Banking Board of Ecuador

RESOLUTION No. JB-2015-3367

THE BANKING BOARD

CONSIDERING:

THAT this appeal is resolved in accordance with the First Transitional Provision of the Organic Monetary and Financial Code, published in the Official Register Second Supplement No. 332 of September 12, 2014, whose text states that resolutions contained in the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, and the norms issued by control bodies, will maintain their validity in all that does not oppose what is established in the Organic Monetary and Financial Code, until the Monetary and Financial Policy and Regulation Board resolves what corresponds, according to the case; and, with the second paragraph of the Third Transitional Provision, which states that the Banking Board will continue to act until it resolves all claims, appeals, and other administrative procedures it was handling on the date of its entry into force, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT from the aforementioned provisions, it is established that the Banking Board is competent to resolve this review appeal;

THAT the engineer Yadira Herrera, legal representative of "Hermanos Martínez Civil Society – La Mama Negra Gas Station," through a communication entered on December 27, 2013, filed a complaint against Banco Internacional S.A. "(...) due to the damages and losses caused to her represented party," and in which she stated:

(...)

"On April 8, 2013, a letter was sent requesting the exclusion of Mr. José Martínez's signature from the same checking account 0630609878, along with the signature exclusion letter for Mrs. María Martínez from the same account; these documents were sent via email and a closed envelope was left at the Latacunga branch; since the new signature is already included, it is assumed that the signature is excluded as no information is received that Mr. José Martínez continues as an authorized signer.

On November 20, I received a call from the account officer stating that checks were being deposited; I requested the bank to cancel them as there was a transfer in transit; I sent a copy of the fund transfer however, they protested the check; checks continued to be drawn and it turned out that the signature was disabled, a fact unknown to us, resulting in checks being protested due to signature ineligibility, to which the International Bank through its officer should have notified the client not to sign or not to draw checks, however, no communication has been received from the Officer, verbal or written. [sic]

Additionally, rather, the information provided after this event has passed is that checks dated before the signature disqualification are drawn and this proceeds, and checks are also protested.

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These protests have affected Mr. José Martínez, La Mama Negra Gas Station, and me as the responsible party, so I request that Mr. José Martínez be allowed to activate his account because it is an error by Banco Internacional not to have excluded the gentleman despite having completed the indicated procedure or, alternatively, to inform that he was not excluded; and the reversal of the protests due to the lack of information.

Without prejudice to the legal action and remedy that should be taken against the aforementioned Bank. (...)"[sic].

THAT by letter No. DNAE-SAU-2014-00318 of January 17, 2014, the Deputy Director of User Attention, at that time, requested Banco Internacional S.A. to send information with the corresponding supporting documents regarding the mentioned claim;

THAT Banco Internacional S.A., by letter No. USC-315-2014 of March 21, 2014, informed:

"1. Regarding the request made in number 1 of your letter which I answer, I must indicate that Mrs. Yadira Araceli Herrera Martínez, nor her represented party Martínez Hermanos Civil Society, have not filed a prior claim with our Institution, and, therefore, no analysis of the facts brought to our knowledge has been carried out.

2. On two pages, copies of the letters dated April 1 and 8, 2013, in which the inclusion of the signatures of Mr. José Enrique Martínez Herrera and Mrs. María Martínez respectively is requested. [sic]

3. On two pages, digitalization of the signature records of Mr. José Enrique Martínez Herrera and Mrs. María Martínez.

4. There is no letter from Mrs. Yadira Araceli Herrera Martínez, nor from her represented party Martínez Hermanos Civil Society, in which the elimination of the signature of Mr. José Martínez registered in checking account No. 063060987-8 has been requested.".

