BANKING OMBUDSMAN ANNUAL REPORT 2015 · 2016-10-18 · Banking Ombudsman’s participation in...

MONTENEGROBANKING OMBUDSMAN

BANKING OMBUDSMANANNUAL REPORT 2015

Podgorica, 2016

PUBLISHED BY: Banking Ombudsman Ulica Miljana Vukova bb 81000 Podgorica Tel: +382 20 230 695, 230 063 Fax: +382 20 230 695

WEB SITE: http://www.bankarskiombudsman.org

PREPARED BY: Banking Ombudsman, Assist. Prof. Halil Kalač

DESIGNED BY: Andrijana Vujović Nikola Nikolić

TRANSLATED BY: Translation Services Division, Central bank of Montenegro

PRINTED BY: Studio Branko d.o.o. Podgorica

PRINTED IN: 100 copies

Users of this publication are requested to make reference to the source of information whenever they use data from the Report.

CONTENTS

I INTRODUCTION 7

II PROTECTION OF BANKS’/MFIS’ CLIENTS/GUARANTORS’ RIGHTS 9

2.1. Banking Law 9

2.2. Consumer Credit Law 10

2.3. New legislation 11

III REGULATION ON BANKING OMBUDSMAN OPERATIONS 12

3.1. Banking Ombudsman competences 12

3.2. Banking Ombudsman’s authorisations 14

3.3. Out-of-court settlements conducted by the Banking Ombudsman 14

3.4. Banking Ombudsman decision-making 15

3.5. Cessation of out-of-court proceedings 15

3.6. Banking Ombudsman’s right on recommendation and opinion 15

3.7. Recommendations from Banking Ombudsman consultative hearing 16

3.8. Banking Ombudsman decision-making 16

IV WORKING CONDITIONS OF THE BANKING OMBUDSMAN 17

4.1. Material and technical conditions 17

4.2 Administration 17

4.3. Finances 17

V BANKING OMBUDSMAN`S MANNER OF WORK 18

5.1. Banking Ombudsman 2015 Work Programme 18

5.2. Engagement in carrying out the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015 19

5.3. Activities on the implementation of the Banking Ombudsman Work Programme for 2015 19

VI BANKING OMBUDSMAN’S COOPERATION WITH THE COMMITTEE ON ECONOMY, FINANCE AND BUDGET OF THE PARLIAMENT OF MONTENEGRO, CBCG, BANKS, MFIs AND THE WORLD BANK 21

6.1. Cooperation with the Committee on Economy, Finance and Budget of the Parliament of Montenegro 21

6.2. Adoption of the Law on the Conversion of Swiss Franc (CHF) - Denominated Loans into Euro (EUR) - Denominated Loans 22

6.3. Banking ombudsman’s cooperation with the CBCG 23

6.4. Banking ombudsman’s cooperation with banks and MFIs 23

6.5. Cooperation with the World Bank 23

VII BANKING OMBUDSMAN’S COOPERATION WITH OTHER INSTITUTIONS 24

7.1. Banking Ombudsman’s cooperation with NGOs 24

7.2. Banking Ombudsman’s cooperation with the media 24

7.3. Banking Ombudsman’s visits to municipalities 25

7.4. Banking Ombudsman’s participation in seminars and conferences 25

VIII DATA ON BANKING OMBUDSMAN’S OPERATIONS 26

8.1. Keeping records of clients and guarantors whose financial rights have been violated 26

8.2. Data on loans granted and clients’ indebtedness with banks and MFIs in 2015 26

8.3. Retail loans 27

8.4. Credit cards 27

8.5. Current account – Overdraft loans 28

8.6. Statistical indicators of Banking Ombudsman’s operations 28

8.6.1. Admission of clients and guarantors 28

8.6.2. Clients’ and guarantors’ objections 30

8.6.2.1. Clients’ objections 30

8.6.2.2. Objections of guarantors 34

8.6.3. Structure of clients’ and guarantors’ objections 35

8.6.4. The manner of settling clients/guarantors’ objections 36

8.6.4.1. Verbal objections (requests) 36

8.6.4.2. Resolution of objections submitted by users of loans denominated in Swiss Francs in accordance with the Law on Conversion 37

8.6.5. Processed clients/guarantors’ objections 39

8.6.5.1. Structure of processed clients/guarantors’ objections by year of concluded loan arrangements with banks/MFIs 40

8.6.5.2. Processed clients/guarantors’ objections 41

8.6.6. Processed clients/guarantors’ objections in 2015 42

8.6.6.1. Processed clients/guarantors’ objections by the type of banking product 43

8.6.6.2. Types of processed guarantors’ objections 44

8.7. Processed clients/guarantors’ objections to banks/MFIs 44

8.7.1. Banks subject to objections 44

8.7.2. MFIs subject to objections 46

IX BANKING OMBUDSMAN’S ACTIONS ON CLIENTS’AND GUARANTORS’ OBJECTIONS 47

9.1. Settling of the clients/guarantors’ objections (requests) before the Banking Ombudsman 47

9.1.1. Settling of verbal objections 47

9.2. The manner of settling processed clients/guarantors’ objections 47

9.3. Completed proceedings upon clients/guarantors’ objections by banks 48

9.4. Completed processed proceedings referring to MFIs 50

9.5. Protection of clients/guarantors’ objections pursuant to the Banking Law 51

9.5.1. Banks’ and MFIs’ actions upon the clients’ and guarantors’ objections 51

9.5.2. Banks’ and MFIs’ actions upon the clients’ and guarantors’ objections 52

9.5.2.1. Internal proceeding 52

9.6. Banking Ombudsman urgent requests to banks and MFIs 52

X BANKING OMBUDSMAN’S RECOMMENDATIONS TO BANKS AND MFIs AND THEIR IMPLEMENTATION 53

XI LEGISLATION IN 2015 55

11.1 Law on Voluntary Financial Restructuring of Debts Towards Financial Institutions 55

11.2. Law on the Conversion of Swiss Franc (CHF) - Denominated Loans into Euro (EUR) - Denominated Loans 55

XII LAWS TO BE APPLIED IN 2016 AND 2017 57

12.1. Law on Protection of Financial Services Consumers 57

12.2. Law on Consumer Bankruptcy 69

XIII CONCLUDING REMARKS 79

XIV ANNEXES 81

14.1. Banking Ombudsman 2016 Work Programme 81

14.1. Financial plan for 2016 87

7I • Introduction

I INTRODUCTION

The Protector of Rights of Banks’/Micro Credit Institutions’ Clients (the Banking Ombudsman) submits the Banking Om-budsman Annual Report for 2015 to the Parliament of Montenegro. Pursuant to the Banking Law (OGM 17/08, 44/10, 40/11) and the Decision on the Banking Ombudsman (OGM 15/09, 2/12), the Banking Ombudsman has regularly submit-ted quarterly reports to the Central Bank of Montenegro (CBCG).

The Banking Ombudsman Annual Report contains an overview of:

• General assessment of the status of the clients/guarantors’ financial rights in banks/MFIs;• Legislation in this area, and adopting of new legislation;• Legislation regulating Banking Ombudsman’s operations;• Banking Ombudsman’s activities on the implementation of the National Consumer Protection Programme

2016 – 2018 adopted by the Government of Montenegro, for the implementation of the Action Plan of the Govern-ment of Montenegro;

• Activities on the implementation of the Banking Ombudsman Work Programme for 2015;• Citizens’ credit indebtedness, and of other banking products as at 31 December 2015;• Statistical data on contacts with and visits to Banking Ombudsman during the reporting period;• Statistical overview of clients/guarantors’ and MFIs’ complaints that were subject of Banking Ombudsman’s ac-

tions;• Analysis of clients’ and guarantors’ objections to banks and MFIs and their acting on complaints;• Proceedings which the Banking Ombudsman conducted regarding the protection of clients/guarantors’ financial

rights;• The actions aimed at the protection of clients/guarantors’ rights that the Banking Ombudsman took upon their

objections;• Suggestions and recommendations to banks/MFIs for settling the disputes with clients/guarantors;• Observations, conclusions on the clients’/ guarantors’ financial rights;

General assessment of the status of the clients/guarantors’ financial rights in banks/MFIs and recommendations to banks/MFIs for improving these rights.

• Data on Banking Ombudsman’s cooperation with other entities in the area of consumer protection and with users of banking products and services.

The Report is aimed at providing the Parliament of Montenegro, the Government of Montenegro – the Ministry of Econo-my, the CBCG, banks and MFIs and other entities, with the situation regarding the protection of financial rights of clients/guarantors in our country, and with the insight into the Banking Ombudsman’s work on settling the objections of banks’/MFIs’ clients/guarantors. The Report contains the presentation of problems, difficulties and irregularities faced by clients and their guarantors in exercising their financial rights with banks and MFIs.

It also contains an overview of the measures and activities the Banking Ombudsman has taken throughout 2015 with a view to protecting their rights and removing the irregularities identified in banks’/MFIs’ operations.

8 Banking Ombudsman • Annual Report 2015

The Report contains activities on the implementation of the Banking Ombudsman Work Programme for 2015. It also con-tains statistical indicators on submitted clients/guarantors’ objections regarding the protection of their financial rights, the type and the causes of objections and the action taken by banks/MFIs upon clients’ objections. The Report also contains an overview of actions taken by the Banking Ombudsman upon the clients’ requests, regarding the protection of their financial rights, suggestions and recommendations given to banks/MFIs aimed at settling the disputes with their clients. The Report contains observations, conclusions and the assessment of the financial rights exercised by clients/ guarantors, and banks/MFIs over the reporting period.

The data obtained by the Banking Ombudsman indicate the justification of submitted requests of clients/guarantors for the protection of their financial rights. They point to the presence of obstacles in the exercising of these rights, and the existence of difficulties in the client/guarantor – bank/MFI relation.

Banks and MFIs are obliged to consider this report and take measures on removing the deficiencies in resolving the justi-fied clients/guarantors’ complaints, as well as the Banking Ombudsman’s recommendation for improving management in this area.

The Banking Ombudsman expects the Parliament of Montenegro, and all other institutions that received it, to carefully consider this report and take measures and activities on consumer protection within their powers and competence.

9II • Protection of banks’/MFIs’ clients/guarantors' rights

II PROTECTION OF BANKS’/MFIS’ CLIENTS/GUARANTORS’ RIGHTS

During the global economic and financial crisis, the protection of users of financial products and services has become one of priority areas in human rights’ protection. A considerable number of beneficiaries of financial products, primarily of banking lending products, faced difficulties in loan repayment, while a number of loan beneficiaries were unable to repay their loans as the result of the crisis.

In contemporary market economy, protection of clients is of utmost importance in preserving a sound market economy and population’s living standard, contributing to banking sector stability. The need to protect banks’/MFIs’ clients has particularly been stressed due to the results of the global economic crisis and its effects on the country’s economy, the economic and financial position of economic entities (households, companies). Our country’s economy has been facing the economic and financial crisis since Q4 2008. During the period 2005-2008, banks and MFIs in our banking sector and other banking sectors ran expansive lending policies. With a view to attaining their business objectives and to strengthen position at the market (and maximise profit), banks and MFIs increased their lending activity during the pre-crisis period. Such business policy resulted in granting loans according to lower criteria for assessing the creditworthiness of loan ap-plicants and their guarantors.

2.1. Banking Law

The Banking Law (OGM 17/08, 44/10 and 40/11), Section V – Bank Performance, Chapter 6 - Protection of Clients, Arti-cles 87 – 92, regulates the area of the protection of clients and their guarantors.

It also defines obligation of informing client (Article 87). Pursuant to this Article, a bank shall inform the client, upon his request, on condition of the loan or deposit account and provide him with the access to other information that may be available to the client in accordance with this Law.

Article 88 of the same Law defines that a bank shall post in its business premises on a visible location general operat-ing conditions and their amendments as well. With the meaning of this law, general operating conditions shall be each document that contains standard operating conditions that may be applied to all clients of the bank, general conditions that refer to the relationship between the clients and bank, communication between the clients and bank and the general conditions of performing transactions between the clients and the bank. The client may require from the bank additional explanations and instructions that refer to the implementation of general operating conditions.

Pursuant to Article 89 of the same Law, a bank shall calculate and report lending effective interest rate on loans granted and effective deposit rate on deposits taken and inform clients and public on the amount of effective interest rates.

Article 90 provides that a bank may not condition its credit granting by the use of its other services or the services of any of the bank related parties, which are not in relation with the main business.


Article 91 of the Law provides that the bank shall respond to the complainant. A client that deems that the bank does not meet obligations from the signed contract may submit an objection to the competent organizational unit or other body of the bank authorized for decision making upon clients’ objections. The bank shall respond to the complainant in a reason-able timeframe and not later than 30 days as of the day of submission of objection.

2.2. Consumer Credit Law

Consumer Credit Law (OGM 2/14, 6/14, 43/15) contains EU standards in this area. The Law contains provisions regarding the primary consumer protection rights regulating the consumer protection rights system.

