial services. The rules of electronic money transfer via bank cards were established by Decree 6/1997 (MK 61), issued by the National Bank of Hungary.
The decree still in force establishes that the bank has a liability for identifying the holder during a card transaction. In effect, this obliges the issuer to make the card-holder sign the card in front of the issuer at the time of issuance. In the absence of specific rules, banks then established a start-date for their liability in their general contractual terms and conditions. This applied to cases where losses were caused by the card being lost or stolen. Some banks limited their liability to commence 24 or 48 hours after the holders had asked them to stop the card, whatever the reason for the request was.
Hungary is obliged to harmonize some of its laws with European norms under the European agreement concluded between Hungary and the European Communities' associate states. The Commission's Recommendation 97/489/EC of July 30 1997 concerned transactions which use electronic payment instruments, and the relationship between issuers and holders. The Hungarian government therefore adopted Decree 77/1999 (V8).
The decree specifies rules governing the transfer of funds and cash withdrawals via electronic payment instruments such as remote access payment instruments and electronic money. It also specifies which mandatory rules apply to the contractual relationship between the issuer and the holder of the electronic payment instrument. The scope of transactions and definitions of the decree are regulated in harmony with the scope and terms of the recommendation. This applies to:
- electronic payment instruments;
- remote access payment instruments such as cards and office and home banking systems;
- electronic money instruments;
- the issuer; and
- the holder.
The regulations apply as long as the issuer is a Hungarian credit institution or the authorized branch of a foreign credit institution, as defined in the ACI.
The decree also outlines the rights and obligations of the issuer and the holder. It specifies which elements of their contractual relationship are mandatory, in compliance with the recommendation.
Crucially, the legislation establishes the so-called 'objective liability' of the issuer. This means that, from the moment the holder reports to the issuer that the instrument has been lost or stolen, the issuer must bear any losses that arise. This excludes cases where the holder acts fraudulently. The decree requires issuers to keep records of every notification submitted by the holder for five years. This record must be kept accurately, and in a format showing the content and exact time of notification in a way that cannot be altered.
Occasionally, a dispute may arise between the issuer and the holder over payments or withdrawals made by the holder. On the basis of the recommendation, the decree states that the issuer is under a burden of proof to show that the transaction was accurately recorded and entered into the accounts. The issuer must also show that the transaction was not affected by a technical breakdown or other deficiency.
Nevertheless, general civil code rules apply to the parties' liability for settling disputes between the issuer and the holder over the electronic payment account. The exception here is a dispute which arises from unauthorized use of the electronic payment instrument by third parties.
Until the holder notifies the issuer of loss or theft, the liability of the holder according to the recommendation is limited to an amount equal to 150 ECU (cases where the holder is grossly negligent are an exception to this rule). The decree did not introduce this limitation on the holder's liability.
The decree required any credit institution licensed to issue electronic payment instruments to make certain changes before December 1 1999. The institution had to amend its general contractual terms and conditions, and initiate that amendment with a 30-day response deadline for existing client agreements.
In the light of the enormous worldwide increase in electronic commerce, the impending problems are only partially solved by the regulations summarized above as well as by the introduction of criminal sanctions against fraudulent card-use.
But legislation is not the only way to address the need for complete security and an effective fight against fraudulent card-use. Issuer banks in Hungary have established an association which identifies retailers and other organizations with a record of fraudulent transactions, such as accepting counterfeit cards. This move reflects the worldwide Europay and Visa campaigns. It is an important step, and one that has helped reduce counterfeit card-use by 90%. It works by preventing point-of-sale terminals being placed with suspicious business entities, and by refusing them card acceptance agreements.
Leading banks in Hungary have faced legal claims from these businesses, on the grounds of abuse of economic practice violations. The Office of Economic Competition made the following statement in a decision:
"A bank has an essential interest to maintain a good reputation, but also to avoid losses as a result of abusive client conducts. Therefore, it is reasonable that where the bank has experienced abuses with the acceptance of cards, to refuse the conclusion of a legal relationship with such client, or to refuse to contract with such potential client which is in an area, operating a business or may have such clients - which according to criminal statistics - potentially implies abusive card uses."
Sophisticated forms of abuse are also causing a problem where payment occurs without the actual use of the plastic card. A typical example is where the holder pays for products ordered over the Internet when the specification of his plastic card number is requested. Hungarian banks have started to develop value-added electronic payment instrument products by using international standards, where even the holder does not have to specify the credit card number. This promotes safer methods as well as greater confidence in electronic payment. It allows business customers to use secured socket layer and secured electronic transaction standards in the course of electronic commerce. The legislation that is being considered would protect electronic signatures and documents. It may create a safer environment in Hungary for online commerce, including the security of online payments.
For further information on this topic, please contact Judit Budai at Szecskay Law Firm Moquet Borde by telephone (+36 1 353 1255) or by fax (+36 1 353 1229) or by e-mail ([email protected]).
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