THAT by letter No. DNAE-SAU-2014-02170 of April 10, 2014, the Deputy Director of User Attention, acting, requested Banco Internacional S.A. for additional documentation for the respective analysis, information that was sent by the financial institution by letter No. USC-414-2014 of April 21, 2014, in which it accompanied digital copies of five protested checks, drawn from November 20 to December 10, 2013, against checking account No. 063060987-8, during the period of ineligibility;

THAT by letter No. DNAE-SAU-2014-03288 of May 26, 2014, the Deputy Director of User Attention, acting, resolved:

"In relation to the specific request of the claimant, and the previously transcribed regulations, as well as the circumstances that mediated in the present claim and the information provided by Banco Internacional S.A., it is established that it has incurred an incorrect procedure by not notifying the account holder of the sanction of

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ineligibility; therefore, it must reverse the values of the fines charged on the protests of checks Nos. 245, 259, 261, 262, 265 of checking account No. 063060987-8; consequently, within five (5) days counted from the date of receipt of the present letter, it must return to Mrs. YADIRA ARACELI HERRERA MARTÍNEZ the sum of US$2,812.20 corresponding to the total sum of the fines on 10% of the amount of the aforementioned protested checks; and, credit that sum to said account. By virtue of the provisions that prove her represented party's compliance, it must send to the National Directorate of Studies and Information of the Superintendence of Banks and Insurance, through the corresponding structure, the corrected information containing the elimination of the protest of the checks (...)".

THAT by document received at the Superintendence of Banks and Insurance, on June 10, 2014, Dr. José Romero Soriano, Vice President – Legal Representative of Banco Internacional S.A., filed a review appeal against letter No. DNAE-SAU-2014-03288 of May 26, 2014, based on the following arguments:

• That "The signature of Mrs. Yadira Araceli Martínez Herrera, Legal Representative of checking account No. 063060987-8 of Martínez Hermanos Civil Society which it maintained at Banco Internacional S.A. was disqualified by the Superintendence of Banks and Insurance, for a period of thirty days, from November 20 to December 20, 2013. On November 20, December 2, 3, and 10, 2013, checks Nos. 245, 259, 261, 262, 265, drawn for the amounts (...) that, due to the aforementioned ineligibility, were protested by the bank of my represented party (...)."

• That it ratifies communication No. USC-315-2014, of March 21, 2014, with which it explained to the control body "that there is no proof whatsoever of the sending of a letter of any date, in which the exclusion of Mr. Martínez's signature was requested, and in another, the inclusion of Mrs. María Martínez (...). On that occasion, copies of the only communications received dated April 1 and 8, 2013, were sent, in which Mrs. Yadira Araceli Herrera Martínez requested the INCLUSION of the signatures of Mr. José Enrique Martínez Herrera and Mrs. María Martínez, respectively. In such a way that her assertion of having requested the exclusion of Mr. José Martínez's signature lacks veracity."

• That the claimant intends to base her request on the supposed lack of notification regarding the ineligibility of her signature, but at the same time intends to bypass her knowledge of such sanction; that the declaration of the complainant undermines the bank's responsibility for the supposed omission of notification and could not be the cause to transfer to the drawee the responsibility incurred by the drawer.

• That what the bank did, by protesting the aforementioned check and charging the fine, has its basis in the provision of articles 28 and 57 of the General Regulation to the Check Law.

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• That the pertinent part of article 66 of the General Regulation to the Check Law does not order that the aforementioned notification to the sanctioned holder be in writing, which means that said notification takes effect in any way it is made; that what is expressed by the claimant in her written submission to the control authority, "evidences that the ineligibility to which her signature was subject in the financial system was not unknown to her"; and that for the reasons stated, the claimant cannot allege such ignorance, originating in the non-payment of fines for the protest of checks, for the purpose of having the bank return the fine generated, on the grounds that it was drawn by an ineligible signature.