The application of the Consumer Credit Law (OGM 35/13) started in February 2014. This Law contains legislation, which is in compliance with the EU standards, i.e. the Directive 2008/48/EC. The Consumer Credit Law regulates the conditions and the manner of concluding consumer credit agreement, in which the consumer (client) is loan beneficiary, information and rights related to such arrangements, database access, and the supervision and legal protection of the client. Credit agreement is an agreement whereby the creditor grants or promises to grant credit to a consumer in the form of a deferred payment, loan or other similar financial accommodation, other than the agreements for the provision of services on a continuous basis or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments.

The Law defines the information which must be contained in any advertising concerning consumer credit agreements. The Law includes provisions regulating the advertising of credit arrangements as well as specific elements of standard infor-mation, which are provided for the client with a view to enabling the comparison of different offers. Such information must be provided in a clear, concise and prominent way by means of a representative example. Since in advertising, the effective interest rate can be indicated only by providing an example, the example should be representative.

The Law defines information to be provided to the client prior to reaching any decision on the credit agreement. With a view to ensuring the highest possible level of transparency as well as the possibility to compare offers, the Law defines which information should be provided to the client regarding the credit conditions and expenses, as well as regarding the client’s obligations. The information should include data on the effective interest rate applied to that specific loan, and the total expenses of the credit shall comprise all expenses, including fees, credit intermediary expenses, costs of opening and maintaining a banking account, or costs arising from ancillary services agreements, and all the other expenses, which the consumer is obliged to pay in connection to the loan agreement, except for the notarial costs.

In accordance to this Law, the CBCG prescribes the content of such information. All the additional information in relation to the information which the creditor might possibly provide to the client must be provided within a separate document.

The law also prescribes the form of the contract so as to provide the consumers with the insight into their rights and obliga-tions arising from the contract, which must comprise all the necessary information presented clearly and briefly. With a view to ensuring full transparency, the consumer needs to be given all the information on the effective interest rate and during the contractual relation the consumer must be informed on the changes in the variable interest rate as well as on the consequential changes in payments. The creditor is also obliged to put a report in the form of a repayment plan at the disposal of the consumer. The Law introduces other important innovations, such as credit intermediaries and regulates their role in the process of consumer credit conclusion. Credit intermediary is a natural or legal person who is not acting as a creditor and who, in the course of his business or profession, for a fee or other agreed form of financial consideration, presents or offers credit agreements to consumers, assists consumers by undertaking preparatory work in respect of credit agreements or concludes credit agreements with consumers on behalf of the creditor.

The consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In the event of early repayment of credit, the creditor shall be entitled to compensation for justified costs directly linked to early repayment of credit, provided that the early repayment falls within a period for which the interest rate is fixed. The client shall be entitled to a reduction in the total cost of the credit by the remaining amount of interest rates and other costs for the remaining duration of the agreement. The manner of calculation of the compensation payed to the creditor by the client

11II • Protection of banks’/MFIs’ clients/guarantors' rights

must be transparent and intelligible in the pre-contractual stage, and the credit agreement must be presented to clients in a clear and brief manner. The method of calculation must be simple and easily applied. The amount of the compensation for costs is defined and it may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the due date under the credit agreement exceeds 12 months.

The Law also defines the concept of variable interest rate, which is aimed primarily at the achieving a higher level of transparency and client protection. Interest rate may be fixed or variable. Effective interest rate (EIR) represents the key information for the client. It is used as an indicator of total credit expenses and it is expressed as a percentage applied on annual basis to the amount of credit obtained. Some creditors take into account different expenses in calculating the effec-tive interest rate. This Law clearly and comprehensively defines the total credit expenses of the client. The effective interest rate is determined by using the methodology defined in an act passed by the CBCG. The consumer has a right to one-sided termination of the credit agreement within a period of 14 days, without giving any reason.

In the event of assignment of the credit agreement or transfer of the creditor’s rights under a credit agreement to a third person, the consumer is entitled, with his objections regarding the new creditor, to present objections that he was able to present to the original creditor. The original creditor is obliged to inform the consumer of the assignment of the agreement.

The relevant ministry and the CBCG supervise the implementation of the Law.

2.3. New legislation

Law on the Conversion of Swiss Franc (Chf) - Denominated Loans into Euro (Eur) - Denominated Loans

The Parliament of Montenegro adopted the Law on the Conversion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-denominated Loans on 31 July 2015, and it came into force on 22 August 2016. In Montenegro, Loans denominated in Swiss Francs were granted only by Hypo Alpe Adria Bank (HAAB).

This law covers loans denominated in the foreign currency Swiss franc extended to clients by HAAB, including the loans that have been unilaterally terminated by banks due to clients’ inability to repay loans. The basis for loan conversion is the amount that a client received in the bank as at the loan agreement date. According to the Law, the HAAB is obliged, after converting loans into Euro, to recalculate loans at the flat interest rate of 8.2% per annum.

According to the Law, the HAAB is obliged to convert, within 30 days following the entry into force of this Law, all Swiss francs (CHF) – denominated loans to loans denominated in the official currency in use in Montenegro – the Euro. The HAAB is also obliged to offer to loan beneficiaries, new loan conversion and loan restructuring agreements within 45 days following the entry into force of this Law. The CBCG supervises the implementation of the Law. The CBCG shall prescribe detailed regulations governing the supervision of HAAB within 30 days following its entry into force. The CBCG shall furnish the Parliament of Montenegro with a special report on the supervision of HAAB in line with this Law.


III REGULATION ON BANKING OMBUDSMAN OPERATIONS

3.1. Banking Ombudsman competences

Regulation referring to the Banking Ombudsman operations is contained in the Banking Law (OGM 17/08, 44/10, 40/11), the Decision on the Banking Ombudsman (OGM 15/09, 2/12), and the Consumer Credit Law (OGM 35/13). Regulation defines the competences and authorisations of the Banking Ombudsman. Moreover, the laws which implementation will start in 2016 and 2017 - the Law on Consumer Protection – Beneficiaries of Financial Services (OGM 43/15) and the Law on Personal Bankruptcy (OGM 46/15 and 3/16), define the powers and jurisdiction of the Banking Ombudsman. The Banking Ombudsman has based its Work Programme on the National Consumer Protection Programme 2016-2018.

The primary objective and task of the protection of financial rights of banks’/MFIs’ clients and guarantors is the protec-tion of their financial rights. The degree of the realisation of this task has a significant influence on the achievement of a sound economy, its further development, financial stability as well as the achievement of better living standard. Violation of clients/guarantors’ rights is a parameter indicating the quality, stability and progressiveness of the banking system and financial institutions in each economy.

Nowadays, modern market economy recognises economic, i.e. financial systems with lower or higher degree of clients/guarantors’ financial rights violation. Economically advanced countries provide the protection of financial rights in the following ways:

1. By establishing overall legal system and taking measures to ensure legality in the operations of financial institu-tions engaged in providing financial products and services, as well as the reinforcement of accountability for each illegality and financial rights violation.

2. By establishing a special, autonomous and independent institution, with the main goal to protect the financial rights from malpractices, illegal operations and abuse, and which has significant competences and authorisations.

Article 92 of the Banking Law defines the competences of the Banking Ombudsman. The Decision on the Banking Om-budsman passed by the CBCG defines the manner and work of the Banking Ombudsman. This has established the func-tion of the Banking Ombudsman as an independent entity.

The introduction of the Banking Ombudsman as an independent entity into our jurisdiction was primarily induced by the necessity to provide an efficient and high quality out-of-court protection of the rights of clients of banks, MFIs and credit unions. The introduction of the Banking Ombudsman into the Montenegrin legal system is significant from the aspect of the obligation to align Montenegrin legislation with the Acquis Communautaire and international standards in this area.

The experience and practice of the countries that have introduced the Banking Ombudsman undoubtedly confirm the necessity to introduce the protector of clients of banks, MFIs and credit unions into our system. The introduction of the Banking Ombudsman in countries in transition proved to be one of the most efficient means of out-of-court supervision of banks, MFIs and credit unions.

13III • Regulation on Banking Ombudsman operations

The Banking Ombudsman’s mission in improving the protection of clients and guarantors of banks and MFIs is pursued through the increased level of financial education. This increases possibility to better understand and use financial prod-ucts and financial markets, primarily the money market. Banking Ombudsman’s operations are aimed at supporting the more complete realisation of better attainment of good banking practice in our banking system, and to adopting and ap-plication of standards existing in advanced financial systems.

The Banking Ombudsman’s competences in Montenegro are defined in legislation, but they may be summarised as fol-lows:

1. The Banking Ombudsman is not a separate authority, but a person elected by the Parliament who performs the out-of court procedure of banks’/MFIs’ clients.

2. The Banking Ombudsman is a complement to the existing protection system, it does not assume any function of other institutions in the system in this area.

3. The Banking Ombudsman has the power to neither change nor abolish acts of banks and MFIs, nor to prescribe sentences for illegal wrongful performance of activities.

4. In the out-of-court settlement, the Banking Ombudsman points to the violations of financial rights of clients and their guarantors, requesting from banks/MFIs the removal of irregularities, and propose settlement or the change of action or acts that have led to the violation of the financial right.

5. Banking Ombudsman’s resolutions are expressed in the form of recommendations, proposals, advices, initiatives, etc. and have the public character.

6. The Banking Ombudsman is a person the clients can consult, free of charge and without particular formalities, for the protection of their financial rights.

The Banking Ombudsman shall adhere, in his operations, to the principles stipulated in regulations. Proceedings before the Banking Ombudsman shall be confidential, and no person filing an objection or participating in any way in the ongo-ing proceedings, shall not be called for responsibility, nor be put in an unfavourable position on that account.

To protect clients’ financial rights adequately, the Banking Ombudsman establishes good communication with consumer protection entities, the Ministry of Economy, NGOs, judicial bodies, the Police Administration and other entities partici-pating in the clients’ and guarantors’ rights system.

The Banking Ombudsman Protector of clients of banks, MFIs and credit unions performs the following tasks:

1. Admits clients/guarantors’ objections to the work of banks/MFIs;2. Conducts the out-of-court proceedings upon clients/guarantors’ objections.3. Deals with issues important for the protection and improving the quality of clients and their guarantors,4. Establishes cooperation with relevant institutions and organisations dealing with the protection of banks’/MFIs’

clients financial rights.

Article 92 of the Banking Law and the Decision on the Banking Ombudsman define the capacity, authorities, conditions, and the proceedings of clients’ rights protection. The Banking Ombudsman protects the financial rights of the clients of banks, MFIs and credit unions, secured by law and contract when they are violated by the acts, actions or failure to act of the banks, MFIs or credit unions.

The Banking Ombudsman:

• Admits clients and guarantors whose rights have been violated;• Receives clients/guarantors’ objections;• Considers requests (objections) of clients and guarantors;• Conducts out-of-court settlement of disputes;• Suggests settlement or another manner of the finalisation of the dispute to the parties;• Advises clients with respect to the further conduction of the dispute;• Gives recommendations to banks, MFIs, and credit unions for the improvement of their relationships with clients;• Performs other operations contributing to the accomplishment of clients’ rights protection.


3.2. Banking Ombudsman’s authorisations

The Banking Law and the CBCG Decision on the Banking Ombudsman define the Banking Ombudsman’s authorisations. The Consumer Credit Law, the Law on Protection of Financial Services Consumers, and the Law on Consumer Bankruptcy (OGM 46/15 and 3/16), also define the powers and jurisdiction of the Banking Ombudsman. These legal acts define that the Banking Ombudsman is included in the out-of-court proceeding for the protection of rights of clients and their guar-antors, if the client or his guarantors submitted the complaint to the bank for the purpose of initiating proceeding before bank/MFI. If so, it assesses whether, during that proceedings, the bank/MFI assessed disputable facts and decided upon the client’s request for the protection of his rights, in accordance with the law and internal acts of a bank and/or MFI.

The legislation also stipulates that, during the proceedings, the Banking Ombudsman may request from a bank/MFI documentation and evidence necessary for the regular and complete determination of actualities and for assuming an attitude in dispute resolution.

In case the bank and/or MFI does not submit requested documentation in the written form, the Banking Ombudsman makes a written statement and delivers that statement to the client/guarantor together with written position or advice to the client on his further rights. The Banking Ombudsman may inform the public on the banks/MFI’s actions through media, in the actual case, if the client discloses such information.

In its reports to the CBCG, the Banking Ombudsman delivers detailed data individually on each bank and the MFI and on their acting in disputes with clients and their debtors. In its Annual Report, the Banking Ombudsman submits individual data on which banks and MFIs violated the Banking Law with regard to the consumer protection.

At the meeting held on 7 May 2012, the Committee on Economy, Finance and Budget of the Parliament of Montenegro, held a consultative hearing on the subject: “Implementation of the Banking Law in the Part Referring to the Banking Ombudsman”.

The legal framework for the competences and authorities of the Banking Ombudsman was discussed, inter alia. Due to problems, difficulties and irregularities that clients and their guarantors are facing in acquiring their financial rights with the banks and MFIs and with a view to their more efficient and in-depth resolution, the Committee assessed that the Banking Ombudsman’s authorities should be increased, similarly to other countries that have established the Banking Ombudsman.

3.3. Out-of-court settlements conducted by the Banking Ombudsman

One of the manners to protect financial rights of clients and guarantors is the out-of-court proceeding. The Banking Om-budsman implements the protection of the rights of clients and guarantors through out-of-court settlement in line with the Banking Law, The Consumer Credit Law and the CBCG’s Decision on the Banking Ombudsman. The client/guarantor of the bank/MFI, who considers that the act, activity or failing to act of the bank/MFI has breached his financial rights, may initiate the proceedings of financial rights protection before the Banking Ombudsman.

