Resolution No. JB-2015-3487 of the Banking Board of Ecuador

Banking Board of Ecuador

RESOLUTION No. JB-2015-3487

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 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 handling on the date of entry into force 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 Mrs. Blanca Rebeca Caiza, through communication received by the control body on June 20, 2013, filed a complaint against Banco Internacional S.A., through which she requests the Superintendence of Banks to order the aforementioned bank to return the sum of USD $13,073.71 corresponding to purchases made in the United States, Florida, on March 8, 2013, with her MasterCard credit card No. 5536603002376013, basing her complaint on the following facts: "(...) on February 27, 2013, I went to the International Bank to speak with Miss Cristina Chamorro to restrict my credit card limit to a value of $3,000, since the next day I was going to travel to the United States... On Monday, March 11, around 10 in the morning, already in Ecuador, Mr. Fausto Jácome from the International Bank called to inform me that I had made some purchases at Wall Mark for a value of $400, $300, and other purchases, I replied that I had never bought at that establishment... Miss Viviana Jácome subsequently indicated my statement in which, upon reviewing it, I indicated that I never made them, unfortunately the 27 purchases amounting to $13,073.71 dollars, the object of the fraud that were not made by me, were made in the United States on March 8, all at the same time, that is, at 20 hours 12 minutes and 38 seconds, a date on which I was also in the United States, but the purchases made do not match the state or city in which I was located (...)".

THAT through letters No. DNAEU-SAU-2013-3386 and No. DNAE-SAU-2013-06421 of July 15 and November 4, 2013, respectively, the full content of the complaint filed against Banco Internacional S.A. was transferred to the bank, granting it a term of 5 days to present the pertinent explanations and defenses; in response to said requirement, with letter No. USC-808-2013, received by the control body on July 24, 2013, and letter No. USC-1252-2013 of November 25, 2013; the financial entity presented the explanations and defenses related to the claim presented by Mrs. Blanca Rebeca Caiza, basing its action, mainly, on the following:

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Banking Board of Ecuador Resolution No. JB-2015-3487 Page 2

"(...) Mrs. Blanca Rebeca Caiza has not presented any document or request to reduce the limit to US$ 3,000.00 to Banco Internacional S.A. Since our Institution became aware of Mrs. Caiza's complaint, this is the first time the client mentions that she asked to lower the limit (...) (sic)

(...) The transactions that are the subject of the complaint did not all occur at the same time as the client Mrs. Blanca Rebeca Caiza has stated. In the statement of March 2013, the time at which each consumption was made can be appreciated (...)

(...) The card was not blocked automatically because the client approached the Bank to notify her departure abroad, and indicated that she would be in Florida and in the places where the consumptions occurred. It is for this reason that, upon receiving her notification, the Bank proceeded to enable her card for consumptions."

THAT with letter No. DNAE-SAU-2013-00226 of January 14, 2014 (sic), the administrative resolution regarding the complaint presented by Mrs. Blanca Rebeca Caiza was issued; in it, the National Directorate of User Attention and Education partially accepted the claimant's request, resolving to order BANCO INTERNACIONAL S.A. to proceed to restore the sum of USD $8,824.90 corresponding to the consumptions approved from 16:20 until 19:45 on March 8, 2013, the moment at which the credit card should have been blocked once the alert was generated. Likewise, with letter No. DNAE-SAU-2013-00227 of January 14, 2014 (sic), the referred resolution was communicated to the claimant.

THAT through letter No. VJ-021-2014 received by the control body on January 29, 2014, Banco Internacional S.A. filed an appeal for reconsideration against the administrative act contained in letter No. DNAE-SAU-2013-00226 of January 14, 2014 (sic). Likewise, through a document received by the Superintendence of Banks on January 31, 2014, and its extension on February 18 of the same year, Mrs. Blanca Rebeca Caiza also filed an appeal for reconsideration against resolution No. DNAE-SAU-2013-00227 of January 14, 2014.