• That as a legal presumption, that every account holder knows the legal and regulatory provisions that govern the use and management of the checking account, as well as the sanctions to which one becomes liable in case of non-compliance, under the principle established in the Civil Code, that the Law obligates all inhabitants of the Republic and its ignorance excuses no one;

THAT by letter No. JB-2014-1544 of June 17, 2014, Lic. Pablo Cobo Luna, Secretary of the Banking Board, accepted the aforementioned review appeal for processing; and, by letter No. JB-2014-1545 of the same date, communicated the matter to engineer Yadira Araceli Herrera Martínez;

THAT article 24 of the Check Law, the norm in force at the date of the event, in concordance with article 15 of its General Regulation, determines that the check is payable on sight, that any contrary mention is deemed unwritten, and that upon presentation of the check, the drawee is obligated to pay them or to protest them, in case of not doing so, he will be liable for the damages and losses caused to the bearer or holder, independently of the other sanctions to which there may be grounds, excepting from this provision checks rejected for formal defects and those presented after the maximum deadline indicated in article 58 of the aforementioned law, that is, the drawee can pay a check even after the deadlines established in article 25 have expired and within the thirteen months following the date of its issuance;

THAT the aforementioned law, in its article 31, establishes a fine of ten percent on the value of each check protested for insufficient funds, a value that must be paid by the drawer through the bank debit of the drawer's accounts, up to the amount maintained in deposit. In case the fine is not covered, the Ministry of Finance will be notified for the collection of the total or the difference, according to the regulation issued by the Superintendent of Banks, whose article 57, in harmony with the law, obligates the drawee bank to collect the fine immediately after the protest of a check has occurred;

THAT in concordance with article 24 of the Check Law, article 28 of its General Regulation states that the drawee bank may only deny payment of a check by protesting or rejecting it, as appropriate, in the following cases:

"28/1 Protest it for: insufficient funds;

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28.2 Protest it for closed checking account, cancelled checking account, or check drawn by an ineligible or unauthorized person on the date of drawing;

(...);"

THAT the drawee bank denied payment of the checks in question, under the authority of numeral 28.2 of the aforementioned article 28 of the General Regulation to the Check Law; from the information contained in the file, the five protested checks of checking account No. 063060987-8, were produced due to the cause of "Ineligibility of authorized signature," which generated a fine of 10% of the amount of each of them, for a total value of USD 2,812.20;

THAT article 66 of the General Regulation to the Check Law states that the Superintendence of Banks and Insurance will order banks, by the means it determines for the effect, the closure of checking accounts due to protests subject to that sanction, and the ineligibility of holders who have not proceeded to pay fines for concept of protested checks, within the deadlines provided for in the current regulations, of checking accounts that do not reach the established limit, for which purpose it will indicate the full names of the sanctioned persons, their citizenship ID, passport, or single taxpayer registry, as appropriate; and, the term for its compliance. For this purpose, accounts will be closed and holders will be ineligible, as appropriate, regardless of whether they are individual, joint, or of legal persons, companies, foundations, and other societies. On its part, the bank will notify the control body's disposition to the sanctioned holder or holders, within fifteen (15) days;

THAT in accordance with the information contained in the file, the signature of Mrs. Yadira Araceli Martínez, legal representative of checking account No 063060987-8, of Banco Internacional, of "Martínez Hermanos Civil Society," was disqualified by the Superintendence of Banks and Insurance, for a period of thirty days, from November 20 to December 20, 2013. In accordance with the last paragraph of the aforementioned article 66 of the regulation to the Check Law, said disposition should have been notified to the aforementioned holder. In letter No. USC-414-2014 of April 21, 2014, the Customer Service Manager of Banco Internacional S.A. stated that because the regulatory norm does not determine that the notification be in writing, they do not have formal evidence of notification to the client;

THAT the appellant insisted on his argument that the provision of article 66 of the aforementioned Regulation "does not order that the aforementioned notification to the sanctioned holder be in writing, which means that said notification takes effect in any way it is made"; regarding this, although the notification constituted a duty of the bank, the claimant's assertion, when she says: "On November 20, I received a call from the account officer that checks were coming in (...);", would alert her holder that on that date circumstances of her ineligibility to draw checks on her represented party's account were occurring; however, from November 20 to December 10, 2013, the account holder drew five checks against checking account No. 063060987-8, during the period of ineligibility; from the protest history record, other protested checks and previous ineligibilities are observed; consequently, upon presentation for payment, the entity applied what is provided

