Consumers – in particular borrowers – are very well protected in Austria. The rules protecting consumers directly and indirectly are enforced by the Austrian Financial Market Authority (FMA). The FMA's consumer protection activities in 2018 generally focused again on digitalisation aspects and integrated supervision of companies.2 In 2018, FMA focused on the extension of collective consumer protection in three aspects: product transparency and client information; proper advice and complaints management; and market surveillance (the special protection of small and retail investors).
II LEGISLATIVE AND REGULATORY FRAMEWORK
In Austria consumers benefit from a very high level of statutory protection. Consumer finance issues are mainly provided for in the following laws and – where applicable – their European law equivalents:
- Federal Act concerning the Distance Marketing of Consumer Financial Services implementing Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC.
- Federal Act Establishing Provisions for the Protection of Consumers (KSchG) implementing: Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council; and Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.
- Federal Act on Off-Premises and Distance Contracts (FAGG) implementing Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council.
- Federal Act concerning Consumer Credits (VKrG) implementing Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC.
- Federal Act concerning Consumer Credits with respect to Mortgages (HiKrG) implementing Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No. 1093/2010.
Additional provisions in other laws such as data protection laws, general civil laws or certain other administrative laws ensure a very high statutory safety level for consumers.
Generally, laws are implemented by the Austrian parliament, ordinances are established by the competent authorities, and both are enforced by the relevant administrative authorities. With respect to financial market issues (including consumer finance regulations), the supervising authority for banks is the FMA. Banks that infringe the administrative provisions of consumer protection laws face administrative fines imposed by the FMA and could be sued by consumers who incurred damage as a result of the breach.
Additionally, consumers may also contact the ombudsman of the Joint Alternative Dispute Resolution Institution of the Austrian Credit Institution Sector, or – but only with respect to foreign currency loans – the Alternative Dispute Resolution Institution for Consumer Deals. Both bodies are responsible for out-of-court settlement of consumer disputes and are competent bodies under Article 3 of the Alternative Dispute Resolution Act, which implements Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No. 2006/2004 and Directive 2009/22/EC. Generally, alternative dispute resolution procedures require the consent of the defendant and are not mandatory, meaning that a bank may refuse to participate, which leaves the consumer with the option to file a claim.
Furthermore, consumers may approach the Consumer Association for Consumer Information (VKI), the most well-known, organised and powerful consumer association in Austria. The VKI is very active with respect to the supervision of general terms and conditions of banks and investment funds; it has fought and won many actions for consumers leading to a very detailed and consumer-friendly Austrian Supreme Court practice in recent years.
The Federal Act on the Provision of Payment Services 2018 (ZaDiG)3 sets forth the rules under which payment service providers may operate and service users are protected. Payment service providers are not able to opt out of various transparency, information and other obligations when providing their services to consumers. Direct cash transactions between payer and payee, under Section 3(3)(1) ZaDiG, are, however, exempted. The general civil law rules apply to direct cash transactions.
Consumer protection measures are mainly set forth as part of the duties of payment service providers to inform consumers (Article 26 et seq. ZaDiG) as well as the rules applicable to transaction content (HiKrG with respect to a mortgage credit, etc.).
ii Recent developments
The market for online payment services including mobile payment services is increasing rapidly, in part because of the developing fintech culture and good mechanisms for start-ups.4 Innovative ideas with respect to the identification of new clients and the usability of mobile and online payment methods are becoming more and more important, and banks are looking to cover the gap between client demand for easy and quick payment methods and the legal framework requiring the banks to provide high safety standards and comply with anti-money laundering and anti-terrorism financing regulations, and know-your-client duties.