THAT through letters No. DNAE-SAU-2014-04867 and No. DNAE-SAU-2014-04869, of July 31, 2014, the National Directorate of User Attention and Education rejected the appeals for reconsideration filed by the bank and the claimant, and resolved to confirm the content of letters No. DNAE-SAU-2014-00226 and No. DNAE-SAU-2014-00227 of January 14, 2014.

THAT to the aforementioned, it is worth indicating that with letter No. DNAE-SAU-2014-00776 dated February 6, 2014, addressed to Banco Internacional S.A.; and, letter No. DNAE-SAU-2014-00792 of February 7, 2014, addressed to Mrs. Blanca Rebeca Caiza, the National Directorate of User Attention and Education clarified that the correct numbers of the letters referred to in paragraph 1.3 are: DNAE-SAU-2014-00226 and DNAE-SAU-2014-00227, respectively.

THAT through letter No. VJ-0187-2014, entered in the Superintendence of Banks on August 14, 2014, Dr. José Romero Soriano, in his capacity as Vice President-Legal Representative of Banco Internacional S.A., with the professional sponsorship of lawyer Francisco Maldonado Borja, filed before the Banking Board an appeal for review

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against the administrative act contained in letter No. DNAE-SAU-2014-04867 of July 31, 2014, arguing:

• That upon the holder's request, the credit card was activated for consumptions abroad on February 27 at 17:07:32, until March 12, 2013.

• That there is no written request from the client, nor has she presented any proof of having requested the reduction of the credit limit of her credit card issued by Banco Internacional S.A. to US$ 3,000.00.

• That the codes universally used by the credit card brand and corresponding to the consumptions questioned by the client, demonstrate that those were made with the physical presence of the credit card, which disproves that a cloned card would have been used for said transactions, which would have required the complicity of all the establishments where the questioned purchases were made.

• That it is necessary to record that as soon as Mrs. Blanca Rebeca Caiza left the United States territory, there was no other transaction that had been made with her Mastercard credit card, which also constitutes a serious indication that we are not facing a case of cloning or lack of diligence by the Bank, because if it were so, the alleged fraud cases would have continued;

THAT with letter No. JB-2014-2239 of August 20, 2014, the Secretary of the Banking Board accepted the appeal for review for processing; and, with letter No. JB-2014-2240 of the same date, notified Mrs. Blanca Rebeca Caiza regarding the acceptance of said appeal;

THAT the Superintendence of Banks, as the competent body, in accordance with the provisions of articles 1 and 180, letter b) of the General Law of Financial System Institutions in force at the time of presentation of the present complaint, as well as what is provided in article 5 of chapter IV "Procedure for the attention of complaints against Financial System Institutions", 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 Banking Board, has the function and attribution to ensure the stability, solidity, and correct functioning of the institutions subject to its control; to supervise that they comply with the norms that govern them; and, to require that said institutions present and adopt the corresponding corrective measures when necessary; under this context, based on the referred legal and regulatory provisions, it is inferred that the control body has the legal and normative faculty to hear the complaints of financial users, and in case of determining an incorrect procedure by the entities, to order the restitution of values to them, therefore the administrative acts that it issues to resolve them, arise from the control and supervision attributions, in whose activity, the protection of the public's interests must be taken into account;

THAT from the documentation sent by the bank and by the claimant, it is appreciated that the transactions subject of the present administrative proceeding were made with the MasterCard credit card No. 5536603002376013 issued in the name of Mrs. Blanca Rebeca Caiza, holder of this card, and that are detailed below:

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DATE	TIME	AMOUNT	CITY	ESTABLISHMENT
03/08/2013	13:10:47	$ 250.00	Brandon Florida	FINISH LINE
03/08/2013	13:33:46	$ 117.65	Brandon Florida	DSW SHOE WAREH
03/08/2013	13:18:52	$ 200.00	Brandon Florida	MACY BRANDON TOWN CENTER
03/08/2013	14:36:27	$ 747.93	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	14:37:12	$ 747.93	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	14:41:10	$ 300.00	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	14:41:51	$ 248.03	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	15:27:42	$ 533.93	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	15:28:33	$ 352.03	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	15:36:05	$ 383.46	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	15:37:36	$ 300.00	Brandon Florida	WALL MART SUPER CENTER
03/08/2013	15:48:35	$ 317.85	Brandon Florida	PUBLIX SUPER MARKETS INC.
03/08/2013	16:23:54	$ 317.85	Seffner Florida	PUBLIX SUPER MARKETS INC.
03/08/2013	16:37:37	$ 694.43	Seffner Florida	WALL MART DIVISION 1
03/08/2013	16:38:47	$ 694.43	Seffner Florida	WALL MART DIVISION 1
03/08/2013	16:44:10	$ 314.94	Seffner Florida	WALL MART DIVISION 1
03/08/2013	16:44:48	$ 300.00	Seffner Florida	WALL MART DIVISION 1
03/08/2013	17:33:00	$ 317.85	Plant City Florida	PUBLIX SUPER MARKETS INC.
03/08/2013	17:45:00	$ 694.43	Plant City Florida	WALL MART SUPER CENTER
03/08/2013	17:46:17	$ 694.43	Plant City Florida	WALL MART SUPER CENTER
03/08/2013	17:48:40	$ 747.93	Plant City Florida	WALL MART SUPER CENTER
03/08/2013	17:49:11	$ 747.93	Plant City Florida	WALL MART SUPER CENTER
03/08/2013	17:52:51	$ 539.68	Plant City Florida	WALL MART SUPER CENTER
03/08/2013	17:53:32	$ 300.00	Plant City Florida	WALL MART SUPER CENTER
03/08/2013	18:43:44	$ 747.93	Lakeland Florida	WALL MART SUPER CENTER
03/08/2013	18:44:42	$ 747.93	Lakeland Florida	WALL MART SUPER CENTER
03/08/2013	18:48:45	$ 324.21	Lakeland Florida	WALL MART SUPER CENTER
03/08/2013	19:43:54	$ 640.93	Auburndale Florida	WALL MART SUPER CENTER

THAT regarding the first argument of the appellant, related to the request made by the claimant to activate her card for consumptions abroad, it does not mean that the bank can shift the responsibility to the user; although it is true that the client is the custodian of the card issued by the bank and solely responsible for its use, in the case at hand, it is not evident that Mrs. Blanca Rebeca Caiza has compromised in any way the security of her credit card, granted by the controlled entity;

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THAT the Constitution of the Republic of Ecuador in its article 308 states "(...) Financial activities are a public order service, and may be exercised, with prior authorization of the State, in accordance with the law; they will have the fundamental purpose of preserving deposits and attending financing requirements for the achievement of the country's development objectives. (...)";

THAT from the cited regulatory framework, it is determined that the bank assumes the obligation to keep or safeguard the deposited values and to satisfactorily attend all types of operations, with diligence and professional care, as well as being responsible for the other services offered to its clients; it is obliged to evaluate and demand the corresponding securities in order to be able to fulfill its obligations as a depositor of the money that its clients have entrusted to it;

THAT with reference to the second argument, I must point out that although it is true that the lady did not evidence that she made the request to reduce her limit to $3,000.00, it does not mean that the responsibility is that of the user, since it is the financial institution in charge of carrying out an effective risk management, from which it is observed that the bank ignored the alert signals generated, did not perform an analysis of the user's behavior, profile, and transactions, to finally proceed to contact the client by phone or block the credit card as established in paragraph 4.3.5.13 of article 4, chapter V, of title X of the Codification of Resolutions of the Superintendence of Banks and Banking Board, which states:

"4.3.5.13.- Institutions must establish control procedures and mechanisms that allow registering the profile of each client regarding their transaction behaviors that imply money movement in the use of electronic channels and cards and define procedures to monitor online and allow or reject in a timely manner the execution of transactions that imply money movement that do not correspond to their habits, which must be immediately notified to the client via mobile messaging, email, or another mechanism; (...)";