A client of the bank or MFI may appeal to the Banking Ombudsman only if it has previously used all legal possibilities of protection of its rights in the proceedings before the bank or MFI.

The client or guarantor starts the proceedings before the Banking Ombudsman by submitting a written request (objection) for the protection of rights, in writing, or by reporting a dispute in direct communication with the Banking Ombudsman.

In the case a client reports breaching of his financial rights by a bank/MFI dispute in direct communication, the Banking Ombudsman will make a written statement on the initiation of the out-of-court proceedings. The written request (objec-tion) filed by the client/guarantor may be in the form of the questionnaire given by the Banking Ombudsman and filled in by the client/guarantor.

With the written request, the client shall submit the documentation and evidence of the rights violation, as a precondition for conducting the proceedings and regular determination of actualities.

15III • Regulation on Banking Ombudsman operations

After the client has submitted the written request (objection) and documentation, the Banking Ombudsman shall intro-duce the client/guarantor with his rights.

The Banking Ombudsman shall conduct the proceedings for the resolution of the dispute occurred between the client/guarantor and the bank and/or MFI, in case he prejudged that the client already used all legal possibilities for protection in the proceedings before the bank or MFI.

If the client/guarantor refuses to submit the requested documentation and evidence, the Banking Ombudsman may refuse to take into consideration the request (objection) of the client/guarantor. Initiating the proceeding before the Banking Ombudsman does not prevent the client from initiating the lawsuit under the same matter before the competent court.

3.4. Banking Ombudsman decision-making

In the out-of-court proceeding, the Banking Ombudsman makes decisions pursuant to the Banking Law and the CBCG Decision on the Banking Ombudsman. In resolving the dispute between a client and a bank/MFI, the Banking Ombuds-man may:

• Suggest settlement between the client/guarantor and the bank/MFI;• For the purpose of dispute settlement, recommend to the bank/MFI to amend the act, take actions or remove

deficiencies which have influenced the dispute between the client/guarantor and the bank/MFI;• Advise the client regarding to the finalization of the dispute.• After the proceeding, the Banking Ombudsman makes a position on the manner of dispute resolution between the

client and the bank/MFI and delivers it in the form of the suggestion or recommendation for dispute resolution to the client/guarantor and to the bank/MFI.

• Since February 2016, when assessing that the Bank breached the Law on Protection of Financial Services Con-sumers, the Banking Ombudsman has been authorised to forward the case to the CBCG.

3.5. Cessation of out-of-court proceedings

Pursuant to the CBCG Decision on the Banking Ombudsman, the Banking Ombudsman may cease the already initiated out-of-court proceeding when:

• The bank/MFI has removed the violation of the client’s/guarantor’s rights;• The client has refrained from the request (objection) or has withdrawn the request (objection);• The client has initiated the proceedings for the rights protection before the competent court.

3.6. Banking Ombudsman’s right on recommendation and opinion

Pursuant to the provisions of the Banking Law and the CBCG Decision on the Banking Ombudsman, the Banking Om-budsman may give recommendations to banks/MFIs. The recommendations refer primarily to resolution of individual disputes between clients/guarantors and banks/MFIs. However, the Banking Ombudsman may give the recommenda-tions to banks/MFIs which are general and refer to improving relations between clients/guarantors and banks/MFIs, im-proving banking practice, and increasing professionality in bank’s operations. Recommendations may refer to improving management of banks’/MFIs’ relations with clients/guarantors. The Banking Ombudsman gives general recommenda-tions on the basis of information and findings gathered in the proceedings he conducted, and with a view to improving the application of good practice in banks’/MFIs’ operations. Once determining that violations of clients’ rights are caused by negligent and illegal acts of bank’s/MFI’s employees, the Banking Ombudsman may recommend the bank/MFI to impose adequate measures.


3.7. Recommendations from Banking Ombudsman consultative hearing

The recommendations of the Committee on Economy, Finance and Budget of the Parliament of Montenegro given at a meeting held on 7 May 2012, when a consultative hearing on the subject: “Implementation of the Banking Law in the Part Referring to the Banking Ombudsman” was held, contain the guidelines for improving the Banking Ombudsman’s work. At this hearing, the Committee stated and recommended:

“Since it is evident that present legal authorities are insufficient for attaining his function, it would be necessary to define the Banking Ombudsman’s status in order to implement assumptions of a more significant influence on eliminating banks malpractices by setting out of legal authorities and responsibilities in a precise manner.”

3.8. Banking Ombudsman decision-making

Pursuant to the obligation laid in Article 40 paragraphs 2 and 8 of the Law on Consumer Protection – Beneficiaries of Financial Services (OGM 43/15), the Banking Ombudsman passed the Decision on the conditions and the manner of submitting complaints on 30 December 2015.

The Decision regulates the conditions and the manner of submitting complaints to the Banking Ombudsman, by con-sumer - user of financial services, guarantor or other person, who personally ensures the fulfilling the user’s obligations, bank’s handling of the complaint, reporting of the CBCG and the Banking Ombudsman, as well as the manners of acting after receiving information and complaints.

17IV • Working conditions of the Banking Ombudsman

IV WORKING CONDITIONS OF THE BANKING OMBUDSMAN

4.1. Material and technical conditions

The Banking Law and the CBCG Decision on Banking Ombudsman set out that the CBCG provides material and technical working conditions for the Banking Ombudsman’s operations. The CBCG has provided the Banking Ombudsman with two offices in the CBCG building in Miljana Vukova St. in Podgorica.

The Banking Ombudsman’s office is equipped with furniture, computers, printers, telephone, fax, copier and other neces-sary inventory.

4.2 Administration

The CBCG hired one law graduate – senior adviser and an administrative secretary to serve the Banking Ombudsman’s purposes. The CBCG employees perform administrative-technical operations for the Banking Ombudsman.

4.3. Finances

The CBCG provides the finances for the Banking Ombudsman’s operations. In 2015, the CBCG Financial Plan for 2015 planned the amount of 58,165.00 euros for the Banking Ombudsman, i.e. 4% less than in 2014, which were fully im-plemented. The main share in planned and used funds referred to administration expenses in the amount of 40,280.00 euros, followed by operating expenses (fixed assets and property deprecation) in the amount of 15,765.00 euros, and other expenses in the amount of 700.00 euros.


V BANKING OMBUDSMAN`S MANNER OF WORK

The establishment of the Banking Ombudsman in Montenegro in December 2010 introduced the out-of-court protection of clients’ financial rights, similar to the one seen in market economies and their manner of operation. This type of protec-tion makes the clients of banks/MFIs safer market participants, and provides better protection of the rights of clients as well as guarantors.

The global economic and financial crises impact induced the increase in the necessity to protect banks’/MFIs’ clients. Credit boom in banks/MFIs also resulted in the need of strengthening protection of clients and their guarantors, and in introducing out-of-court protection as an efficient manner of protection.

5.1. Banking Ombudsman 2015 Work Programme

The 2015 Work Programme specifies the volume and structure of operations of the Banking Ombudsman. As an inde-pendent party in the out-of-court settlements, the Banking Ombudsman participates in the resolution of disputed issues between clients and banks/MFIs and credit unions. The most important activities of the Banking Ombudsman in 2015 were:

• Admission of clients/guarantors at their request, for the purpose of submitting complaints for the protection of financial rights in out-of-court protection;

• Admission of clients/guarantors’ objections resulting from breaching their financial rights by banks/MFIs;• Analysis and resolution of requests for protecting the financial rights of banks’/MFIs’ clients in 2015;• Banking Ombudsman’s cooperation with the Committee on Economy, Finance and Budget of the Parliament of

Montenegro, the Government of Montenegro - Ministry of Economy and Ministry of Finance, banks, MFIs, the CBCG, the Association of Montenegrin Banks; Cooperation with judicial bodies, NGOs, the media and other enti-ties with a view to achieving higher degree in the protection of clients/guarantors’ rights in Montenegro

• Activities on increasing financial education of clients/guarantors through the distribution of educational materials and educational lectures

Pursuant to the relevant legislation, i.e Article 92 of the Banking Law and the Decision on the Banking Ombudsman, the Working Programme for 2015 foresees carrying out of the following tasks:

• Admission and resolution of clients/guarantors’ objections;• Initiating and conducting out-of-court proceeding of dispute resolution;• Suggesting settlement or another manner of the finalisation of the dispute to the parties;• Advising clients with respect to the further conduction of the dispute;• Giving recommendations to banks/MFIs and credit unions for the improvement of their relationships with clients;• Performing other operations contributing to the accomplishment of clients’ rights protection.

19V • Banking Ombudsman`s manner of work

5.2. Engagement in carrying out the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015

In 2015, the Banking Ombudsman was engaged in carrying out the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015, with a view to implementing planned activities directed towards the intro-duction of European standards in this area. The main objectives of the National Consumer Protection Programme 2012-2015 are customer protection, and preserving the soundness of the economy and the living standard, strengthening client as market entity, and the protection of consumers’ rights.

a) Implementation of the Action Plan for the implementation of the National Consumer Protection Programme 2012-2015 in banking

The Banking Ombudsman was engaged in carrying out the Action Plan for the implementation of the Government’s Na-tional Consumer Protection Programme 2012-2015, in the part referring to the protection of financial rights of clients and their guarantors.

The reinforcement of the rights of clients of banks and MFIs in 2015 was carried out through:

• Implementation of the new Consumer Protection Law in Montenegro;• Application of the Consumer Credit Law;• Improvement of the clients’ awareness; • More accurate resolution of disputes between clients and banks/MFIs through banks’/MFI’s programmes for pro-

tecting their clients/guarantors;• Improvement of client education through educational activities of banks/MFIs and other education entities.

b) Education of clients (educated client – protected client)

The National Consumer Protection Programme in Montenegro has identified education entities. The Programme envis-ages the introduction of client (consumer) protection into the educational system of primary and secondary schools, and other educational institutions.

Higher level of financial education of clients may be achieved through:

• Raising the level of financial education of population;• Raising the level of information on banking products and their use;• Expanding the banks’/MFIs’ employees’ financial education related to working with clients.

5.3. Activities on the implementation of the Banking Ombudsman Work Programme for 2015

The 2015 Work Programme defines the basic tasks and activities of the Banking Ombudsman. The Programme primarily envisages activities on the implementation of the National Consumer Protection Programme 2012-2015. The implemen-tation of the Programme also had primary activities defined in Article 92 of the Banking Law and the Decision on the Banking Ombudsman.

Programme commitments of the Banking Ombudsman arise from its mission and the following basic objectives, these being:

• Resolution of disputes between clients and banks/MFIs through out-of-court proceedings;• Protection of clients/guarantors through the implementation of legislation; • Improving protection through the implementation of the EU standards adopted so far in this area;• Improving protection through education – increasing the level of clients’ financial literacy;


• Improving protection through improving clients’ level of information; • Insisting on the improvement of client protection with banks through improvement of client – bank/MFI man-

agement.

In accordance with the Working Plan for 2015, the Banking Ombudsman also carried out the following activities:

• Cooperation with the World Bank representatives on the manner of legal and natural persons’ non-performing loans workout, attending seminars and workshops on this subject;

• Monitoring the adoption of new legislation, the Law on the Conversion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans, the Law on Protection of Financial Services Consumers, and Law on Con-sumer Bankruptcy, which shows harmonisation of legislation and banking practice of banks and MFIs with the EU regulations in the area of protection of financial rights;

• Cooperation with other entities in the area of client protection (NGO sector, legal authorities, inspections), to im-prove protection of clients’ rights;

• Cooperation with the media, and engagement in the improvement of the level of information of clients/guarantors’ as well as citizens on the protection of their rights regarding banks and MFIs.

• Cooperation on improving financial education of clients – increasing the level of financial education of citizens (clients);

21VI • Banking Ombudsman’s cooperation with the Committee on Economy, Finance ...

VI BANKING OMBUDSMAN’S COOPERATION WITH THE COMMITTEE ON ECONOMY, FINANCE AND BUDGET OF THE PARLIAMENT OF MONTENEGRO, CBCG, BANKS, MFIs AND THE WORLD BANK

6.1. Cooperation with the Committee on Economy, Finance and Budget of the Parliament of Montenegro

Cooperation with the Committee on Economy, Finance and Budget of the Parliament of Montenegro regarding the issue of loans denominated in Swiss Francs resulted in significant activities in 2015.

The Banking Ombudsman has been receiving clients’ objections regarding the loans denominated in Swiss Francs as of the beginning of the use of this product, and particularly since 2011. To remind, Montenegrin citizens took loans denomi-nated in Swiss Francs with the HAAB during the credit boom in 2006 and 2007. Loans denominated in Swill Francs were also extended in other countries, which had to resolve the problems of loan granted in Swiss Francs.

The requests of representatives of beneficiaries of loans denominated in Swiss Francs submitted to the Committee on Economy, Finance and Budget of the Parliament of Montenegro contained the following objectives:

• Due of the significant change in the Swiss Franc to euro exchange rate since the beginning of the crisis (2009), the monthly instalments for loans granted by the HAAB have constantly been increasing. After many years of settling obligations, clients’ debts have increased so that are they now indebted more than when they had been granted the loan;

• Clients did not understand the banking product with the currency clause and the manner of its use;• The HAAB has not informed clients on possible risks in using the product;• The clients filed requests for HAAB’ loans in euros, and the pre-contract was signed in euros;• When final contracts were made, the CHF currency clause that the loan has the exchange value in euros was

included;• The clients were offered contracts containing deficiencies and formulations which provided a superior position of

HAAB in this loan arrangement;• The HAAB transferred the complete risk to loan beneficiaries; • Clients did not understand the currency clause (as explained by the HAAB) and they were unclear whether the

currency clause has been valid as at the contract date, or as at the obligation settlement date, and that they re-quested it to be valid as at the contract date.

• Clients signed the exchange risk clause after signing the loan contract, yet some clients did not sign the statement;• Clients have been misled by the HAAB’s advertising activities;• After many years of settling obligations, clients’ debts have increased so that are they now indebted more than

when they had been granted the loan;


• Regardless of the increased debt, i.e. the changes in primary loan repayment plan, they did not receive monthly calculations for increased debts, or new loan repayment plans;

• They were informed on the increase of their debt amount at the HAAB counter when they went to settle the obliga-tion;

• Clients were not informed on the interest calculation and the reasons for the debt amount increase arising from it;• Monthly instalments grew due to currency and interest clause, and they exceeded their monthly salaries;• In their objections, the clients requested the HAAB to relieve them from difference in exchange rates, interests and

other increased costs, which the bank did not comply to;• The HAAB did not respond to their objections, verbal or written;• Loan agreements were deficient because of the above mentioned irregularities and illegalities;• The HAAB violated the Law Contracts and Torts, Consumer Protection Law and the banking code.

Given the problems that have beneficiaries of loans denominated in CHF were facing, i.e. non-acceptance by the HAAB to resolve their complaints, and the rejection of Banking Ombudsman’s proposed resolution to the problems the beneficiaries of loans denominated in CHF were facing, the Committee on Economy, Budget and Finance Committee began drafting and adoption of a legal act to resolve the problems of beneficiaries of loans denominated in CHF.

In February 2015, the proposer (a group of MPs), introduced the Committee with the proposal of the Law on the Conver-sion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans, which envisaged the introduction of the obligation of commercial banks to convert all loans extended into CHF into EUR. The Committee issued an opinion that the loans that Montenegrin citizens took in Swiss francs, carelessly and without sufficient information and warning of both the creditor/bank and the supervisor (the CBCG), led beneficiaries of such loans in Montenegro into an unsustainable financial position, and that speedy legislative intervention is thus required to stop further consequences.

Notwithstanding formal legal foundation of commercial banks’ positions as loan providers in CHFs that they only respect the contract signed with borrowers with the consent of free will, the meeting was of the opinion that the losses of citizens resulting from the appreciating exchange rate of CHF to EUR were significant and leading to the so-called debt bondage.

The initiated proposal by a group of MPs for a legislative solution would oblige commercial banks, lenders to write off 66% of the amount of foreign exchange, the borrowers would be required to pay 34% of accrued foreign exchange differences, while the state of Montenegro would take over 50% of the calculated amount that commercial banks have written off to borrowers. Thus, the proposal showed that 33% of the amount of calculated foreign exchange differences would be as-sumed by the state, 33% by the bank, and 34% by loan beneficiary.

During the hearing, the part of the proposed legal solutions referring to the conversion of write-off of exchange rate dif-ferences into public debt was questioned, bearing in mind that by its adoption the citizens of Montenegro would have the obligation to repay a portion of the calculated exchange rate differences through the state budget. The hearing also expressed the fear that the adoption of the given legal solution might produce a negative reaction from the public in relation to the borrowers.

The proposal of the Law on the Conversion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans did not receive the required majority to be approved by the Board.

6.2. Adoption of the Law on the Conversion of Swiss Franc (CHF) - Denominated Loans into Euro (EUR) - Denominated Loans

After some time, the new initiative for the adoption of the Law on the Conversion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans was launched. The Parliament of Montenegro adopted the Law on the Con-version of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans (hereinafter: Law on Conver-sion) on 31 July 2015, and it was published in the “Official Gazette of Montenegro”, No. 46/15 and entered into force on 22 August 2015. The Law lays down that the CBCG shall perform the supervision of the implementation of the Law. In carrying out its responsibility, the CBCG met the statutory deadline and adopted the Decision on the Supervision of the

23VI • Banking Ombudsman’s cooperation with the Committee on Economy, Finance ...

Implementation of the Law on the Conversion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans on 26 August 2015, which was published in the “Official Gazette of Montenegro” No. 49/15 and entered into force on 11 September 2015. The Decision on the Supervision defines the manner and subject of supervision, and the basic elements of report the CBCG is obliged to submit to the Parliament of Montenegro, following the supervision procedure.

6.3. Banking ombudsman’s cooperation with the CBCG

The Banking Ombudsman regularly submitted quarterly reports and the annual report on clients’ and guarantors’ objec-tions to operations of banks and MFIs, and also gave proposals and suggestions aimed at improving the situation in the area of client/guarantor protection. The Banking Ombudsman cooperated with the CBCG in the implementation of the new legislation in the area of consumer protection and consumer crediting.

6.4. Banking ombudsman’s cooperation with banks and MFIs

In line with the 2015 Work Programme, the Banking Ombudsman has foreseen improving cooperation with banks/MFIs, with a view to resolving clients/guarantors’ objections, with a view to:

• more successful resolution of problems arising from resolving clients/guarantors’ complaints;• more successful protection of financial rights of clients/guarantors through better quality in pursuing and resolv-

ing internal proceedings.

The Banking Ombudsman informed the chief executive officers (CEOs) on clients/guarantors’ objections referring to their bank/MFI.

The Banking Ombudsman insisted that the banks/MFIs show better understanding of clients/guarantors’ economic posi-tion caused by the economic and financial crisis, and that they comprehensively analyse the problems stated in clients/guarantors’ objections. Due to the consequences of the economic and financial crisis, it is necessary to accept requests for loan restructuring following “Podgorica Approach”, i.e. the Law on Voluntary Financial Restructuring of Debts Towards Financial Institutions. This would, inter alia, include the decreasing of interest rate and the total costs payed by clients/guarantors. Loan restructuring in such manner may avoid low collection of loans, collection from mortgage and fiduciar-ies, and other forms of enforcement collection, which burden existential issues of clients/guarantors, and operations of legal persons.

Within their statutory powers, banks and MFIs have not done enough to collect the debts first from loan beneficiaries, and only then from guarantors. As a result, a large number of guarantors repay loans of people they guaranteed. Banks and MFIs should make more efforts to collect loans from borrowers, and not from guarantors. The Banking Ombudsman requested from banks and MFIs to use internal proceedings before the bank or MFI for the settlement of disputes between banks and clients/guarantors, more than at present.

The out-of-court proceeding, a novelty in resolving the disputes between banks/MFIs and clients/guarantors, ran by the Banking Ombudsman, should also be used more than at present for resolving disputes.

6.5. Cooperation with the World Bank

Johanna Jaeger, a financial specialist and a representative of the World Bank paid a visit to the Banking Ombudsman on 8 September 2015. The topic of the meeting was the protection of banks’ and MFIs’ clients and the situation in this area, new legislation and the like. The Banking Ombudsman gave the representative of the World Bank an overview of the protection of clients and guarantors, and of legislation in this area. It was agreed that the Banking Ombudsman continues coopera-tion with the World Bank.


VII BANKING OMBUDSMAN’S COOPERATION WITH OTHER INSTITUTIONS

7.1. Banking Ombudsman’s cooperation with NGOs

During the reporting period, the Banking Ombudsman cooperated with several NGOs dealing with the issues of the pro-tection of customers - beneficiaries of banking products and services. The Banking Ombudsman established cooperation with the NGOs “CEZAP” (Centre for the Protection of Consumers) and Institute for Financial and Credit Counselling, which dealt with the issues of clients and guarantors’ financial rights protection. The NGO “CEZAP” participated in the activities of protecting clients and guarantors, beneficiaries of housing loans disbursed in Swiss Francs, the application of the Law on Conversion, for the attaining of financial rights with the HAAB. Activities with CEZAP resulted in establishing cooperation with a team of lawyers dealing with the association of beneficiaries of loans disbursed in CHF, for the purpose of court protection. The NGO Institute for Financial and Credit Counselling manifested its activities in this area through organising lectures and counselling both including companies and entrepreneurs and citizens.

7.2. Banking Ombudsman’s cooperation with the media

Bearing in mind that cooperation with the media was a priority activity in the Banking Ombudsman Work Programme for 2015, special attention was paid on providing clients and their guarantors with more complete information on their financial rights protection.

During the reporting period, the established cooperation with the media contributed to citizens (clients) be more intro-duced to the Banking Ombudsman’s work. This activity was performed in the form of:

Media releases published in printed media (statements, interviews, releases);

• Banking Ombudsman’s participation in radio and TV shows:• MINA Business – 6 January 2015• RTCG.ME 6 January 2015• MINA Business – 8 January 2015• RTCG.ME 8 January 2015• POBJEDA.ME – 15 January 2015• MINA Business – 8 February 2015• CETINJSKI LIST – 25 February 2015• DNEVNE NOVINE – 28 February 2015• MINA Business – 12 April 2015• MINA Business – 13 April 2015• MINA Business – 13 April 2015• ANTENA M – 30 April 2015

25VII • Banking Ombudsman’s cooperation with other institutions

• VIJESTI.ME – 4 May 2015• DAN – 14 April 2015• POBJEDA – 10 June 2015• RADIO ANTENA M - 30 April 2015• DAN – 28 September 2015 • VIJESTI – 26 October 2015• VIJESTI – 2 December 2015• The information are available at the Banking Ombudsman’s website (www.bankarskiombudsman.org).

Cooperation with the media significantly helped in raising the level of information of clients and guarantors, and in better understanding of the importance of protection of banks’/MFIs’ clients.

7.3. Banking Ombudsman’s visits to municipalities

The Banking Ombudsman visited Cetinje on 27 February 2015. The Banking Ombudsman received objections of clients/guarantors’ to banks/MFIs which rights have been breached. Radio Cetinje hosted the Banking Ombudsman during the same day.

Some twenty citizens, guarantors and loan beneficiaries visited the Banking Ombudsman due to breaching of their fi-nancial rights. The Banking Ombudsman gave them directions how to resolve their problems and attain their rights, and advised the cheated guarantors, who have been present in these relations in an unlawful manner, to contact the relevant authorities and/or the police, prosecutor’s office, or the court.

7.4. Banking Ombudsman’s participation in seminars and conferences

The Banking Ombudsman participated in the international seminar titled “Financial consumer protection and financial education”, organized by the Bank of Russia, in Tula, on 18-22 May 2015.

The seminar titled “Consumer protection in Montenegro - towards the EU” was organised in Nikšić on 8 June 2015. The Banking Ombudsman and the Senior Adviser from the Banking Ombudsman’s Office attended the seminar.

On the invitation of the International Burch University, the Organiser, the Banking Ombudsman attended the Conference “Harmonisation of Legislation with the Acquis” in Sarajevo on 15 December 2015.


VIII DATA ON BANKING OMBUDSMAN’S OPERATIONS

8.1. Keeping records of clients and guarantors whose financial rights have been violated

The Banking Ombudsman keeps independent records. In addition, he keeps records on clients and guarantors who have contacted the Banking Ombudsman, the records of filed objections and processed proceedings with the banks and MFIs. The record contains all documents regarding the submitted clients/guarantors’ objections and proceedings conducted with banks/MFIs.

8.2. Data on loans granted and clients’ indebtedness with banks and MFIs in 2015

As at 31 December 2015, total debt for loans in banks amounted to 1,901,078.00 million euros, while they amounted to 1,839,159.00 euros in 2014. Compared to 2014, total debt for loans increased by 61,919 euros or 0.33%. As at 31 December 2015, total debt for loans in MFIs amounted to 43,884.00 million euros, while they amounted to 32,846.00 euros in 2014, showing an increase of 10,998.00 euros. As at 31 December 2015, the number of loan beneficiaries in banks amounted to 112,738, while the number of loan clients amounted to 130,915 as at 31 December 2014.

As at 31 December 2015, the number of loan beneficiaries in MFIs amounted to 23,884, while the number of loan clients amounted to 21,217 as at 31 December 2014.

The number of guarantors in banks amounted to 32,481 as at 31 December 2015, or by 4,361 guarantors (12%) less than as at 31 December 2014 - when it amounted to 37,201.

Table 1 shows the number of loans and clients of banks and MFIs as at 31 December 2015 and 31 December 2014.

Table 1 – Active loans with banks and MFIs as at 31 December 2014 and 31 December 2015

Description Balance as at

Total active loans 31 December 2015 31 December 2014

1. Banks’ loans

Sub-accounts 131,590 130,915

Loan beneficiaries 112,738 111,886

Debt balance (in thousand euros) 1,901,078 1,839,159

WANIR 7.70 8.41WAEIR 8.53 9.22

2. MFIs’ loans

Sub-accounts 26,696 23,040


Debt balance (in thousand euros) 43,884 32,846

WANIR 20.85 21.33WAEIR 24.68 25.66

Source: Credit Registry of the CBCG

27VIII • Data on Banking Ombudsman’s operations

8.3. Retail loans

Data on the number of active loan sub-accounts, number of guarantors, and data on total debt arising from loans show also the indebtedness of clients arising from loans and their indebtedness with banks and MFIs.

Table 2 shows the number of active credit sub-account with banks in 2015, as well as total debt as at 31 December 2015.

Table 2 - Retail loans, balance of active sub-accounts with banks as at 31 December 2015


31 December 2015 31 December 2014

1. Retail loans

Active sub-accounts 122,835 122,079


Debt balance (in thousand euros) 873,024 844,778Indebtedness per natural person/client (in thousand euros) 8.14 7.94

WANIR 8.74 9.14

WAEIR 9.77 10.10

Loans secured by guarantors 28,914 33,128

Guarantors 32,841 37,201Amount of debt secured by guarantors (in thousand euros) 264,532 263,760

% guarantor coverage of retail loans 23.54 27.14

Loans secured by mortgage or fiduciary 23,474 14,751Debt arising from loans secured by mortgage or fiduciary 350,992 389,048

2. Loans for purchase of apartments and remodelling



WANIR 6.40 6.56

WAEIR 7.29 7.45


Number of loan sub-accounts of natural persons amounted to 122,835 as at 31 December 2015, while it amounted to 122,079 as at 31 December 2014. The number of credit sub-accounts recorded a slight decrease in 2015. The debt arising from retail loans with banks amounted to 844.7 million euros and it increased by 5.4 million euros in relation to 2013.

In 2015, the number of guarantors declined by 4,360 or 12% in relation to 2014. In 2015, the amount of debt secured by guarantors amounted to 264.5 million euros. Indebtedness per individual client amounted to 8,135 thousand euros, while it amounted to 7,940 in 2014.

8.4. Credit cards

The number of natural persons’ credit card sub-accounts was 31,6847 as at 31 December 2015, showing a decrease in relation to 2014 when it amounted to 37,157. The number of clients in 2015 amounted to 26,671, also showing decrease compared to 2014, when it amounted to 30,681. As at 31 December 2015, the debt from credit cards amounted to 21.9 mil-lion euros, recording a decline in relation to 2014 when it amounted to 26.7 million euros. In 2015, the contracted amount per credit cards amounted to 44.3 million euros, with the utilisation percentage of 49.61%%, which is lower than in 2014. Annual decline in debt, limit and the utilisation percentage per credit cards recorded in 2015 was a result of high interest rates on this banking product.

Table 3 shows the balance of natural persons’ credit cards as at 31 December 2014 and 31 December 2015


Table 3 - Balance of natural persons’ credit cards with banks, 31 December 2015



Credit cards

Active sub-accounts 31,684 37,157

Credit card beneficiaries 26,671 30,681


Approved credit card limit (in thousand euros) 44,314 51,130

Approved credit card limit utilisation in % 49,61 52,19

WANIR 14.98 15.12%

WAEIR 15.23 15.18%


8.5. Current account – Overdraft loans

In 2015, the number of overdraft loan sub-accounts amounted to 93,389, while this number was 70,231 in 2014, aris-ing from natural persons’ current account to which the banks approved the overdrafts. In 2015, overdrafts were used by 88,233 natural persons, compared to 67,143 natural persons in 2014. s at 31 December 2015, balance of debt arising from this type of loan amounted to 15.1 million euros, while in 2014 it was 14.2 million euros. Utilisation rate was 50.15% of total approved overdraft that amounted to 30.1 million euros.

Table 4 – Balance of overdrafts on natural persons’ current accounts as at 31 December 2015

DescriptionBalance as at


Overdraft


Clients 88,233 67,143


Approved credit card limit (in thousand euros) 30,123 29,439

Approved credit card limit utilisation in % 50.15 48.15

WANIR 16.81 16.33%

WAEIR 17.11 16.70%


8.6. Statistical indicators of Banking Ombudsman’s operations

8.6.1. Admission of clients and guarantors

During 2015, the Banking Ombudsman’s office was regularly contacted by clients and guarantors in person, by phone, e-mail or by submitting requests (objections) and documentation.

The clients who submitted the request for the protection of their financial rights had regular communication with the Banking Ombudsman Office in writing or verbally with a view to receiving information on proceedings regarding their submitted requests (objections).

Clients and guarantors may contact the Banking Ombudsman electronically by completing the form that may be found at the Banking Ombudsman’s website (www.bankarskiombudsman.org) - link Obrasci (forms) and sending it by e-mail.


Some 579 clients and guarantors asked for the Banking Ombudsman’s protection during the reporting period. Compared to 2013 (456), the recorded index was 126. Table 5 shows the structure of contacts with the Banking Ombudsman.

Table 5 - The structure of clients/guarantors contacts with the Banking Ombudsman in 2015

No. Type Q1 Q2 Q3 Q4 Total 2015 Total 2014 Growth in % Index

2 3 4 5 6 7 8 9 10

1 Visits 65 65 64 69 263 230 43 143

2 Telephone 63 70 70 55 258 176 46 146

3 Mail 10 10 12 26 58 50 16 116

4 Total 138 145 146 150 579 456 26 126

Table 5 shows an increase in visits to the Banking Ombudsman in 2015 of 26% compared to 2014. This points to the increased number in breaches of financial rights of banks’/MFIs’ clients. The increase mostly resulted from the complaints for the breach of financial rights of users of loans extended in Swiss Francs in the application of the Law on Conversion. In addition, the number of internal proceedings conducted in banks/MFIs increased. It is notable that banks are more diligent in resolving clients/guar-antors’ complaints. Citizens initiate proceeding for protection before judicial authorities without prior contacting the Banking Ombudsman thus, without these data, we cannot precise the number on the number and proceedings in the protection of finan-cial rights of banks/MFIs’ clients. There were no reported instances of fraudulent guarantorship in 2015. This indicates that this occurrence has been strongly supresses or eliminated in banks/MFIs. However, there are numerous ongoing court pro-ceedings dating from the previous period (credit boom) when there were instances of fraudulent guarantorship.

In 2015, the Banking Ombudsman was contacted by 45% of total numbers of visits of clients/guaran-tors, due to breaches of financial law, ambiguities, misunderstandings and difficulties in dealing with banks/MFIs.

In 2015, the Banking Ombudsman was contacted by 497 clients, or 85% and 82 guarantors.

The total number of clients and guarantors who con-tacted the Banking Ombudsman in 2015 was 81, of which 76 referred to banks, and 5 to MFIs. The num-ber of processed objections referring to clients was 70 while 11 objections referred to guarantors.

Table 1 shows an increase in visits to the Banking Ombudsman in 2015 of 26% compared to 2014. This indicates that there were more reported violations of financial rights. In terms of statistics, the given con-

Graph 1 – Shows the percentage structure of contacts with the Banking Ombudsman in 2015

Graph 2 – The number and structure of clients/guarantors’ contacts with the Banking Ombudsman, 2014/2015


tacts sample leads to the conclusion that the number of banks’/MFIs clients whose rights have been violated increased. As it has been explained above, the reason for this increase are complaints of clients who were beneficiaries of HAAB loans denominated in Swiss Francs.

In 2015, as well as in 2014, there were no reported instances of fraudulent guarantorship, which indicates that this occur-rence has been strongly supressed or completely eliminated.

8.6.2. Clients’ and guarantors’ objections

Clients (natural and legal persons) contacted the Banking Ombudsman. Objections referred to all types of banking prod-ucts and services offered by banks and MFIs. The main percentage of clients/guarantors’ objections referred to loans.

In regards to loans, most objections referred to the credit boom (2005-2009), especially to the period 2005-2009, with special emphasis on the period 2006-end 2008.

During the credit boom period (2006 -2009) banks increased their lending activity in order to increase profit and their presence at the market using aggressive marketing. In many cases, banks did not adhere to the credit and other risk pro-tection criteria and standards of banking operations primarily to the credit risk In their lending activities. They granted loans to persons with inadequate creditworthiness. A large number of persons with poor creditworthiness were accepted as guarantors. The aforementioned deficiencies in assessing the clients/guarantors’ creditworthiness created problems to banks/MFIs and clients/guarantors during the enforcement of loan contracts. The global economic and financial crisis additionally worsened these problems.

8.6.2.1. Clients’ objections

a) Natural persons

In 2015, the objections of natural persons referred mostly to the use of the following banking products and services: loans, accounts, electronic cards and deposits. The most of objections referred to loans – housing, earmarked, non-earmarked, revolving and other loans. In regards to accounts, most of objections referred to the amount of costs for opening, mainte-nance and closing accounts. These objections were also present regarding the electronic cards. As regards clients - natural persons, the following may be concluded:

• During the credit boom, many citizens made different credit arrangements with banks and MFIs for using loans for different purposes. The economic crisis, the impact of which could be felt in Montenegro as of Q4 2008, dis-closed all problems related to clients’ and guarantors’ creditworthiness and failures in credit arrangements with banks and MFIs. These induced multiple banks’/MFIs’ loans to become uncollectable.

• Many clients and their guarantors reported income decline, termination of employment and irregular salary as the global economic and financial crisis consequences which affected their ability to repay loans. These induced problems to banks and MFIs. These problems resulted in unilateral termination of loan contract by banks and MFIs, initiation of enforced collection procedure from fiduciaries, mortgage or collection of receivables from guar-antors and other forms of collaterals.

• Many citizens were facing freezing of salaries by banks and MFIs, for the collection of receivables, bringing them into very unfavourable economic situation. There is a general feeling of fear of the results of such procedures, i.e. of losing their residential units, or commercial premises they use to secure their existence. For resolving their prob-lems regarding debt servicing, many clients tried to restructure their liabilities to banks/MFIs. However, many of them faced non-acceptance of loan reprogramming by banks and MFIs, thus facing an almost non-exit situation.

• Objections of clients – citizens on banks’/MFIs’ actions referred mostly to misunderstanding of their deteriorated financial condition, compared to the time of loan disbursement. This was mostly due to the economic and financial crisis.

• A number of clients filed objections concerning high interest rates on loans extended during credit boom, and high amount of other costs of loans during the credit boom period. A number of clients complained on banks’


and MFIs request for additional mortgage or fiduciaries aimed at secured lending or restructuring. A number of clients pointed to the problem that banks/MFIs do not release fiduciaries and mortgages from a part of property proportionally to the repaid loans, to be able to continue their commercial operations

• A number of clients pointed to the problem of high interest rates on new loans and of high amount of calculated additional costs of these loans.

• Customers have also complained about the lack of information about the time of realization of the contract of the earmarked housing loans indexed in Swiss francs, because they were not clear the entire credit agreement. The calculation of exchange rate differences in loans with currency clause and the calculation of default interest rate burdened beneficiaries of loans denominated in Swiss Francs thus, in order to resolve their problems, the Parlia-ment of Montenegro adopted the Law on Conversion on 31 July 2015, which came into force on 22 August 2015.

• A considerable number of clients made objections to charging of high interest rates on overdrafts on current ac-counts, and/or high interest rate on revolving loans, as well as cards.

a.) 1. Complaints of beneficiaries of loans denominated in Swiss Francs

According to data submitted by HAAB Podgorica, until the day the Law on Conversion entered into force, the number of loan loans in Swiss Francs totalled to 762, with the total amount of 208,017 CHF (129,998 euros). As at the entry into force of the Law on Conversion, there were:

• 482 sub-accounts in CHF in the Bank’s loan portfolio, of which: - 29 authorized sub-accounts converted from Swiss Francs to euros, based on the Bank’s offer, prior to the en-

try into force of the Law, of which the Bank unilaterally terminated 16 contracts after conversion because of delinquency;

- 19 sub-accounts which were restructured, of which the Bank unilaterally terminated 6 contracts because of delinquency;

- the remaining 434 sub-accounts that are in loan portfolio (loans with regular repayment;

• 116 extended sub-accounts that are not in the Bank’s loan portfolio, since they were closed through regular repay-ment, early repayment or enforced collection, of which: - 98 sub-accounts were closed through premature repayment of the remaining debt; - 18 sub-accounts were closed through regular repayment or enforced collection.

• 129 sub-accounts that are not in the Bank’s loan portfolio, since they were assigned to other legal persons with a fee, of which: - 124 subaccounts were assigned to the company “HYPO DEVELOPMENT” Ltd. Podgorica, which has in the

meantime changed its name to “HETA ASSET RESOLUTION” LTD Podgorica and claims based on 5 loan ac-counts were assigned to the company “B2 Holdings Capital” Ltd. Belgrade;

• 35 sub-accounts that are not in loan portfolio, because they were liquidated or written off, of which: - 6 sub-accounts were liquidated prior to assigning to other legal entities due to restructuring and signing new

contract, which put former contract out of force; - 4 permanently written off sub-accounts from Bank’s balance sheet, in accordance with criteria set in Article

49b of the Decision Amending the Decision on Minimum Standards for Credit Risk Management in Banks); - 25 liquidated sub-accounts, by restructuring and signing new contract, which put former contract out of force;

Objections and complaints of loan beneficiaries on Hypo Alpe Adria Bank AD Podgorica filed to the Banking Ombudsman

During the application of the Law of Conversion, clients - beneficiaries of loans extended in Swiss Francs contacted the Banking Ombudsman,. They either visited the Banking Ombudsman or contacted it by phone, electronic or registered mail. Some 90 clients contacted the Banking Ombudsman in 2015.


