Banking Board of Ecuador

RESOLUTION No. JB-2015-3489

THE BANKING BOARD

CONSIDERING:

THAT through a communication entered into the Regional Intendancy of Portoviejo on April 15, 2014, Mr. José Ernesto Lara Ocaña, domiciled in the canton of Manta, filed a complaint against Banco Internacional S.A., regarding charges not made by him on his Visa Banco Internacional credit card at various commercial establishments located in the city of Quito, stating that he does not reside in said city nor has he visited it for more than two years, which sum up to the amount of US$ 6,079.84;

THAT the Regional Intendancy of Portoviejo, through letters No. IRP-SAC-2014-274, IRP-SAC-2014-368, and IRP-SAC-2014-454 of April 22, May 23, and July 11, 2014, respectively, requested that Banco Internacional S.A. send the pertinent explanations and defenses; requirements attended by Banco Internacional S.A. with letters USC-634-2014 and USC-816-2014 received at said Intendancy on June 3 and July 24, 2014, in order;

THAT through letter No. IRP-SAC-2014-511 of August 11, 2014, the Regional Intendant of Portoviejo resolved as follows:

"(...)

• Order its represented party to cancel the debt of USD$ 6,079.84, plus the interest generated to date, originated by the charges at the establishments: La Cigarra, Argold del Ecuador S.A., Business to Bussiness (sic), La Taberna Quito, Import hobbies Cía (sic) Ltda., Difare S.A., Restaurantes Instantáneos, and Almacenes Juan Eljuri Cía., by unknown persons who took possession of the VISA credit card No. 4657753003514033 Banco Internacional, owned by economist José Ernesto Lara Ocaña.
• Additionally, it is ordered to remove the information and negative qualifications generated based on the value reported to the National System of Public Data Registration, formerly Central de Riesgos, (sic) regarding the claimant, from February 7, 2014, to the present date." (sic);

THAT through a document received at the Superintendency of Banks on August 15, 2014, Dr. José Romero Soriano, Vice President-Legal Representative of Banco Internacional S.A., with the professional sponsorship of lawyer Francisco Maldonado Borja, filed an appeal for review before the Banking Board against letter No. IRP-SAC-2014-511 of August 11, 2014, arguing:

• That with reference to item 2 of the challenged letter, in which it was determined non-compliance by the involved establishments, to the provision in item 15.2, article 15, section III, chapter V, title I, book I of the Compilation of Resolutions of the Superintendency of Banks and Insurance and of the Banking Board, he states that the authority "(...) makes a very personal value judgment, as it assumes, without basis, that the establishments did not request identification documents from whoever made the purchase, and without knowing for certain, if the claimant could have also 'lost' some identification document."

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• That regarding what was determined in item 3 of the challenged letter, the authority demonstrates ignorance of the procedures typical of the transactionality used with credit cards, as it attributes to the Bank the responsibility to verify the authenticity of the signatures that cardholders imprint on vouchers when making their service purchases, which is in no way within its competence.

• That with reference to what was expressed in item 5 of the challenged resolution, the authority correctly collects the regulation regarding when the cardholder ceases to be responsible for charges made with their stolen card, but incurs in another erroneous appreciation by supposing that the bank should have abstained from paying the value of the charges that had already been made, before the entity knew of the theft of the card, since said charges were in no case in the pre-approval process, this being a totally false statement by the client; noting a lack of objectivity by having resolved entirely in favor of the claimant, who failed in his acquired obligations when he signed the credit card contract;

THAT with letter No. JB-2014-2241 of August 20, 2014, the Secretary of the Banking Board (s), accepted the appeal for review filed, and with letter No. JB-2014-2242, of the same date, informed Mr. José Ernesto Lara Ocaña of the matter;

THAT this challenge 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: the resolutions contained in the Compilation of Resolutions of the Superintendency of Banks and Insurance and of the Banking Board, and the norms issued by the 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 complaints, appeals, and other administrative procedures that it was hearing on the date of validity of the same, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT through resolution No. 054-2015-F of March 5, 2015, published in the Official Register No. 467 of March 27, 2015, the aforementioned Board extended by one hundred and eighty additional days the period for the Banking Board to continue acting and resolve all complaints, appeals, and other administrative procedures within its competence;

THAT article 1, in concordance with articles 180, letters b) and o) of the General Law of Financial System Institutions, disposed to the Superintendency of Banks and Insurance, within the scope of its competence, the supervision and control of the financial system, in all of which the protection of the public's interests is taken into account, as well as requiring that controlled institutions present and adopt the corresponding corrective measures;

THAT in merit of the foregoing, the Banking Board, with the purpose of achieving effective compliance with the provisions emanating from both the control body and the collegiate body, integrated into chapter IV, of title XX, of book I, of the Compilation of Resolutions of the Superintendency of Banks and Insurance and of the Banking Board, the procedure for the attention of complaints against institutions of the financial system