THAT therefore, it is worth mentioning that comprehensive risk management is one of the responsibilities attributed to institutions that are part of the Financial System, by virtue of that, the Codification of Resolutions of the Superintendence of Banks and of the Banking Board, in its book I "General Norms for the application of the General Law of Financial System Institutions", title X "Of risk management and administration", chapter I "Of comprehensive risk management and control" in its article 3 determines the following:

"ARTICLE 3.- Financial system institutions have the responsibility to manage their risks, to which effect they must have formal comprehensive risk management processes that allow identifying, measuring, controlling / mitigating, and monitoring the risk exposures they are assuming.";

THAT regarding the third and fourth arguments, the main factual basis exposed by the bank is that there were no signs of cloning and repeatedly shifts the responsibility to the user. Regarding this, it is important to indicate that the control body proceeded to request the refund of the value of USD $8,824.90 of the consumptions approved from 16:20 until 19:45 on March 8, 2013, by virtue of the fact that the credit card should have been blocked according to the internal policies of the same financial entity, once the alert was generated in the system and it was not possible to contact the client. For this reason, the non-compliance by Banco Internacional S.A. is reflected;

THAT according to the aforementioned, it must be emphasized that the bank has not proven in any way that its client has been negligent, careless, or irresponsible in the proper handling of her card and/or security key, since its response is limited repeatedly to the sole custody of the credit card and to the alleged defenses delivered by the Mastercard brand, but it does not refer in any way to the levels or standards of compliance and security related to the clarity, validation, and securities that the establishments must provide until the transactions are qualified as successful, more so when the bank has not faithfully complied with the monitoring controls and alert signals parameterized to evaluate its client's transactions, in the sense that the Sentinel Prevention system emitted alert signals but the same was discarded based on a notification of the user's departure from the country, failing to comply with what is established in its own policies as referred to in the "INSTRUCTION OF PROCEDURES FOR THE PROCESS TO PREVENT AND MONITOR FRAUDS", which states that when its clients' transactions are considered high risk, the client must be contacted by phone; if it is not possible to contact the client, the credit card is blocked for security reasons, so in the present case it is evident that what was established in the institutional policy was not complied with;

THAT for the reasons expressed, an incorrect procedure of Banco Internacional S.A. is observed, in not providing the respective securities for the transactions with the disputed credit card, through the ATM network, placed as a financial service for the client's use, by ignoring the alerts generated in its own system of the money entrusted to its custody, allowing the security controls of the credit card delivered by the bank to the client to be violated, which caused Mrs. Blanca Rebeca Caiza an economic detriment; consequently, the budget established in article 5, section I, chapter IV, title XX, book I of the Codification of Resolutions of the Superintendence of Banks and Insurance and of the Banking Board is met, for the control body to order the refund of the claimed values;

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0263 of March 27, 2015, recommended to the Banking Board to reject the request contained in the appeal filed by the Vice President-Legal Representative of Banco Internacional S.A.; and,

IN exercise of its legal attributions,

RESOLVES:

SINGLE ARTICLE.- REJECT the request contained in the appeal for review presented by Dr. José Romero Soriano, in his capacity as Vice President-Legal Representative of Banco Internacional S.A.; and, consequently CONFIRM the administrative act contained in letter No. DNAE-SAU-2014-04867 of July 31, 2014, through which the National Directorate of User Attention and Education rejected the appeal for reconsideration filed, and resolved to ratify the administrative act contained in letter No. DNAE-SAU-2014-00226 of January 14, 2014, in which it was resolved "Order your representative that within a period of seventy-two (72) hours counted from the

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receipt of this letter, carry out the refund or credit note of the consumptions approved from 16:20 until 19:45 on March 8, 2013, the moment at which the credit card should have been blocked once the alert was generated and which sum a value of $8,824.90; since it was not possible to contact the client (...)".

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

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

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

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