Banking Board Resolution JB-2015-3517

Banking Board of Ecuador

RESOLUTION No. JB-2015-3517

THE BANKING BOARD

CONSIDERING:

THAT by Resolution No. JB-2015-3439 of May 27, 2015, the Banking Board resolved: "REJECT the claim contained in the appeal for review filed by Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A.; and, consequently, CONFIRM the administrative act contained in Official Letter No. DNAE-SAU-2014-04741, dated July 28, 2014, by which the Sub-Directorate for User Services rejected the motion for reconsideration filed and ratified the content of Official Letter No. DNAE-SAU-2014-02787, dated April 30, 2014, ordering the entity '...the return of the amount claimed by Mr. Cristian Guido Hidalgo Pizanán, in the sum of USD $ 624.53.' (sic)", fundamentally based on the following considerations:

"(...)

THAT the second paragraph of the Third Transitional Provision of the Organic Monetary and Financial Code determines that the Banking Board will continue to act until it resolves all claims, appeals, and other administrative proceedings pending as of the effective date of this Code, within a period of one hundred eighty days, extendable at the discretion of the Monetary and Financial Policy Board;

THAT by Resolution No. 054-2015-F, dated March 5, 2015, published in the Official Register No. 467 on March 27, 2015, the aforementioned Board extended by one hundred eighty additional days the period for the Banking Board to continue acting and resolve all claims, appeals, and other administrative proceedings within its jurisdiction;

THAT by communication received at this Superintendency on February 21, 2014, Mr. Cristian Guido Hidalgo Pizanán filed a claim against Banco Pichincha C.A., regarding charges he claims not to have made, amounting to US$ 624.53, in the following terms:

"(...) personal documents and credit cards have gone missing in the City of Ibarra..., after a month I become aware of statements of charges supposedly made by me, economically harming me,... the consumption with the following credit cards: MASTERCARD BANCO PICHINCHA, at the Marathon Sport store, for the purchase of sports shoes in the amount of $ 227.62, clothing store ETAFASHION for the amount of $ 204.85, Punto Rojo (footwear) $ 228.85,..." (sic).

Requesting from this Superintendency: '...the return of the money I was harmed by, as they failed to follow the corresponding security rules at commercial establishments.' (sic);

THAT the Sub-Director of User Services, through Official Letter No. DNAE-SAU-2014-01415, dated March 5, 2014, requested that Banco Pichincha C.A. send the pertinent explanations and defenses. This requirement was fulfilled by Ms. Catalina Salazar Mejía, Authorized Signatory of Banco Pichincha C.A., with official letter BP-ACEC-2014-0293 received at this Superintendency on April 10, 2014;

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Banking Board of Ecuador

Resolution No. JB-2015-3517 Page No. 2

THAT through Official Letter No. DNAE-SAU-2014-02787, dated April 30, 2014, the Acting Sub-Director of User Services resolved the claim in the following terms:

"(...) For the reasons stated, (...) it is ordered that Banco Pichincha C.A. return the amount claimed by Mr. Cristian Guido Hidalgo Pizanán, in the sum of USD $ 624.53.

In accordance with the quoted first paragraph of Article 5, as a corrective measure, the Superintendency... orders that Banco must require its affiliated establishments to strictly comply with credit card sales procedures as established in Article 15, Section III, Chapter V, Title I, Book I of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, additionally requiring the presentation of the identity card and verification of the cardholder's signature, and especially numeral 15.2 as textually quoted..." (sic);

THAT by communication received at this Superintendency on May 15, 2014, Banco Pichincha C.A. filed a motion for reconsideration against Official Letter No. DNAE-SAU-2014-02787, dated April 30, 2014;

THAT with Official Letter No. DNAE-SAU-04741, dated July 28, 2014, the Sub-Directorate for User Services and Education rejected the motion for reconsideration and ratified the content of Official Letter No. DNAE-SAU-2014-02787, dated April 30, 2014;

