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Punishing times for Hungary’s banks

From the Budapest Business Journal print edition: The deadline is fast approaching when banks will have to fork out a considerable sum of money after being penalized by the regulating National Bank of Hungary (MNB). Worse than the penalty itself, though, executives at banks based in the country remain worried about what they see as a whim-based approach.

The National Bank of Hungary (MNB) is continuing its deep scrutiny of the finance sector and continues to deliver firm reminders to market participants to keep in line or face the consequences.

The central bank announced late March that it had conducted a comprehensive audit and found wide scale illegal fee management practices. It penalized 35 banks a total of HUF 1.2 billion and obliged 33 of them to give their customers a full refund. Four banks have to pay nearly HUF 100 million (the maximum sum), while the refunds will surely total in the billions.

The banks were caught completely off guard by the decision and stated that they resent the ruling. Several finance firms have since insisted that their fee systems were drawn up through regular consultations with their own legal experts, while also consulting with the finance market regulator to clarify debatable points.

Still, despite the banks being convinced they are in the right, the MNB won’t be looking at too many court cases by the look of things. Raiffeisen told journalists earlier that it is ready to seek legal reparations but that it is going to try and find a solution around the negotiating table first. MKB announced that it wouldn’t be going to court, citing the interests of its customers, though it remains convinced it hasn’t done anything wrong.

Bank sector sources said there likely would be lawsuits filed, since it is the policy of some parent companies to challenge questionable authority rulings. Nonetheless, all banks discussing the matter in the public domain have said they would observe the rule of law and make the necessary payments by the determined April 30 deadline.

Questionable verdict
Bank sector sources speaking on condition of anonymity raised several issues regarding the decision. For starters, the wording of the verdict indicates that the MNB took objection to the fact that the fees in question were clearly displayed in monthly records for customers to see, so in a sense, the regulator is punishing the banks for acting transparently.

Another problematic aspect is getting the refund to customers who have since changed banks. Finance companies aren’t allowed to store or manage the personal information of people who are no longer their clients. As such, even if somehow they still had contact information for customers who have since signed up with another bank, the act of contacting them would in itself be illegal.

The only legitimate solution thus far has been to place notices on the company website and at branches, notifying former customers to make an appointment to discuss the details of how they could receive their refunds. Of course, realistically speaking, it is hardly common behavior to regularly check out the website of a company you no longer deal with, much less visit its offices.

More importantly, the banks are once more finding themselves in a situation where, no matter how lightly they try to tread, they find they are penalized and can do nothing to avoid it.

Going strong
Even if there are eventual lawsuits, based on its track record since it also became the overseer of the financial markets, the MNB has little to worry about.

It has already won first-instance cases against KDB Bank and Sberbank, both companies filing complaints against MNB fines for illegally pushing the costs of the transaction levy onto their customers.

It has also been notably active in cracking down on the finance industry over the past year, levying fines for issues like bank fees, the handling of customer complaints and also threatening legal action against the press whenever the idea is raised of something untoward happening within the central bank building on Szabadság tér.

This ranges from trying to clean up the public relations mishap stemming from bank governor György Matolcsy being portrayed as giving ammunition for insider trading to investment bankers, to actual criminal charges for accounts of the MNB spending billions for unspecified purposes, apparently as a recompense for supporting the Fidesz government.