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financial, always attentive to the protection of the public's interests as mandated by law, whose article 5 establishes that if the result of the analysis carried out by the Superintendency determines the need for the controlled institution to introduce corrective measures that regularize the situation that motivated the complaint, the Superintendent of Banks or his delegate will issue the corresponding disposition. Likewise, if the situation that motivated the complaint referred to in the previous paragraph originated in an incorrect procedure of the controlled institution, which caused harm to the claimant, the control body may order the return of the claimed values, granting the legal representative of the entity a period that cannot exceed fifteen (15) days from the notification, to send under the precautions of law, the proof of compliance with the order issued;

THAT according to the file, it is observed that the challenged charges are backed by charge notes issued by the involved establishments referenced above, whose signature there visible differs notably from that recorded by the client in the Contract for Issuance and Use of the Credit Card “Visa-Banco Internacional” signed with the entity, document sent by the appellant within his defenses, besides noting, that in two of them a cedula number is recorded that is not that of Mr. Lara Ocaña, and in the rest there is no cedula number recorded, as pointed out by the Regional Intendancy of Portoviejo in items 2 and 3 of letter No. IRP-SAC-2014-511 of August 11, 2014, object of the present appeal;

Regarding this, it is not evidenced that said merchants requested the corresponding identification document and complied with the pertinent security precautions for a safe sale, so the lack of request for this, allowed the controversial transactions to be carried out failing to comply with what is established in item 15.2 of article 15, chapter V, title I, book I of the Compilation of Resolutions of the Superintendency of Banks and Insurance and of the Banking Board, norm in force at the date of the complaint, which emphatically establishes the obligation of the establishment to issue the charge note and to verify that the signature and rubric recorded by the cardholder is the same as that on the back of the card; and, in case of doubt, it will require the identification document and record the cedula number or passport number on the receipt, situations that in the present case have not been fulfilled, more so when noticing that in the photocopies of the charge notes, under the signatures recorded, the following is expressed: "THE ESTABLISHMENT CERTIFIES THAT THE CLIENT'S SIGNATURE IS AUTHENTIC"; consequently, the argument becomes inadmissible, in the sense that the control body limits itself to making a value judgment regarding this, and without having certainty if the claimant lost his identity document;

THAT the file contains a copy of the “CONTRACT FOR THE ISSUANCE OF CREDIT CARD”, celebrated between the cardholder and the issuing entity, which in clause eleventh stipulates the conditions for cases of theft, robbery, or loss of the card, which contains the regulation issued for this effect by the Banking Board, that is, the relative to the fact that the cardholder will not be responsible for charges from the date and time of notification to the bank of the event produced, and in clause tenth establishes the complaints that the client can formulate for disagreement with the values recorded in the statements issued by the entity, within a period of 15 days counted from the day he received the document; as well as the obligation it has to analyze and resolve said complaints.

The cardholder, in use of contractual powers, at the time of receiving on February 10, 2014, the call from the Bank's Fraud Analyst – which in the writing

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of the present appeal corroborated that such calls are made when in his diligent judgment he has observed that unusual movements have been made – communicated that the controversial values be retained until the pertinent investigations, given his affirmation that he did not make them; and, additionally, once received on March 13, 2014, the statement of the month of February where the unrecognized charges are reflected, immediately on March 14, 2014, he presented his disagreement to the bank, without the latter having pronounced itself on the matter, failing to comply with what is stipulated in said contractual document. Therefore, the credit card issuing entity prior to making payments to the involved establishments, once receiving the charge notes sent by them, should have fulfilled its obligation to verify that said merchants have in turn complied with what is established in the aforementioned article 15, relative to the verifications and pertinent precautions in the claimed transactions, and if not, as in the present case, abstain from paying the charges in controversy, this does not mean that the control body is adjudicating on the legitimacy of the signatures as the appellant claims, but observing the bank, as an institution subject to its supervision and control, that for the provision of a financial product, such as consumption through credit cards, it adjusts and complies with what is established in the transcribed regulation, based on the contractual links agreed upon both with the cardholders and with the establishments.

From the foregoing, it is observed that Banco Internacional S.A. had knowledge of the challenge of the charges made on the claimant's credit card, consequently, there is no legal basis for what the appellant manifested that it is not within its competence the responsibility to verify the signatures that cardholders imprint on vouchers when they make the purchase of their services, arguing ignorance on the part of this control body, about the processes used in this type of transactions;

THAT with reference to the appellant's argument, that this control body correctly collects the regulation of when the cardholder ceases to be responsible for charges made with their stolen card, but incurs in another erroneous appreciation by supposing that the Bank should have abstained from paying the value of the charges that had already been made, before it knew of the theft of said card, the client's statement that the charges were in the pre-approval process being totally false; noting a lack of objectivity by having resolved entirely in favor of the claimant, who failed in his obligations acquired when he signed the credit card contract, it is worth pointing out what was referred to textually by the bank within the conclusions of the defense letter No. USC-634-2014 received at the Regional Intendancy of Portoviejo on June 3, 2014: "(...) For February, alerts arrive for the unusual transactions presented by the client, that is why the call is made by the Fraud analyst, it should be noted that as the client himself puts in his letter, 'in turn, he indicated (sic) that at the same moment that it is by his call that I realize that my card has been stolen' it is the client's responsibility for the use and custody of the card until he informs the bank about the loss, which did not happen, since the client did not inform about the loss of the same..." (sic) (Underline added). Additionally, in the appeal for review writing he stated: "... that the calls made by the Bank occur when it has been observed, in the diligent judgment of the Bank, that movements that could be unusual have been made, when the transactions have been reported by the system after having been executed, since there is no pre-approval as the claimant claims,... In the majority of cases, credit card holders confirm having made the apparently unusual transactions consulted, and exceptions are the negatives regarding this." (Underline added).

