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

1. EXTRAJUDICIAL SETTLEMENT OF CONSUMERS DISPUTES IN DOMAIN OF FINANCIAL SERVICES – EU AND CROATIA Prof. Čulinović-Herc, Edita PhD University of Rijeka, Faculty of Law, Croatia Ass. Prof. Žunić-Kovačević, Nataša PhD University of Rijeka, Faculty of Law, Croatia

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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.)

10. 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 Centreor Court of Honour at the Croatian Chamber of Commerce • Permanent Arbitration Court

11. 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

12. 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