Financial technology start-ups (fintechs) and financial innovation think tanks are driving the market's development and bringing new challenges with them. The FMA has set up on its homepage a FinTech Navigator, which is continuously updated and includes the option of contacting the regulator directly if the company does not already have a licence. The first fintech firm received a MiFID 2 licence in 2018.5
IV DEPOSIT ACCOUNTS AND OVERDRAFTS
Banks must hold a banking licence under the Austrian Banking Act (BWG) to administer funds or accept deposits (deposit business) and for the provision of non-cash payment transactions, clearing services and current-account services for other parties (current-account business). Most of the regulations are seen as protective laws allowing the consumer – if a bank breaches its obligations – to claim damages from the bank.
ii Recent developments
Austria has implemented Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes through the Deposit Guarantee and Investor Protection Act, which has led to a reorganisation of Austrian deposit guarantee schemes to comply with European law standards. Following a transposition period until the end of 2018 – until which the system of deposit guarantee schemes will be regulated on the level of financial market sectors and on an institutional level – as of 1 January 2019 a single deposit guarantee and investor protection scheme shall be applicable for all depositors with credit institutions in Austria. The Austrian legislature has also foreseen the possibility that a sector or a group of institutions may apply for a licence as a deposit guarantee scheme on an institutional level, but presumes (which can be seen from the preparatory material to the law) that owing to the very high complexity involved, it seems very unlikely that the option will be chosen by Austrian market participants.6 However, it seems that the Erste Bank sector will develop its own scheme, while all other institutions will become part of the Einlagensicherung AUSTRIA GmbH's deposit guarantee scheme.7
V REVOLVING CREDIT
Issuing credit cards and providing loans to consumers each requires the bank to have the relevant banking licence (either payment instrument business or lending business) under the BWG.
The decision to give credit to a consumer is at the sole discretion of the credit institution, which must comply with all its obligations under the VKrG and HiKrG, and the general obligations under the KSchG, the FAGG and the general civil law rules.
ii Recent developments
In recent years the topic of negative interest rates and the banks' obligation to let borrowers benefit from them dominated the discussion of market participants. However, the Austrian Supreme Court has in the meantime developed a standard practice that with respect to 'old' loans, which have no limitations, wording or clauses on negative interest rates, negative interest rates must be passed on to the consumer (but capped at zero).8
VI INSTALMENT CREDIT
Lenders require the banking licence for the lending business under the BWG to commercially provide loans to consumers. The decision to give credit to a consumer is at the sole discretion of the credit institution, which must comply with all its obligations under the VKrG and HiKrG, and the general obligations under the KSchG, the FAGG and the general civil law rules.
ii Recent developments
Austria has implemented Directive 2014/17/EU into Austrian national law (HiKrG). As this implementation has not brought materially new rules for mortgage-backed loans, it has made a completely new law necessary as the Austrian approach to implementing Directive 2011/83/EU has brought more extensive regulations in some areas and therefore led to mortgage-backed loans being governed by the HiKrG rather than the VKrG. The HiKrG has of course brought additional compliance requirements for banks with it, adding another layer of complexity and cost.
As part of the implementation of Directive 2014/17/EU, the legislature also focused on the assessment of the creditworthiness of the consumer, formalising an aspect that previously gave the banks more space to operate and which now could be seen as a new requirement that will concentrate loans in a more limited market.
