Hungary: new protections for bank customers

Bank customers are to be given increased statutory protection, following public and media pressure for change.

Most of the changes took effect on 3 May 2009, while others will come into force on 3 August 2009.

The key change is the imposition of limits on banks’ right to make unilateral changes to interest, fees and costs in finance agreements.

In retail loan agreements and financial lease agreements with individual consumers or small businesses (ie with fewer than 10 employees and a maximum annual turnover or balance sheet of €2 million):

• the right to make unilateral changes to interest, fees and costs to the detriment of customers can only be exercised if they fall within the scope of provisions dealing with price changes
• the bank must publish details of the intended change at least 60 days before it would take effect
• the bank must provide customers affected by the change with full details of it, including an explanation of its effect on the instalments they have to pay
• customers affected by the change will be entitled to terminate the agreement before the change takes effect by voluntarily prepaying the loan or credit without having to pay a fee
• customers will not be able to terminate the agreement because of interest rate changes which are due to a change in the underlying floating rate (e.g. EURIBOR) on which their interest rate is based

In all other customer contracts:

• banks can only make a unilateral change to interest, fees or other condition which is to the detriment of customers if it is unambiguously permitted by the contract and the underlying reason or cause for making it is clearly communicated to the customer
• banks cannot unilaterally introduce new fees or costs during the contract term
• banks cannot unilaterally change the method by which certain fees and their margin are calculated to the detriment of customers

Any new customer contract or retail loan agreement that does not contain details of the conditions and circumstances under which a credit fee can be amended will be null and void.

The Hungarian Financial Supervisory Authority has also been given broader and continuous supervisory powers over banks. It will be able to appoint an official to supervise a bank:

• when the bank is threatened by circumstances affecting its ability to comply with its obligations
• when the bank has deficiencies in its books and control systems which are so significant that they prevent the HFSA from evaluating the bank’s financial situation under its normal supervisory procedure

Finally, the HFSA will be obliged to initiate proceedings against the Hungarian branch office of a foreign bank which is the subject of insolvency proceedings.

Law: Act CXII of 1996 on financial institutions