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in numeral 28.2 of article 28 of the General Regulation to the Check Law, that is, it proceeded to protest for the cause of "Ineligibility of authorized signature." In any case, the opening of the account is based on the celebration of a checking account contract, in which the legal and regulatory provisions governing the use and management of the checking account under the holder's responsibility must be inserted, for the knowledge and compliance of the parties, given that one of the holder's obligations refers to the mandatory correct use of the check and maintaining the provision of available funds for their payment. In line with what is expressed, the appellant's argument is appropriate that the ineligibility to which the account holder's signature was subject in the financial system was not unknown to her;

THAT the appellant argued that the claimant's assertion of having requested the exclusion of Mr. José Martínez's signature, along with the signature inclusion letter for Mrs. María Martínez to the same account, lacks veracity, since there is no proof of sending any communication to that effect; since this controversy has arisen, and since there is no documentation in the file that supports these allegations, it is not within the competence of the Superintendence of Banks and Insurance to resolve it; however, as article 57 of the Regulation to the Check Law states, the names of persons who, within sixty days counted from the date the obligation originated, have not covered the fine established in article 31 of the Check Law, immediately after the protest has occurred, will be entered into the database of ineligible persons, corresponding to the drawee bank to proceed to close the checking account, whose holder will only be excluded once he has paid the value of the fine in full. If the checking account balance is insufficient to cover it, the drawee bank cannot cancel it for a period of sixty days, and the notification of fines pending payment will be made in the respective checking account statement, that is, the ineligibility to draw checks is produced by the non-payment of fines for protested checks, in said period, a fact that should have been known by the account holder through his account statements;

THAT as legal and regulatory norms collect, the check, with the requirements they determine, is the unconditional order to pay a sum of money in favor of a beneficiary, and rests on public faith to protect the rights of the public. It is important to note that in application of article 62 of the Check Law, the General Regulation to the aforementioned Law provides for an automatic sanction regarding the drawing of checks without fund provision, this being, the protest and ineligibility of accounts, which is also lifted, through automatic structures, after the account holder has satisfied the payment of the fine established in article 31 of the law on the matter, for incurring such infringement and has complied with the time of ineligibility;

THAT for the reasons stated and since the premise established in article 5, chapter IV "Procedure for attention of claims against institutions of the financial system," title XX "Of the Superintendence of Banks and Insurance," book I "General norms for the application of the General Law of Financial System Institutions," of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, has not been met, the application of the referred norm does not proceed;

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THAT the National Legal Intendancy, by memorandum INJ-DNJ-SAL-2015-0013 of January 9, 2015, recommended to the Banking Board to accept the claim contained in the appeal filed by the Vice President – Legal Representative of Banco Internacional S.A.; and,

IN exercise of its legal attributes,

RESOLVES:

SINGLE ARTICLE.- ACCEPT the claim contained in the review appeal filed by Dr. José Romero Soriano, Vice President – Legal Representative of Banco Internacional S.A.; and, consequently, DECLARE WITHOUT EFFECT letter No. DNAE-SAU-2014-03288 of May 26, 2014, by which the Deputy Director of User Attention, acting, resolved that Banco Internacional S.A. "(...) by not notifying the account holder of the sanction of ineligibility; (...) must reverse the values of the fines charged on the protests of checks Nos. 245, 259, 261, 262, 265 of checking account No. 063060987-8; (...)".

COMMUNICATE.- Given at the Superintendence of Banks and Insurance, in Quito, Metropolitan District, on the twenty-second of April of the two thousand fifteen.

Econ. Rodrigo Landeta Parra GENERAL INTENDANT (S) PRESIDENT OF THE BANKING BOARD SESSION (E)

I CERTIFY.- Quito, Metropolitan District, on the twenty-second of April of the two thousand fifteen.

Lic. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD

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Banking Board of Ecuador