VII OTHER AREAS
The Austrian Supreme Court's practice with respect to statutory limitation periods and consequential damages in foreign currency loans should be noted. In summary, the Supreme Court holds that the moment when the borrower recognises (or was in the position to recognise or should have recognised) that the loan is detrimental to the borrower's purpose, the statutory limitation period of three years for a damage claim commences. If the borrower is not in the position to claim an exact amount, the borrower must file a claim for a declaratory judgment. If the borrower waits until the damage has actually occurred but the court finds out that the borrower has known (or should have known) that the loan was detrimental for more than three years without filing a claim, the borrower's claim becomes time-barred, and – which is in many cases very important – the same applies to consequential damages resulting from foreign currency loans.9
VIII UNFAIR PRACTICES
The Austrian Supreme Court and inferior courts throughout the past few years dealt with many claims challenging general terms and conditions clauses with respect to unfair and non-transparent practice. As the Supreme Court has implemented a very strict standard with respect to transparency, many of the clauses used by banks have been found invalid, especially under the KSchG. Although few cases have captured the public interest or been taken up by media or consumer associations, the following are noteworthy: (1) a case in which the court held that the consumer must be able to calculate or to understand the calculation of adjustments of the applicable interest rate to the loan; the court of appeal confirmed the court's decision that clauses that do not meet these criteria are not transparent and consequently invalid;10 and (2) a case in which the court held that the consumer must have precise information on potential cost with respect to a loan and its securitisation; the Supreme Court confirmed the court's view that unclear provisions are invalid11 and that unspecified debt collection costs that – in the worst case – might lead to unjustified cost transfers to consumers are also invalid.12
In general, many cases dealt with the following aspects:
- interest calculation including in many cases the lack of transparency of calculation methods, leading in most cases to the invalidity of clauses, which the courts hold should be transparent and understandable; and
- shifting of cost to consumers and extending the term 'cost' to fees and expenses that might be generated in connection with a business relationship, whether or not the consumer has caused such cost, leading in most cases to the invalidity of such clauses as the courts would like costs to be proportionate.
The Austrian courts have also decided cases where banks had new clauses implemented in their general terms and conditions that resulted in detrimental provisions for the consumer as to fees or other provisions, leading in most cases to the invalidity of such clauses, as the Austrian courts only recognise balanced new clauses for agreements with respect to consumers.
IX RECENT CASES
i Enforcement actions
The FMA is not obliged to publish its sanctions, but it will do so in certain situations where publishing is justified for reasons of investor protection. The following descriptions are based on the latest sanctions made public on the FMA's homepage but should not be seen as representative of the FMA's focus:
- non-authorised entities providing licensable banking, payment or investment services or activities to Austrian investors, especially consumers;
- an authorised investment firm not informing the FMA that certain services had been outsourced to third parties, infringing its obligation under Article 151 of the Investment Fund Act, resulting in administrative fines for the managing directors;
- an authorised credit institution not implementing sufficient procedures to identify politically exposed persons infringing the credit institution's obligation under Article 40(b) of the BWG, resulting in administrative fines for the managing directors;
- an authorised credit institution not implementing sufficient procedures to identify the ultimate beneficial owner, infringing the credit institution's obligation under Article 40(a) of the BWG, resulting in administrative fines for the managing directors;
- an authorised credit institution not informing consumers properly on the risks of their transactions; and
- an authorised credit institution has not implemented proper measures under relevant laws.
Relating to infringements by authorised entities (such as licensed credit institutions), the FMA in certain cases does not impose administrative fines, but instead orders the entity to change its management board, holding that certain directors are no longer fit and proper. That action is not made public according to current law but is one of the regulator's most powerful tools.
ii Disputes settled before the regulator
A dispute between a consumer and a bank might lead to an administrative fine for the bank or the bank's management, but the regulator will not settle the dispute between the consumer and the bank. Individual consumer protection cannot be derived from Austrian regulatory provisions and disputes cannot be settled before the FMA, but consumers can protect their rights before the alternative dispute resolution institutions or the competent Austrian courts.
As there is no standing practice in Austria with respect to the public disclosure of alternative dispute resolutions, neither the Joint Alternative Dispute Resolution Institution of the Austrian Credit Institution Sector nor the Alternative Dispute Resolution Institution for Consumer Deals has published any relevant cases with respect to consumer finance issues. In most cases publication would not be expected, as from a bank's point of view the confidentiality of out-of-court settlement prevails, while from a consumer's perspective there seems to be no interest in publication because the consumer will have already benefited from the alternative dispute resolution (as the consumer's claim is likely to have been fulfilled).
Austria is 'overbanked', meaning that many banks are competing for a limited number of wealthy clients, which could be interpreted as a very consumer-friendly environment where consumer expectations and claims are more often satisfied than denied.