The representative of the Association of loan beneficiaries (covering 300 beneficiaries) and lawyers - members of the law-yer tem engaged by clients, contacted the Banking ombudsman due to the legal assistance through the NGO CEZAP.

Their general objection was that the HAAB does not fully apply the Law on Conversion; the Bank has not met deadlines for its obligation; the Bank interprets the Law on Conversion in its own way, unacceptable for majority of borrowers; there is risk that the Bank will not fully implement the Law on Conversion.

Banking Ombudsman noted that the Bank recognized and treated two groups of borrowers in the application of the Law on Conversion, although the Law on Conversion aims at having the same treatment to all users of the loans in Swiss francs, and that all approved loans (denominated in CHF) are converted into euro as at the day of taking the loan. With its treat-ment, the Bank divided borrowers into two groups: (1) those subject to the implementation of the Law on Conversion, and (2) those subject to the implementation of the Law on Conversion.

Those that are not subject to the Law on Conversion can be divided into: (2a) borrowers whom the Bank terminated the loan agreement and ceded the borrowing to factoring company (HETA) or third parties, and (2b) those who settled obliga-tions under the loan, through repayment or enforced collection by the Bank (or HETA).

The largest number of complaints or objections, was of borrowers whom the Bank terminated the loan agreement unilater-ally and ceded the borrowing to factoring company (HETA) or third parties. The Bank informed these clients that they were not treated as a liability under the Law on Conversion.

Clients who made an objection to the Bank’s conduct are those who repaid the loan before the adoption of the Law on Conversion. The Bank informed these clients that they were not treated as a liability under the Law on Conversion.

Complaints of loan beneficiaries classified by the bank as having the right on conversion, pursuant to the Law

The largest number of objections of clients whom the Bank accepted to treat according to the Law on Conversion, related to the conversion of loans into euro (30 days from the entry into force of the Law) - 22 September 2015. They point to the following:

• The Bank sent document to borrowers - offer and information that did not contain all the information on debt amount and analytics to the date of the conversion;

• The clients did not expect this type of document (because the Law on Conversion and the decision of the CBCG do not define it). They objected since these two documents did not contain the correct amount of the conversion of loans into euro;

• They did not get analytics (turnover on loan sub-account) and the debt balance as at the conversion date; • The Bank given them the unrealistic deadline for accepting the debt balance as at conversion date (eight days);• The Bank conditioned them with the given deadline for acceptance of debt at conversion date and that, in case of

non-compliance with the deadline, the Bank would consider that the client did not accept the conversion, meaning that it remains with the loan agreement denominated in CHF;

• Within the given deadline, borrowers were not able to check the status of principal, paid funds during repayment, determine the amount of paid funds during the period until the conversion date since the Bank had not submitted analytics;

• The borrowers were forced to engage a financial expert to verify the debt status at the time of conversion, for which there were no time;

• A significant number of borrowers emphasized that the HAAB made many errors in the calculation of debt at the time of conversion. By checking the debt amounts as at the time of conversion, the financial expert disclosed the wrong calculation of the debt in 50 of the 60 cases in large amounts (a representative of clients and CEZAP own the list of clients);


2. Objections on delivery of new contract and loan repayment schedule in euros (45 days from the entry into force of the Law) - 6 October 2015

• Clients pointed to present uncertainty when they submitted comments on the amount of debt amount as at the conversion date and the fear that they would not get contract for the conversion of loans into euro;

• Clients who submitted clients on the conversion (debt data accuracy as at the conversion date) did not get timely response to their complaint to the Bank whether their complaint had been accepted or not, and whether they would receive new loan agreement and new repayment schedule in euro from the Bank.

• A significant number of borrowers who did not object to the amount of debt on the conversion date had not re-ceived draft new contract with repayment schedule in euros from the Bank timely (within 45 days from the date of entry into force of the Law on Conversion);

• Borrowers who have received the proposal of a new contract or annex to the agreement on the loan objected to certain members of the Annex:

• The main clients’ objection to the proposed Annex is that it contains illegal provisions, such as a clause that the Bank, in the case the Constitutional Court of Montenegro accepts the Bank’s appeal, has the right to maintain in force the main loan agreement, which means that there will be no conversion.

• There are also offered Annexes of contract by the Bank (in small number) that do not contain the clause condi-tioned by the eventual decision of the Constitutional Court of Montenegro.

Major complaints of loan beneficiaries classified by the bank as having the right on conversion, pur-suant to the Law:

a) Clients’ comments with whom the Bank terminated the loan agreement, by ceding claims to the factoring company, selling or assigning receivables to third parties:

• These borrowers pointed out that the Bank does not respect the Law On Conversion, does not want to apply it to borrowers with whom it unilaterally terminated the contract, the Bank makes obstruction and brings this type of borrowers in a difficult situation;

• After the entry into force of the Law on Conversion, the factoring company HETA launched the enforced collection of loans of some individual borrowers, or continued the previously initiated enforced collection launched by the Bank.

In addition to the complaints to the Banking Ombudsman, these clients sent complaints (objections) on the Bank to other institutions in Montenegro: Parliament of Montenegro, Committee on Economics, Finance and Budget of the Parliament of Montenegro, the CBCG, the Prosecutor’s Office, and others.

3. Objections of borrowers who have paid their obligations under the loan agreement either through regular repayment or enforced collection, before the adoption of the Law on Conversion:

• That without grounds in the Law on Conversion, the Bank believed that the conversion did not apply to them because they have repayment loan obligation;

• They were damaged because they are, pursuant to the Law on Conversion, entitled to conversion and refund of funds paid for the period of loan repayment or enforced collection of loans from the Bank, the factoring company or a third party, to whom the claim was ceded.

b) Legal persons

Due to difficulties and objections in relations with banks, the Banking Ombudsman admitted the representatives of legal persons, primarily entrepreneurs, partnerships and limited liability companies.

During the credit boom, a significant number of business entities borrowed from banks. Due to the global, economic and financial crises impact, their economic and financial condition deteriorated, and they were unable to repay their loans in due time. These commercial entities found theme selves in a rather difficult economic and financial situation which was reflected in the loss of market position, difficulties in purchasing raw and processed materials, which affected their profit-


ability, solvency and, particularly, liquidity. Companies became illiquid and consequently could not repay credit obliga-tions to banks/MFIs. A significant number of legal persons was past due in repaying loans or was unable to repay loans at all. Banks faced the problem of not being able to collect these loans. This resulted in high percentage of NPLs with banks.

Companies and entrepreneurs complained to the Banking Ombudsman, and their objections refer to lack of understand-ing by banks for their position caused by the global economic crisis, as well as unwillingness to take a role of a partner in an effort to overcome difficult economic situation that affects both clients and banks.

• Some banks do not accept quality loan restructuring, which would solve long-term problems rather than the cur-rent liquidity problem in companies, which are solvent and can be profitable and successful in the market;

• Despite high amounts of mortgages taken for securing loans, some banks require additional collaterals. Some banks do not want to release fiduciaries and mortgages on loans, in proportion to repaid debt, where possible;

• Banks are stringent in approving new loans, interest rates and other related costs are high, which hinders their business operations;

• In orded to collect their receivables, banks sometimes freeze accounts, which affects business operations, particu-larly liquidity;

• As companies noted, faster economic recovery and retention of existing jobs is not possible under this type of lending conditions. The conditions for starting new businesses and creating new jobs are therefore unfavourable.

• Many companies and entrepreneurs see the solution in restructuring credit obligations to banks. The CBCG initi-ated, and the Parliament of Montenegro adopted the Law on Voluntary Financial Restructuring of Debts to Finan-cial Institutions. The implementation of the Law started in Q2 2015. This Law was not implemented in 2015, which is a matter of high concern.

8.6.2.2. Objections of guarantors

During the credit boom period, banks and MFIs often requested guarantors as collateral for the loans. With the advent of economic crisis, many people who used guarantors as a form of securing their loans found themselves in worsened finan-cial position, compared to the period when they took the loans. This primarily resulted in the reduced income, reduced family budget, loss of jobs, delays in payment of salaries, and the like. Consequently, people were unable to timely repay loans. As a result of delays in servicing of obligations, banks/MFIs started to collect loans from guarantors that belonged to the category “guarantor-payer”. The legislation allows banks to regulate guaranteeing by means of loan agreements, and not by means of contract on guaranteeing. Citizens who were guarantors had to repay loans instead of the client, i.e. to repay someone else’s loan. Those who settle obligation, i.e. repay someone else’s loan, consider themselves as fraudulent guarantors and asked for the protection from such actions of banks/MFIs.

In complaints to the Banking Ombudsman, many people noted that they entered into obligatory relations without receiv-ing sufficient information about their legal obligations arising from it.

The clients showed bitterness in the banks’/MFI’s collection of claims from guarantors.

In 2015, the most of objections also pointed that:

• Banks and MFIs do not charge loans from clients to whom they granted loans, usually persons with better income, but from their guarantors, mostly pensioners; In good banking practice, banks should do their best to collect loan from loan beneficiary, and only then from his guarantor. The Banking Ombudsman suggested conducting the internal proceeding before bank/MFI to these guarantors. In their internal proceedings, the banks/MFIs refused to negotiate in that direction.

• Guarantors’ objections to banks/MFIs also refers to granting loans to clients with low credit rating and to grant-ing of several loan to one client, in several banks/MFIs using single loan supporting documents. Guarantors also complained on the lack of information by bank/MFI on client’s creditworthiness during the guaranteeing. Some banks did not ask for the presence of guarantor when signing the loan contract by the client (non-establishing of client’s identification). Such practice was present in some banks/MFIs durind the credit boom. Granting of loans


by banks/MFIs based on forged documents and guaranteeing and based on other criminal acts, fraud, misuse of personal data, and the like happened during the credit boom period. Such practice has stopped and the forged guaranteeing has not been reported to the Banking Ombudsman during the last years.

• Guarantors complained about the lack and unavailability of documentation on the loan beneficiary, loan agree-ment and the amount of client’s debt as well as other guarantors with both banks and MFIs. The adoption of the Consumer Credit Loans supressed this in the large extent in banks/MFIs, but has not eliminated it completely.

8.6.3. Structure of clients’ and guarantors’ objections

All contacts with the Banking Ombudsman and objections on banks and MFIs in 2015 mostly referred to concluded loan arrangements during the period 2005-2009. The most dominant objections in 2015 referred to the use of loan as a bank-ing product. Citizens mostly use this type of banking products in operations with banks/MFIs. There were also significant objections about the use of other banking products like electronic cards, accounts, deposits, and costs that banks and MFIs charged to clients while providing services.

Table 6 shows the structure of total objections to the Banking Ombudsman in 2015.

Table 6 - Structure of Clients/guarantors’ objections to the Banking Ombudsman

Complaints Number Objection resolution Number Structure of total objections Number

Complainants 579 Processed 81Directed to initiate internal and other proceeding

399

Clients 497 Clients 70 Clients 347

Guarantors 82 Guarantors 11 Guarantors 52

Total 579 Completed 73 Unjustified objections 180

Some 347 clients and 52 guarantors were referred to initiate the internal proceedings before the bank/MFI, or to other form of the protection of financial rights.

Clients/guarantors who objected on time-consuming court proceedings were referred to the Ombudsman for Human Rights and Freedoms.

Guarantors who complained to the issue of forged guarantorship were referred to institutions responsi-ble for processing criminal acts: the police, the pros-ecutor’s office and the court. These mostly referred to guarantors from the credit boom period.

Graph 3 illustrates the percentage ratio of objections made by clients/guarantors. Analysis by quarters reveals that the dynamics of clients’ and guarantors’ appeals to the Banking Ombudsman was uneven. The most appeals by the clients/guarantors took place in Q3 and Q4 2014.

Graph 4 shows the quarterly analysis of objections in percentage terms in 2015.

Graph 3 – Clients/guarantors’ objections in 2015


In line with the legislation, 399 clients were referred to initiate internal proceedings before the bank/MFI, prior to resorting to the out-of-court proceedings be-fore the Banking Ombudsman. This number referred to 347 clients and 52 guarantors, or in percentage terms: 86% clients and 14% guarantors.

8.6.4. The manner of settling clients/guarantors’ objections

Following the assessment of grounds of clients/guarantors’ objections on the violation of their financial rights, the Banking Ombudsman gave an opinion on whether their rights were violated or not. Where the Banking Ombudsman determined the violation of financial rights, in line with the legislation, the Banking Ombudsman advised that the first step should be to initiate internal proceedings before the bank/MFI. In case they fail to satisfy their rights, clients may turn to the Bank-ing Ombudsman for the free-of-charge out-of-court proceedings. It was explained that, for initiating internal proceedings before the bank/MFI, they need to submit a written objection to the bank/MFI. The bank/MFI is obliged to conduct an internal proceeding against the objection within a legal timeframe, no later than 30 days, and to inform the client/guaran-tor on the decision upon the objection within that timeframe.

With regard to forged guarantors’ documentation, misuse of the documentation referring to one guarantorship, for obtain-ing multiple loans, falsifying signatures and other criminal activities in the procedure of loan granting and guaranteeing, the Banking Ombudsman advised the clients to turn to the police and competent judiciary bodies for protection.

The Banking Ombudsman referred clients/guarantors complaining about the lengthy procedures before the competent institutions to file objections regarding the trial in reasonable timeframe.

The Banking Ombudsman advised clients and guarantors who requested advice on how to be protected from situation where more than 50% of their salaries or pensions are deducted for the purpose of loan repayment to be persistent in exer-cising their right to have 50% of their income blocked and taken from their earnings. In case the bank/MFI violated this rule, they were advised to turn to the Banking Ombudsman.

The number of guarantors who receive compensation from the clients whose loans they are repaying is very small. They were explained that they had a right to request compensation from client in the court of law. If they were repaying client’s loan, they had the right to request other guarantors to also participate in loan repayment. If this did not happen, they were legally entitled to request proportionate compensation from other guarantors in the court of law.

8.6.4.1. Verbal objections (requests)

The Banking Ombudsman resolved verbal objections of clients and guarantors in the following manner:

• Clients/guarantors who made verbal objections were pointed to, where the assessment without initiating a proce-dure was possible, if their financial rights were violated by the Bank/MFI. In the case of their financial distress, which is not a result of the violation of agreement made with the bank/MFI, but rather a consequence of exposing themselves to a high risk arising from the loan agreements or guarantorship for a high-risk client, that they have to fulfil the obligation and later request compensation at the court proceeding.

Graph 4 – Quarterly analysis of appeals to the Banking Ombudsman in 2015


• Where it was possible to determine the violation of financial rights, the Banking Ombudsman advised a number of clients/guarantors to initiate internal proceedings for the protection of their rights before the bank/MFI, by submit-ting their written objection to the bank/MFI, as they are obliged to do so in the process of financial rights protection.

• Clients/guarantors who had previously initiated the proceedings for the protection of their financial rights before the competent institutions (prosecutors’ office, police, and courts) were advised to persist in pursuing the activities before the competent institutions.

• Guarantors with forged guarantorship, who have previously initiated procedures before competent institutions, and who are now faced with time-consuming proceedings, were advised to address the Ombudsman for Human Rights and Freedoms to attain the right for court trial in a reasonable deadline.

• Guarantors who complained that the banks/MFI do not treat all the guarantors in a specific loan in the same manner, have the right to request equal treatment of all guarantors from the bank/MFI. They are lawfully en-titled to require other guarantors on that loan to show solidarity in loan repayment, and if the repayment is not proportional, to settle the issue among themselves, or, in case they should fail to settle, they are entitled to ask for compensation before the court.

• The Banking Ombudsman does not have legal authorisations to decide upon disputes between the employee (cli-ent/guarantor) and the employer, between clients and their guarantors.

8.6.4.2. Resolution of objections submitted by users of loans denominated in Swiss Francs in accordance with the Law on Conversion

a) Banking Ombudsman’s position on objections submitted by users of loans the Bank treated as having the right on conversion pursuant to the Law on Conversion

In general, the Banking Ombudsman presented his position to borrowers who approached him (verbally, in writing, by telephone, e-mail, registered mail) verbally or in writing:

• The Law on Conversion treats all borrowers in the same way - they have the right on the conversion of loans de-nominated in CHF into euros, regardless of the stage of implementation of the loan agreement is;

• Article 1 paragraph 2 of the Law lays down that the Law also covers terminated loan contracts.• HAAB is obliged to treat all borrowers under the Law on Conversion, regardless of the stage of implementation of

the loan agreement, how the loan agreement is realised, or who were the subjects involved in its implementation before the adoption of the Law on Conversion;

• HAAB has to adhere to the deadlines set out in the Law on Conversion, to settle its obligations to borrowers, as required by the Law on Conversion and other legislation regulating this issue (Consumer Credits Law, Banking Law, etc.);

• HAAB has to provide borrowers with the debt balance as at the conversion date (30 days from the entry into force of the Law on Conversion), with accompanying documentation (debt amount as at the loan realisation date, the analytics of loan repayment or of enforced collection in euros, the amount of funds paid more or less as at the conversion date);

• HAAB is required to offer borrowers a new contract in euros, with the debt repayment schedule. Draft contract should be in line with the Law on Conversion and other legal acts in Montenegro regulating this issue, as well as with laws in the area of consumer protection;

• Provisions contained in some specimens of the offered annex to the contract containing the clause on the conse-quences of the annulment of the Law on Conversion by the Constitutional Court are considered inacceptable, since this is contrary to the laws and regulations on consumer protection. The HAAB cannot thus keep contracts with foreign currency and avoid obligations under the Law on Conversion.Specifically:

• As a professional entity, the HAAB did not submit quality operational documentation (offer, informant) to borrowers as the proof of the amount of debt as at the conversion date, which caused confusion and resentment to a number of borrowers;


• As a professional entity, HAAB should not have allowed that customers check the status of your debt as at conversion date by looking at other subjects, without HAAB offering on its website financial calculator for this purpose, yet the borrowers had to check the balance by themselves or by asking entities to assist them, thus facing additional costs and losing time, and be in disbelief;

• The deadlines set by HAAB in the documents offered (offer, informant) for the acceptance of the amount of debt as at the conversion date (eight days), and the provisions in these documents that, in case of default or rejection of debt as at the conversion date, the primary contract with currency clause in CHF remains in force, are considered unrealistic. Borrowers believe that HAAB sought that the borrwowers would accept the offered outstanding debt as at the conversion date without checking, although this debt was incorrect in many cases;

• Many borrowers were forced to conduct a review of the debt as at the conversion date and be in a situation that does not meet the deadlines set by HAAB, and thus to be led, once again, in a very awkward situation by the HAAB (to keep a contract with a foreign currency clause in force) . In its contact with the borrowers and the pub-lic, HAAB accused the clients for not adhering to deadlines for acceptance of debt as at the conversion date they had been given, that this put the Bank into a situation of not complying with the terms of the Law on Conversion;

• Some 60 clients decided to undergo the procedure of verifying the debt balance as at the conversion date by the financial expert. The financial expert appraisals disclosed errors in the calculation of debt as at the conversion date in 50 cases, and not in a small amount. This figure sufficiently illustrates the level of HAAB’s professional-ism in this business;

• The HAAB has stalled to respond the borrowers to complaints about the debt balance as at the conversion date, thus creating uncertainty among them whether the Bank shall (not) continue actions of the Law on Conversion;

• Within the legal deadline, the HAAB did not submit draft of new contract (annex) to borrowers who did not object to the debt balance as at the conversion date, and to clients to whom it upheld the complaint based on the findings of a financial expert, in a significant number of cases.

• The draft Annex of the agreement, submitted by HAAB to borrowers with whom it agreed on the debt balance as at the conversion date, contains provisions which were rightly, not acceptable to the borrowers: - Article 1 of the Annex of the contract should not include the last three paragraphs relating to the consequenc-

es of the abolition of the Law on Conversion by the Constitutional Court, since they are not in line with the ruling legislation on consumer protection in Montenegro. The same applies to Article 9 of the offered Annex.

- Article 5 paragraph 1 of the Annex of the Contract contains an agreed default interest rate which is defined as the nominal interest rate increased by 5%, which is significantly less favourable than the statutory default interest rate. Loan beneficiaries requested that the annex should contain provision in the part that defines the default interest rate, which has been defined by the Law on the Default Interest Rate;

- For the above mentioned reasons, the last three paragraphs of Article 1 and Article 9 of Annex of the contracts should be deleted since they do not correspond to the current laws on consumer protection in Montenegro.

b) Banking Ombudsman’s position on objections submitted by users of loans the Bank treated as not having the right on conversion pursuant to the Law on Conversion

The Banking Ombudsman presented his position to borrowers to whom the bank terminated the loan agreement, assigned the receivables to factoring company, sold or assigned them to third parties:

• Although the HAAB publicly announced that it wanted to Apply the Law on Conversion, it had not fully complied with the Law on Conversion;

• Although the Law on Conversion does not allow it, HAAB and the factoring company HETA started enforced col-lection of loans or continued with previously initiated enforced collection from individual borrowers;

• It is justifiable that, in addition to the complaints to the Banking Ombudsman, these clients sent complaints (ob-jections) on the HAAB to other institutions in Montenegro: Parliament of Montenegro, Committee on Economics, Finance and Budget of the Parliament of Montenegro, the CBCG, the Prosecutor’s Office, and others.

The Banking Ombudsman presented his position to borrowers who settled their obligations under the loan agreement either through regular repayment or enforced collection, before the adoption of the Law on Conversion:


• Without finding the basis in the Law on Conversion, the HAAB considers that the conversion does not apply to borrowers who settled their obligations under the loan agreement under the loan repayment regular or enforced collection before the adoption of the Law on Conversion.

• Borrowers who settled their obligations under the loan agreement are eligible for conversion and refund of funds paid. They would be damaged if they were eliminated from the Law on Conversion.

c) Data on conversion

According to data as at 22 November 2015, number of accepted offers amounted to 321, while 156 contracts were con-cluded. Most of the accepted offers referred to credit claims, which were regularly repaid by clients in the past . The Law On Conversion has not provided a deadline by which the borrowers are required to declare on the offers thus, until all bor-rowers declare, it cannot be exactly known how many offers have been accepted and how many contracts were concluded. The Banking Ombudsman recommended to the HAAB that the Annex to the contract may only contain obligations that define the rights and obligations of the Contracting Parties arising from the Law on Conversion.

The majority of borrowers who accepted the HAAB’s offer, but has not signed a new contract, is waiting for resolution of issues and of disputed provisions of the proposed Annex to the contract.

The HAAB accepted the proposal of the Banking Ombudsman of the elimination of disputed Articles of the Annex to the contract.

d) Effects on loan beneficiaries to whom the conversion was made

In the process of the application of the Law on Conversion, the Bank did not apply the Law on all loans denominated in CHF, regardless of the stage of implementation of loan contracts. As at the day of entry into force of the Law on Conversion, the HAAB’s loan portfolio contained the total of 482 contracts.

During the conversion, the HAAB did not cover 116 claims which, from the aspect of the HAAB have the status of closed claims (through regular or early repayment of outstanding debt or enforced collection before the entry into force of the Law ib conversion), 129 claims that were assigned to other persons, and 35 claims that were liquidated or written off.

As regards the effects of the application of the Law on Conversion, it may be stated that the application of the Law on con-version facilitated the position of borrower of loans indexed in CHF that were covered by the conversion.

The most important benefit for these borrowers is the elimination of foreign exchange risk in the future repayment of the loan, since the amount of their future obligations under the new repayment schedule will no longer depend on the exchange rate fluctuations of the Swiss franc.

As a result of conversion, clients who regularly serviced obligations and clients who did not have a significant delay in set-tling obligations now have reduction of principal with the balance as at the date on which the calculation of obligations of the borrower to the HAAB (31 august and 30 September 2015). Impairment of principal level is different for each borrower, because it depends on the time the loan was granted, CHF exchange rate at the time of loan approval, the initially agreed interest rate and the period for which the loan was granted.

Impairment of equity, by individual sub-accounts, ranges tentatively between 20% and 30%. In general, the Law on Con-version equalled the position of this category of borrowers with persons who concluded loan agreements in euros in the same period, according to the conditions in force in the market. In the offers for the conclusion of Annex to contract, the Bank offered interest rates to some customers that were lower than the maximum established by the Law of Conversion (8.2%), resulting in corresponding reduction of the total remaining obligations in relation to the total obligation, resulting from application of statutory defined maximum nominal interest rate.

8.6.5. Processed clients/guarantors’ objections

Total number of processed objections in 2015 was 81. Out of total number of objections processed in 2015, 70 or 86% re-ferred to clients and 11 or 14% to guarantors. Some 73 or 90% of objections were processed in 2015 were completed, with 8 or 10% of ongoing proceedings transferred to 2016.


Table 6 contains the number of processed objections, and the number of completed proceedings in 2015.

8.6.5.1. Structure of processed clients/guarantors’ objections by year of concluded loan arrangements with banks/MFIs

During 2015, 81 objections were processed. The structure of processed clients/guarantors’ objections by year of concluded loan arrangements shows that most of filed and processed clients/guarantors’ objections to banks/MFIs referred to the 2005-2009 credit boom period.

Table 7 gives an overview of objections to the Banking Ombudsman by the year of concluding loan arrangements, from 2005 to 2015.

Table 7 – Processed clients/guarantors’ objections by the year of loan arrangement concluding

Contract year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Objections 3 4 11 21 6 5 3 3 1 2 1

There was only one objection arising from concluded loan arrangements with banks/MFIs in 2015. This speaks in favour of the decrease in violated clients’ and guarantors’ financial rights in loan arrange-ments concluded in 2015. However, banks and MFIs, through an internal process, resolve numerous com-plaints of their clients and guarantors more promptly and better, in relation to the previous year, thus the need for protection decreased. A number of objec-tions concerning the interest rates charged and other costs, cannot be treated as a criminal offense. For this reason, all these objections remained beyond protec-tion. This might be treated as violation of legal act af-ter the adoption of law on capping contracted interest rate with banking products. The CBCG initiated this legal act and submitted it to the Government for con-sideration. Its adoption is expected in 2016.