THAT by written submission received at the Superintendency on August 7, 2014, Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A., with the professional sponsorship of Dr. Pablo Cadena Merlo, filed an appeal for review before the Banking Board against Official Letter No. DNAE-SAU-2014-04741, dated July 28, 2014, arguing:

• That in the claim presented to this regulatory body, Mr. Hidalgo Pizanán stated that he filed the corresponding complaint with the Public Prosecutor's Office, therefore the Superintendency lacks jurisdiction to rule based on the powers attributed in Articles 213 and 226 of the Constitution of the Republic, and considering the principle of independence of the Judicial Function constitutionally enshrined.
• That the Institution cannot be held liable for transactions made with an active credit card, whose custody is the responsibility of the client as stipulated in numeral 6 of the Credit Card Issuance and Use Contract, signed between the issuing entity and the cardholder, which is law for the parties according to Article 1561 of the Civil Code.
• That the bank has no liability for the client's lack of care in document custody; and, regarding the loss of his cards, which may have fallen into the hands of third parties, therefore there is no legal or logical basis for ordering the return of the claimed amount, since Articles 180 and 175 of the Organic Law of the Financial System do not attribute the power to order restitution of values;

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Banking Board of Ecuador

Resolution No. JB-2015-3517 Page No. 3

THAT with Official Letter No. JB-2014-2141, dated August 12, 2014, the Secretary of the Banking Board (S) accepted the appeal for review for processing, and with Official Letter No. JB-2014-2142, of the same date, notified Mr. Cristian Guido Hidalgo Pizanán;

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 on September 12, 2014, whose text states that resolutions contained in the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, and norms issued by regulatory bodies, will remain in effect to the extent they do not conflict with the Organic Monetary and Financial Code, until the Monetary and Financial Policy Board resolves accordingly; and with the second paragraph of the Third Transitional Provision, which states that the Banking Board will continue to act until resolving all claims, appeals, and other administrative proceedings pending as of the effective date, within a period of one hundred eighty days, extendable at the discretion of the Monetary and Financial Policy Board;

THAT Article 1, in conjunction with Articles 180, letters b) and o), of the General Law of Financial System Institutions, assigns to the Superintendency of Banks and Insurance, within its jurisdiction, the supervision and control of the financial system, keeping in mind the protection of public interests, as well as requiring controlled institutions to present and adopt corresponding corrective measures;

THAT in light of the foregoing, the Banking Board, with the purpose of ensuring effective compliance with provisions emanating from both the regulatory body and the collegiate organism, integrated into Chapter IV of Title XX, Book I, of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, the procedure for handling claims against financial system institutions, always attentive to protecting public interests as mandated by law, whose Article 5 establishes that if the analysis conducted by the Superintendency determines the need for the controlled institution to introduce corrective measures that regularize the situation motivating the claim, the Superintendent of Banks or his delegate will issue the corresponding order. Likewise, if the situation motivating the claim referred to in the previous paragraph originated from an incorrect procedure by the controlled institution, which caused harm to the claimant, this regulatory body may order the return of claimed values, granting the entity's legal representative a period not exceeding fifteen (15) days from notification to submit, under legal precautions, proof of compliance with the issued order;

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Banking Board of Ecuador

Resolution No. JB-2015-3517 Page No. 4

THAT in this context, the Superintendency, precisely under the powers granted by Articles 213 and 226 of the Constitution of the Republic and the Law, through Official Letter No. DNAE-SAU-2014-2787 dated April 30, 2014, within the strict scope of its administrative jurisdiction, resolved the claim in question by ordering the entity to return to the cardholder the values of the claimed transactions, which was subsequently subject to a motion for reconsideration, rejected with Official Letter No. DNAE-SAU-2014-04741 dated July 28, 2014, the subject of this appeal. Therefore, the appellant's claim that it is neither legal nor logical to order the restitution of the claimed amount lacks merit, since this regulatory body has legal and normative authority to determine the financial institution's performance and order pertinent corrective measures to ensure it applies procedures that guarantee depositors' funds;

THAT in this line, the argument is disproven that this regulatory body, based on the constitutional principle of independence of the Judicial Function, must refrain from hearing and resolving the case, due to Article 6, Chapter IV, Title XX, Book I of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, according to which, when the specific matter motivating the claim is under the knowledge and resolution of ordinary justice, the Superintendency will refrain from processing it; excepting claims that are simultaneously under the knowledge of ordinary justice in criminal matters, which will be heard and resolved within its jurisdiction;

THAT numeral 13.9, Article 13, Chapter V.- Constitution, functioning and operations of credit card issuing or administering companies and credit card departments of Financial Institutions; Title I.- Of Constitution; Book I.- General norms for the application of the General Law of Financial System Institutions, of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, determines conditions related to the loss, theft, or deterioration of the credit card. If any of these cases occur, the cardholder, duly identified by full name, national ID or citizenship number and card number, must notify the issuer, with the first party not being responsible from that moment onward for charges made against the reported lost or stolen card. Notification may be made in writing or by telephone, in which case the magnetic message constitutes means of proof, according to Article 125 of the Code of Civil Procedure. Notification made by telephone must be ratified in writing within 48 hours.

On file is the defense letter BP-ACEC-2014-0293 received at this Superintendency on April 10, 2014, in which the financial institution refers to the "CREDIT CARD ISSUANCE AND USE CONTRACT 'VISA BANCO PICHINCHA' and/or 'MASTERCARD BANCO PICHINCHA'", concluded between the cardholder and the bank, whose numeral 6 stipulates conditions for cases of theft, loss, or deterioration of the card, which contains regulations issued by the Banking Board described in the previous paragraph, stating the contractual liability of the cardholder regarding the use and custody of his credit card, given that the card was active without any impediment due to loss or theft.

In the aforementioned letter, it is stated that the credit card was blocked as lost on May 15, 2013, at 15:43:37 at the Ibarra Branch and transactions were made on May 9, 2013, that is, before the time and date of the card blocking requested by the cardholder;

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Banking Board of Ecuador

Resolution No. JB-2015-3517 Page No. 5

THAT the entity, regarding charges made with credit card No. 5181140000757439, as indicated by the Sub-Directorate for User Services, did not submit evidence that signatures on vouchers sent by establishments were verified, which noticeably differ from those registered by Mr. Cristian Guido Hidalgo Pizanán in the credit card issuance and use contract and his identification document, which should have been requested when processing transactions, further noting that in photocopies of charge notes, under the signed signatures, it is expressed as follows: "THE ESTABLISHMENT CERTIFIES THAT THE CLIENT'S SIGNATURE IS AUTHENTIC";

THAT it is necessary to reiterate that Banco Pichincha C.A. should have observed that in the committed establishments: MARATHON SPORTS, COMERCIAL ETATEX C.A. and NORPHONE the procedure for a secure sale was not applied; it is also not evident that these merchants requested the national ID card, so since it was not required, transactions were carried out, failing to comply with numeral 15.2 of Article 15, Chapter V, Title I, Book I of the Codification, ibid., a norm in effect at the date of the claim, which states that institutions authorized to issue or administer credit, payment, or affinity cards must conclude written contracts with affiliated establishments, in which the establishment's obligation to issue charge notes and verify that the signature and rubric signed by the cardholder is the same as on the back of the card will be stipulated; and, in case of doubt, the establishment must request the identification document and note on the receipt the national ID or passport number, a situation not met in this case, additionally noting, as stated in Official Letter No. DNAE-SAU-2014-04741 that: "...there was no outreach or investigation with each of the referred locations regarding the transactions carried out," despite the appellant bank stating in the cited defense letter that "The merchants provided the requested voucher images, so no chargeback of any kind applies.";