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In virtue of this, it is specified that the cardholder assumes contractual responsibilities, likewise the credit card issuer, so, what the appellant alluded to regarding the client's lack of custody and his contractual obligation with the entity, and the fact that his card was stolen, holding him exclusively responsible for the handling of his card, without referring to any security mechanism established to mitigate this type of transactions, does not exempt him from his obligation regarding the securities to prevent that the establishments where the controversial charges were made, have and comply with safe sales policies, so that the charge notes or vouchers backing the charges reflect legitimate transactions, more so if the entity as stated in the previous consideration made the call to the cardholder because it observed unusual movements on his credit card; consequently, taking into account the non-observance regarding the verification that said merchants should have carried out prior to the realization of the claimed transactions in accordance with the aforementioned transcribed regulation, it holds them co-responsible for the indicated non-compliance, based on the "MERCHANT AFFILIATION CONTRACT" signed between Banco Internacional S.A. and Medianet S.A., which stipulates: "Sixth: Authorizations.- The Establishment undertakes that in the Transactions it carries out it will require the presence of the Cardholder, an identification document of this and the presentation of the plastic of the Card. Transactions carried out in violation of this norm will be considered illegitimate,..." (sic);

THAT article 15, section III, chapter V, title I, book I of the Compilation ibidem, disposes that institutions authorized to issue or administer credit, payment, or affinity cards, must celebrate written contracts with affiliated establishments, which govern the obligations and commercial relations agreed upon.

The Regional Intendancy of Portoviejo in accordance with the aforementioned article 15, through letter No. IRP-SAC-2014-274 of April 22, 2014, required the bank, among other documentation, certified copies of the contracts signed between the issuing entity and the establishments where the charges object of the complaint were made. Regarding this, the bank with defense letter No. USC-634-2014 received at said Intendancy on June 3, 2014, indicated the following:

"9. On three pages, establishment affiliation contract 'Comercializadora La Cigarra' with RUC 1792200342001. Regarding the information of the other commercializers I allow myself to indicate that according to our records these do not have affiliation with Banco Internacional, and it is unknown to which institution these are affiliated." (sic).

From which, it is established that no contracts were celebrated between Banco Internacional S.A. and the establishments Argold del Ecuador S.A., Business to Business, La Taberna Quito, Import hobbies Cía Ltda., Difare S.A., Restaurantes Instantáneos, and Almacenes Juan Eljuri, as demanded by the mentioned regulation;

THAT Banco Internacional S.A. has incurred in an incorrect procedure, by not having carried out the procedures and internal controls it is obliged to comply with, for the provision of a safe financial product to its cardholders, tending to establish lack of application and compliance with the regulation issued for this effect by the Banking Board by the establishments involved, regarding the respective precaution and verification mechanisms for the concreteness of a safe sale in the claimed transactions; all the more so, since the card issuer

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knew of the possible fraud, once the call to the client was made, in reason that in its judgment they could be apparently unusual charges, which at the moment were rejected and later formally claimed by the user when he received the respective statement, document in which the entity charged said values, despite having antecedents of the case; so that the premise of the aforementioned article 5, chapter IV, title XX, book I of the Compilation of Resolutions of the Superintendency of Banks and Insurance and of the Banking Board has been fulfilled, which empowers the control body to dispose to the controlled financial institutions the restitution of the values claimed by financial users;

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0280 of April 6, 2015, recommended to the Banking Board to reject 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.- REJECT the claim contained in the appeal for review filed by Dr. José Romero Soriano, Vice President-Legal Representative of Banco Internacional S.A.; and, consequently, CONFIRM the administrative act contained in letter No. IRP-SAC-2014-511 of August 11, 2014, with which the Regional Intendancy of Portoviejo resolved the complaint presented by Mr. José Ernesto Lara Ocaña, ordering the bank "(...) the cancellation of the debt of USD$ 6,079.84, plus the interest generated to date, originated by the charges at the establishments: (...); and, (...) remove the information and negative qualifications generated based on the value that was reported to the National System of Public Data Registration, formerly Central de Riesgos (sic) regarding the claimant, from February 7, 2014, to the present date." (sic).

NOTIFY.- Given at the Superintendency of Banks and Insurance, in Quito, Metropolitan District, on the seventeenth of June of the two thousand fifteen.

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

I CERTIFY.- Quito, Metropolitan District, on the seventeenth of June of the two thousand fifteen.

Lcdo. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD