Resolution No. JB-2015-3439 of the Banking Board of Ecuador

Banking Board of Ecuador

RESOLUTION No. JB-2015-3439

THE BANKING BOARD

CONSIDERING:

THAT the second paragraph of the Third Transitory 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 procedures it was handling on the date this Code entered 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 through Resolution No. 054-2015-F, dated March 5, 2015, published in the Official Register No. 467, dated March 27, 2015, the aforementioned Board extended the deadline by an additional one hundred and eighty days for the Banking Board to continue acting and resolve all claims, appeals, and other administrative procedures within its competence;

THAT through a communication received by this Superintendency on February 21, 2014, Mr. Cristian Guido Hidalgo Pizanán filed a claim against Banco Pichincha C.A., regarding charges he claims he did not make, totaling the sum of US$ 624.53, in the following terms:

"(...) personal documents and credit cards were lost in the City of Ibarra..., after a month I became aware of account statements showing charges supposedly made by me, causing me economic harm,... the charges 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 this Superintendency: "...the money I was harmed by should be returned, as they failed to follow the corresponding security rules in the commercial establishments." (sic);

THAT the Deputy Director of User Attention, through letter No. DNAE-SAU-2014-01415, dated March 5, 2014, requested Banco Pichincha C.A. to send the pertinent explanations and defenses. This requirement was attended to by Mrs. Catalina Salazar Mejía, Authorized Signatory of Banco Pichincha C.A., with letter BP-ACEC-2014-0293 received by this Superintendency on April 10, 2014;

THAT through letter No. DNAE-SAU-2014-02787, dated April 30, 2014, the Acting Deputy Director of User Attention resolved the claim in the following terms:

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

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Banking Board of Ecuador Resolution No. JB-2015-3439 Page No. 2

In accordance with the established first paragraph of article 5 mentioned above, as a corrective measure, the Superintendency... orders Banco to require its affiliated establishments to strictly comply with the procedures for sales with credit cards as established in article 15, Section III, Chapter V, Title I, Book I of the Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, additionally requiring the presentation of the ID card and verification of the cardholder's signature, and especially, paragraph 15.2 cited verbatim..." (sic);

THAT through a communication received by this Superintendency on May 15, 2014, Banco Pichincha C.A. filed an appeal for reconsideration against letter No. DNAE-SAU-2014-02787, dated April 30, 2014;

THAT with letter No. DNAE-SAU-2014-04741, dated July 28, 2014, the Deputy Director of User Attention and Education rejected the appeal for reconsideration and ratified the content of letter No. DNAE-SAU-2014-02787, dated April 30, 2014;

THAT through a document received by the Superintendency on August 7, 2014, Mr. Antonio Acosta Espinosa, Adjunct 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 letter No. DNAE-SAU-2014-04741, dated July 28, 2014, arguing:

• That in the claim presented to this control body, Mr. Hidalgo Pizanán stated that he filed the corresponding complaint with the Prosecutor's Office, therefore the Superintendency lacks competence to rule on the matter due to the powers attributed in articles 213 and 226 of the Constitution of the Republic, and in consideration of the principle of independence of the Judicial Function constitutionally enshrined.

• That the Institution cannot be held responsible for transactions made with the active credit card, whose custody is the responsibility of the client as stipulated in paragraph 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 responsibility for the lack of care in the custody of documents by the client; and for the loss of their cards, which could have fallen into the hands of third parties, therefore there is no legal or logical basis for ordering the refund of the claimed value, as articles 180 and 175 of the Organic Law of the Financial System do not contain the attribution to order the restitution of values;

THAT with 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 letter No. JB-2014-2142, of the same date, informed Mr. Cristian Guido Hidalgo Pizanán of the matter;

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THAT this challenge is resolved in accordance with the First Transitory Provision of the Organic Monetary and Financial Code, published in the Official Register Second Supplement No. 332, dated September 12, 2014, whose text states that the resolutions contained in the Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, and the norms issued by the control bodies, will maintain their validity in everything that does not oppose what is provided 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 Transitory Provision, which states that the Banking Board will continue to act until it resolves all claims, appeals, and other administrative matters 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 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 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 the Banking Board, the procedure for the attention of claims against financial system institutions, 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 to regularize the situation that motivated the claim, the Superintendent of Banks or his delegate will issue the corresponding order. Likewise, if the situation that motivated the claim referred to in the previous paragraph originated in an incorrect procedure of the controlled institution, which caused harm to the claimant, this control body may order the refund of the claimed values, granting the legal representative of the entity a period that may not exceed fifteen (15) days from notification, to send under the precautions of law, the proof of compliance with the order issued;

THAT under this context, the Superintendency, precisely under the cover of the powers attributed to it by articles 213 and 226 of the Constitution of the Republic and the Law, through letter No. DNAE-SAU-2014-2787 of April 30, 2014, in the strict scope of its administrative competence, resolved the claim in question by ordering the entity to refund the cardholder the values of the claimed transactions, which in turn was the subject of an appeal for reconsideration, rejected with letter No. DNAE-SAU-2014-04741 of July 28, 2014, the subject of this current challenge. Therefore, the argument raised by the appellant that it is neither legal nor logical to order the restitution of the claimed value lacks basis, since this control body has legal and regulatory authority to determine the conduct of the financial institution and order the pertinent corrective measures so that it applies procedures that guarantee the funds of its depositors;

THAT in this line, the argument that this control body, based on the constitutional principle of independence of the Judicial Function, must abstain from hearing and resolving the case, due to what is provided in article 6, chapter IV, title XX, book I of the Compilation 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 the ordinary justice, the Superintendency will abstain from processing it; excepting claims that are simultaneously under the knowledge of ordinary justice in criminal matters, which it will hear and resolve, within the scope of its competence;

THAT paragraph 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 the Constitution; book I.- General norms for the application of the General Law of Financial System Institutions, of the Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, determines the conditions related to the loss, theft, or deterioration of the credit card. If any of these cases occur, the cardholder, duly identified by full names, identity or citizenship number, and card number, must notify the issuer, and the first is not responsible, from that moment on, for the charges made to the card reported as lost or stolen. The notification can be made in writing or by telephone, in which case the magnetic message will constitute means of proof, according to what is provided in article 125 of the Code of Civil Procedure. The notification made by telephone must be ratified in writing within a term of 48 hours.

In the file, the defense letter BP-ACEC-2014-0293 entered in this Superintendency on April 10, 2014, in which the financial institution, in its conclusions, refers to the "VISA BANCO PICHINCHA" and/or "MASTERCARD BANCO PICHINCHA" CREDIT CARD ISSUANCE AND USE CONTRACT, celebrated between the cardholder and the bank, in whose paragraph 6th, the conditions for cases of theft, loss, or deterioration of the card are stipulated, which contains the regulations issued by the Banking Board, described in the previous paragraph, manifesting the contractual responsibility of the cardholder regarding the use and custody of their credit card, given that the card was active without any impediment due to loss or theft.

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

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Banking Board of Ecuador Resolution No. JB-2015-3439 Page No. 5

THAT the entity, regarding the charges made with credit card No. 5181140000757439, as indicated by the Deputy Directorate of User Attention, did not submit evidence that it was verified that the signatures on the vouchers sent by the establishments, at first glance differ notably from the one registered by Mr. Cristian Guido Hidalgo Pizanán in the issuance and use contract of the credit card and his identification document, which should have been requested at the time of processing the transactions, more so given that in the photocopies of the charge slips, under the signatures recorded, 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 safe sale was not applied; it is also not evident that these merchants requested the citizenship ID card, so that since it was not required, the transactions were carried out, violating what is provided in paragraph 15.2 of article 15, chapter V, title I, book I of the Compilation, ibidem, a norm in force on the date of the claim, which states that institutions authorized to issue or administer credit, payment, or affinity cards must enter into written contracts with affiliated establishments, in which it will be stipulated the obligation of the establishment to issue the charge slip and to verify that the signature and rubric signed by the cardholder is the same as that on the back of the card; and, in case of doubt, the establishment will require the identification document and note on the receipt the number of the identity card or passport, a situation that in the present case has not been fulfilled, in addition to pointing out, as stated in letter No. DNAE-SAU-2014-04741 that: "...there was no approach or investigation with each of the referred locations regarding the transactions that were made;" despite the bank appellant having affirmed in the aforementioned defense letter that "The merchants provided the images of the requested vouchers, for which reason no chargeback of any type is applicable;";

THAT although, according to the file, the claimant communicated the theft of his card after the claimed charges were made, it should be noted that the indicated charges are backed by charge slips whose signatures recorded there have not been recognized as his by the cardholder, since at first glance they differ notably from the one on his citizenship ID card 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 the vouchers sent by them were received, should have fulfilled its obligation to verify that these merchants had in turn complied with what is provided in the aforementioned article 15, regarding the verifications and pertinent precautions in the claimed transactions, to base on its contractual powers, abstain from paying the disputed charges; this does not mean that the control body is adjudicating on the legitimacy of the signatures, but rather observing the bank, as an institution subject to its supervision and control, so that the provision of a financial product, such as consumption through credit cards, adjusts and complies with the provisions of the current regulations, based on the contractual link

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Banking Board of Ecuador Resolution No. JB-2015-3439 Page No. 6

contractual agreed upon both with the cardholders and with the establishments;

THAT the cardholder assumes contractual responsibilities, likewise the credit card issuer, therefore, the argument raised by the appellant regarding the lack of custody by the client and his contractual obligation with the entity, and the fact that his card was lost, holding him exclusively responsible for the handling of his card, without mentioning any security mechanism established to mitigate this type of transaction, does not exempt him from his obligation regarding the securities to prevent that the establishments with which he should have celebrated the respective affiliation contracts, as demanded by the aforementioned regulations, have and comply with safe sales policies, so that the charge slips or vouchers backing the charges reflect legitimate transactions, taking into account that the non-observation regarding the verification that the involved establishments should have carried out prior to the realization of the claimed transactions, makes them co-responsible for the indicated non-compliance, based on the 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 the attention of 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 Compilation of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, has been fulfilled in the present case, by having determined an incorrect procedure of the credit card issuing entity, for not having carried out the procedures and internal controls it is obligated to fulfill, for the provision of a safe financial product to its cardholders, tending to establish lack of application and compliance with the regulations issued for this effect by the Banking Board, by the affiliated establishments, contractually linked to the issuer, regarding the respective precaution and verification mechanisms for the completion of a safe sale in the claimed transactions; consequently, it was appropriate for the control body to order the refund of the claimed values, by Mr. Cristian Guido Hidalgo Pizanán;

THAT the National Legal Intendency, through memorandum INJ-DNJ-SAL-2015-0382 of May 6, 2015, recommended to the Banking Board to reject the claim contained in the appeal for review filed;

AND IN exercise of its legal attributions,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the appeal for review filed by Mr. Antonio Acosta Espinosa, Adjunct President of Banco Pichincha C.A.; and, consequently, CONFIRM the administrative act contained in letter No. DNAE-SAU-2014-04741, dated July 28, 2014, with which, the Deputy Directorate of User Attention rejected the appeal for reconsideration filed and ratified the content of letter No. DNAE-SAU-2014-02787, dated April 30, 2014, ordering the entity "...the refund of the value claimed by Mr. Cristian Guido Hidalgo Pizanán, in the amount of USD $ 624.53." (sic).

NOTIFY.- Given at the Superintendency of Banks, in Quito, Metropolitan District, on the twenty-seventh of May of two thousand fifteen.

[Signature] Econ. Rodrigo Landeta Parra GENERAL INTENDENT, S PRESIDENT OF THE BANKING BOARD, E

I CERTIFY.- Quito, Metropolitan District, on the twenty-seventh of May of two thousand fifteen.

[Signature] Lcdo. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD

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Banking Board of Ecuador