One of the most important recent cases for the protection of consumers (apart from the above-mentioned negative interest decisions by the Austrian Supreme Court) has been decided before the European Court of Justice.13 In this case, a major bank operating in Austria was offering contracts for internet e-banking to its customers and providing payment services. As part of the general terms in its e-banking contracts, it included a term under which 'notices of changes' were communicated to the customer through the internal mailbox of the bank's internet e-banking system. The bank created a mailbox for every customer in its e-banking system. Customers could access their personal mailbox by logging in with their personal password through the e-banking website. Electronic messages were then transmitted by the bank to that mailbox. There was no supplementary communication, for example, through a message sent to the personal private email of the client informing him or her that a message had been sent to the corresponding e-banking mailbox. The VKI considered that the term and the described set-up did not comply with the duty of providing information in a 'durable medium' set out in Directive 2007/64.
Following the request for a preliminary ruling of the Austrian Supreme Court, the key question for the European Court of Justice was whether electronic information transmitted by the bank to its customer into the respective e-banking mailbox of the customer as described above was provided on a 'durable medium'.
In its ruling, the European Court of Justice established the following two conditions that must be fulfilled for such a system to provide information in a 'durable medium': (1) 'that that website allows the user to store information addressed to him personally in such a way that he may access it and reproduce it unchanged for an adequate period, without any unilateral alteration of its content by that service provider or by another professional being possible'; and (2) 'if the payment service user is obliged to consult that website in order to become aware of that information, the transmission of that information must be accompanied by active behaviour on the part of the provider aimed at drawing the user's attention to the existence and availability of that information on that website'.
In summary, this means that the existing e-banking solutions must be amended to include some sort of notification (such as email) for customers regarding messages in their e-banking mailbox.
Another important case14 dealt with a bank that calculated the cost for reminder fees in cases of late payment without reference to cause or other limitation as 5 per cent on top of the other interest plus additional reminder fees. The court held that unlimited fees – without linking them to the consumer's fault or other circumstances – breaches Austrian mandatory law, which provides that only the necessary cost for out-of-court expenses can be recovered, and the costs in this case were extremely detrimental and invalid as there was no balanced relation between the listed reminder fees and the actual delayed payment or enforced claim.
It is very likely that fintech developments (especially in the virtual currency area) will continue to drive the market, and also that the FMA will focus on this area to protect all consumer classes and ages with respect to risks posed by new technology. It will be very interesting to see how laws and regulators such as the FMA will keep pace with the amazingly rapid developments in these fields and be able to exercise a sustainable supervisory practice. Undeniably there is a high risk that supervisory authorities might want to regulate any and all development in the fintech sector, regardless of whether the financial market rules are fitting to the relevant fintech service or activity.
We assume that Austria will continue to extend its rate of non-cash payment activities, making it more and more relevant to provide consumers with user-friendly applications. An ageing population in the coming years will create an immense need for non-cash payment solutions for the generation who are above 60 years, who have not grown up with the internet and therefore might require even more user-friendly solutions.
1 Mimo Hussein is a senior associate at Wolf Theiss. Gerhard Dilger has now left Wolf Theiss.
2 Supervisory and Audit Priorities 2018. FMA. Page 12 et seq.
3 The Federal Act on the Provision of Payment Services 2018 came into force on 13 January 2018 – implementing Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market (Payment Services Directive II – PSD2).
4 https://www.bankenverband.at/presse/presseinformationen/presseaussendungen/die-zukunft-ist-in-wien-internationale-fintech-szene-trifft-sich-vom-16-23.11.2018-zur-vienna-fintechweek/; download 2.12.2018.
6 Explanation to the Government Proposal for Deposit Guarantee and Investor Compensation Act, 686 of the attachments, 25th period page 2 of 21 et seq.
8 9 Ob 35/17p as most recent decision.
9 10 Ob 51/16x.
10 57 Cg 14/16h.
11 6 Ob 17/16t.
12 43 Cg 8/16y.
14 4R 129/15t.