THAT although, as evidenced in the file, the claimant communicated the theft of his card after the claimed charges were made, it should be noted that said charges are backed by charge notes whose signed signatures have not been recognized as his by the cardholder, since they noticeably differ from that on his national ID and in the issuance and use contract signed by him with the issuing entity. Therefore, Banco Pichincha C.A., prior to making payments to the involved establishments, once receiving the vouchers sent by them, should have fulfilled its obligation to verify that these merchants also complied with the provisions of the aforementioned Article 15, regarding relevant verifications and precautions in claimed transactions, to based on its contractual powers, refrain from paying the disputed charges; this does not mean that the regulatory body is ruling on the validity of signatures, but rather observing the bank, as an institution subject to its supervision and control, that for providing a financial product, such as consumption through credit cards, it adjusts and complies with current regulations, based on the contractual bond agreed upon both with cardholders and with establishments;

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Banking Board of Ecuador

Resolution No. JB-2015-3517 Page No. 6

THAT the cardholder assumes contractual responsibilities, likewise the credit card issuer, therefore, the argument raised by the appellant regarding the client's lack of custody and his contractual obligation to the entity, and the fact that his card was lost, holding him exclusively responsible for handling his card, without mentioning any security mechanism established to mitigate this type of transactions, does not exempt him from his obligation regarding securities to prevent that establishments with which he should have concluded respective affiliation contracts, as demanded by the aforementioned regulations, possess and comply with secure sales policies, so that charge notes or vouchers backing charges reflect legitimate transactions, considering that the non-observance regarding verification that involved establishments should have carried out prior to making claimed transactions, co-responsible them for the stated non-compliance, based on commercial affiliation contracts they should have signed with Banco Pichincha C.A;

THAT for the reasons stated, the premise of Article 5 of Chapter IV.- Procedure for handling claims against financial system institutions, Title XX.- Of the Superintendency 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 Superintendency of Banks and Insurance and the Banking Board has been met in this case, by determining an incorrect procedure by the credit card issuing entity, for not carrying out procedures and internal controls it is obligated to fulfill, for providing a secure financial product to its cardholders, tending to establish non-application and compliance with regulations issued for this effect by the Banking Board, by affiliated establishments, contractually linked to the issuer, regarding respective precaution and verification mechanisms for securing a sale in claimed transactions; consequently it was appropriate for the regulatory body to order the reimbursement of claimed values, by Mr. Cristian Guido Hidalgo Pizanán;"

THAT through communication dated June 22, 2015, received by the Superintendency of Banks on the 24th of the same month and year, Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A., with the professional sponsorship of Dr. Pablo Cadena Merlo and Attorney María José Araujo Álvarez, filed a motion for reconsideration against the administrative act contained in Resolution No. JB-2015-3439 of May 27, 2015;

THAT the Banking Board, in a session held on July 9, 2015, as established by the second paragraph of Article 3, Chapter II, Title XVI, Book I of the Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, considered the appeal referred to in the preceding paragraph and determined that it does not comply with what is provided in the first paragraph ibidem, that is, there are no new elements of fact or law motivating the preparation of corresponding reports, so it decided to deny it outright;

AND,

IN exercise of its legal powers,

RESOLVES:

SINGLE ARTICLE.- DENY the motion for reconsideration filed by Mr. Antonio Acosta Espinosa, Deputy President of Banco Pichincha C.A., against the administrative act contained in Resolution No. JB-2015-3439 of May 27, 2015; and, consequently, CONFIRM said resolution.

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Banking Board of Ecuador

Resolution No. JB-2015-3517 Page No. 7

NOTIFY.- Given at the Superintendency of Banks, in Quito, Metropolitan District, on July nine, two thousand fifteen.

(Signature) Econ. Rodrigo Landeta Parra GENERAL SUPERINTENDENT, S PRESIDENT OF THE BANKING BOARD, E

I CERTIFY.- Quito, Metropolitan District, on July nine, two thousand fifteen.

(Signature) Lcdo. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD

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Banking Board of Ecuador