Graph 5 shows submitted objections by year of mak-ing loan arrangements.

Graph 5 shows that the highest number of objections refer to loan contracts from 2008. That was the pe-riod of the credit boom peak. The effects of the global economic and financial crisis became present after 2008.

Graph 6 shows percentage distribution of objections by year.

Graph 5 - Processed objections by year of making loan arrangements

Graph 6 - Structure of processed objections presented in percentages by year of making


The structure of processed clients/guarantors’ objections by year of concluded loan arrangements shows that most of filed and processed clients/guarantors’ objections to banks/MFIs referred to the 2005-2009 credit boom period.

8.6.5.2. Processed clients/guarantors’ objections

Table 8 shows an overview of processed objections, by municipalities

Table 8 - Overview of processed objections, by location

Location Number of processed objections

Podgorica 40

Bar 8

Nikšić 6

Ulcinj 5

Berane 3

Herceg Novi 3

Pljevlja 3

Bijelo Polje 2

Cetinje 2

Danilovgrad 1

Tivat 1

Mojkovac 1

Kotor 1

Murino 1

Kolašin 1

Vrbas 1

Beograd 1

Dublin 1

The majority of objections came from Podgorica.

Graph 7 - Structure of processed objections in 2015, by location


8.6.6. Processed clients/guarantors’ objections in 2015

A total of 81 proceedings were initiated in 2015, of which 73 were completed, and 8 transferred to 2016.

Table 9 shows an overview of Banking Ombudsman proceedings by type of client and guarantor, initiated and completed in the reporting period, compared to 2014.

Table 9 – Overview of processed and completed proceedings in 2014 and 2015

No. Type 2014 2015 Index 1. Conducted proceedings 59 81 137

JSC, LTD, entrepreneur 1 5 5

Citizens 58 76 131

- Guarantors 13 11 84

- Clients 46 70 152

2. Completed proceedings 59 73 123

3. Transferred to January 2016 - 8 8

4. Disputes with banks 50 76 152

5. Disputes with MFIs 9 5 55

Of total number of processed objections in 2015, five objections referred to legal persons, while the remaining 76 objections referred to natural person, 11 of which 11 were guarantors and 70 were clients.

Graph 8 - Percentage structure of processed objections in 2015, by location

Graph 9 – Structure of conducted, concluded, and tranferred proceedings in 2015


8.6.6.1. Processed clients/guarantors’ objections by the type of banking product

Processed objections refer to all types of banking products. The most of processed objections refer to loans.

Table 10 provides an overview of processed clients’ objections by types of banking products.

Table 10 - Overview of processed clients’ objections by types of banking products

No. Banking product Objections 2014 Objections 2015 Index1. Loans 22 42 190

- Debt on loan 11 18

- Interest on loan 1 10

- Illegal loan contract - 4

- Loan rescheduling 5 4

- Calling of mortgage 5 2

- Loan insurance premium - 1

- non-approval of loan - 1 - Loan fee - 1

- non-deliverey of a copy of loan - 12. Accounts 11 14 127

- Freezing of current account/overdraft, social welfare and health fees

6 9

- Account maintenance fee 2 3

- non-disposal of funds at the account - 1

- Foreign transactions - 1

- Non-issuing of balance 2 -

- Outstanding severance pay 1 - 3. Deposits 5 4 80

- Time deposits 1 4

- Frozen foreign currency deposits 3 -

- Misuse of time deposits 1 -4. Cards 8 10 125

- costs for maintaining cards - 6

- Debt on payment cards 8 4

TOTAL 46 70 152

In the total of 8 initiated proceedings, guarantors ob-jections mostly referred to freezing of total salary or pensions, current account or overdraft.

Graph 10 – Structure of objections by banking prod-uct

Graph 10 shows that percentage structure of pro-cessed objections mostly refer to loans (60%), fol-lowed by accounts and cards with respective 20% and 14%

Graph 10 – Percentage structure of clients/guarantors’ processed objections by banking product in 2015


Graph 11 shows the overview of the structure of pro-cessed objections by banking product in 2014 and 2015

8.6.6.2. Types of processed guarantors’ objections

In the total of 8 initiated proceedings, guarantors objections mostly referred to freezing of total salary or pensions, cur-rent account or overdraft. Guarantor’s objections also referred to non-performing of all types of loan collection from users (movable and immovable property, mortgage), and disproportional collection from all guarantors. They also complained on freezing more than 50% of salaries and pensions. The remaining two referred to guarantors’ objections to loans granted on the basis of criminal activities, fraud, forging and misuse of identification documents, dating from the credit boom period.

8.7. Processed clients/guarantors’ objections to banks/MFIs

Out of the total number of processed requests (ob-jections) during the reporting period, 76 objections referred to banks and 6 to MFIs.

Graph 12 shows the percentage structure of total processed objections referring to banks and to MFIs.

8.7.1. Banks subject to objections

Out of the total number of processed requests (objections) during the reporting period, 76 objections referred to banks.

Table 11 shows summary of Banking Ombudsman’s proceedings against banks in 2015 compared to 2014.

Graph 11 – Structure of objections by banking product in 2014 and 2015

Graph 12 – Percentage structure of total processed objections referring to banks and to MFIs


Table 11 - Summary of Banking Ombudsman’s proceedings by banks in 2013 and 2014

Bank Proceedings 2014

Proceedings 2015

1. Crnogorska komercijalna banka AD Podgorica 23 17

2. Prva banka Crne Gore osnovana 1901. AD Podgorica 4 13

3. Hypo Alpe-Adria Bank AD Podgorica 5 12

4. NLB Montenegrobanka AD Podgorica 5 11

5. Erste Bank AD Podgorica 10 8

6. Societe Generale banka Montenegro AD Podgorica - 7

7. Hipotekarna banka AD Podgorica - 5

8. Atlas banka AD Podgorica - 2

9. Komercijalna banka AD Budva - 1

10. Universal Capital Bank ADPodgorica 2 -

11. Invest banka Montenegro AD Podgorica 1 -

Total 50 76

Table 11 shows that the majority of objections re-ferred to Crnogorska komercijalna banka AD Pod-gorica (17), followed by Prva banka Crne Gore os-novana 1901, AD Podgorica (13), Hypo Alpe-Adria Bank AD Podgorica (12), NLB Montenegrobanka, AD Podgorica (11), Erste Bank AD Podgorica (8).

Graph 13 shows the percentage distribution of pro-cessed objections by banks.

Graph 13 shows that 22% of total number of pro-cessed objections with banks referred to Crnogorska Komercijalna Banka AD Podgorica.

Graph 14 shows the overview of processed objections by banks in 2014 and 2015

Graph 14 shows the increase in the number of objec-tions in 2015 compared to 2014.

Graph 13 - Percentage distribution of processed objections by banks

Graph 14 - Overview of processed objections by banks in 2014 and 2015


8.7.2. MFIs subject to objections

Table 12 shows the summary of Banking Ombudsman’s proceedings against MFIs in 2015 compared to 2014.

Table 12 - Summary of conducted proceedings by MFIs in 2013 and 2014

MFI Proceedings2014

Proceedings 2015

1. MFI Monte Credit d.o.o. Podgorica 3 4

2. MFI Alter Modus d.o.o. Podgorica 2 1

3. MFI Montenegro Investments Credit d.o.o. Podgorica 1 -

Total 6 5

Table 12 shows that the number of processed objec-tions against MFIs was significantly lower in 2015 compared to 2014.

Graph 15 shows that the most of processed objections (80%) referred to MFI Monte Credit, d.o.o. Podgorica (former Agroinvest d.o.o. Podgorica).

The number of processed objections against MFIs dropped in 2015. It is known that MFIs decreased their lending activity over the last few years.

Graph 15 - Overview of processed objections against MFIs in 2015

Graph 16 - Overview of processed clients/guarantors’ objections by MFIs in 2014 and 2015

47IX • Banking Ombudsman’s actions on clients’ and guarantors’ objections

IX BANKING OMBUDSMAN’S ACTIONS ON CLIENTS’ AND GUARANTORS’ OBJECTIONS

9.1. Settling of the clients/guarantors’ objections (requests) before the Banking Ombudsman

9.1.1. Settling of verbal objections

Out of 579 contacts by clients/guarantors in 2015, the Banking Ombudsman found non-breaching of financial rights in 150 cases. In such cases, clients/guarantors were told that their financial rights had not been violated. Where it was as-sessed possible, the Banking Ombudsman informed them that they may submit request to the bank/MFI to get some in-centives in completing obligations from arrangements. Many clients have economic and financial difficulties as the result of risks they faced, and not due to breaching of contracts or law.

The guarantors, whose rights have not been unlawfully violated by bank/MFI in a way that is not in line with the loan agree-ment, and who are repaying someone else’s loan, were advised to ask for compensation for the repaid loan (pursuant to the Law on Contracts and Torts) by the client whose loan they are repaying. If this cannot be achieved in their mutual communi-cation, they have the right to file a lawsuit against the client and ask for compensation of the repaid funds in the court of law.

The Banking Ombudsman does not have legal authority to decide on disputable relations between citizens (client/guaran-tor) or employer and employee. These problems should be resolved in other way, mostly in the relations between guaran-tors’ clients or mortgage debtors and clients. Only in cases where there were no criminal act in the proceeding of regulating loan or guaranteeing a loan, clients and guarantors whose rights have been violated may conduct an out-of-court proceed-ing before the Banking Ombudsman.

Guarantors who complained that the banks/MFI do not treat all the guarantors in a specific loan in the same manner, have the right to request equal treatment of all guarantors from the bank/MFI. They have the legal right to request solidary repayment of loan from other guarantors, and if they do not do it, or do it in the disproportional ratio, to ask for compensa-tion through court procedure.

In the cases when client/guarantor instigated the proceeding for the protection of his rights before other component au-thorities (police, Prosecutor’s office, court), the Banking Ombudsman advised to continue activities on protecting their fi-nancial rights before these institutions. Pursuant to the Decision on the Banking Ombudsman, the Banking Ombudsman may cease the proceedings if the client has initiated the proceedings before the competent court.

Clients/guarantors whose documentation has been forged or misused, that they have been conned or that their personal identification documents were misused, were advised to address competent authorities (the police authorities and the prosecutor’s office) immediately and to report criminal offense, as well as to ask for protection of their rights by those institutions and by the court.

9.2. The manner of settling processed clients/guarantors’ objections

Table 13 shows an overview of the manner of resolution of processed objections in 2014 and 2015.


Table 13 - Overview of the manner of resolution of processed objecitons in 2014 and 2015

No. Type 2014 2015

1. Proposal for dispute resolution 9 26

2. Advise 37 32

3. Cessation of proceedings 9 6

- Due to instigated court proceedings 5 5

- Sent to the competent authority 4 1

4. Rejected requests 4 9

Total 59 73

Table 13 shows an overview how the Banking Om-budsman settled processed clients’ and guarantors’ objections.

The most proceedings involved cases where the bank or MFI and client or guarantor could not internally reach an agreement but instead, one or both parties, decided to settle the dispute before the court, without out-of-court proceedings. The Banking Ombudsman urged both parties to opt for out-of-court proceed-ings more often when settling disputes between clients/guarantors and banks/MFIs, with a view to avoiding lengthy court proceedings and high ex-penses, and maintain a healthy relationship.

Graph 17 shows the percentage of resolved objections by banks/MFIs in 2015.

Banks/MFIs need increase their acceptance of the out-of-court dispute resolution with their clients be-cause of multiple benefits. The out-of-court proceed-ings preserve a sound relation between a client/guar-antor and bank/MFI. The out-of-court proceedings offer faster way to settle disputes; also it is a good way to avoid high legal costs and court proceedings that are usually lengthy, while receivables receive the sta-tus of disputable or prosecuted.

Graph 18 shows that the percentage of dispute reso-lution before the court is still high. Cases of proceed-ings cessation in 2015 recorded annual decline.

9.3. Completed proceedings upon clients/guarantors’ objections by banks

Table 14 shows conducted proceedings upon clients/guarantors’ objections in 2014 and 2015 by banks.

Graph 17 - The manner of resolution of processed clients’ guarantors’ objections in 2015

Graph 18 - Processed objections on banks and MFIs in 2014 and 2015


Table 14 - Overview of settled proceedings, by banks, in 2014 and 2015

Bank Completed proceedings in 2014

Completed proceedings in 2015

1. Crnogorska komercijalna banka AD Podgorica 23 16

2. Prva banka Crne Gore osnovana 1901. AD Podgorica 4 13

3. Hypo Alpe-Adria Bank AD Podgorica 5 6

4. NLB Montenegrobanka AD Podgorica 5 11

5. Erste Bank AD Podgorica 10 8

6. Societe Generale banka Montenegro AD Podgorica - 6

7. Hipotekarna banka AD Podgorica - 5

8. Atlas banka AD Podgorica - 2

9. Komercijalna banka AD Budva - 1

10. Universal Capital Bank ADPodgorica 2 -

11. Invest banka Montenegro AD Podgorica 1 -

Total 50 68

Table 14 shows a downtrend in the number of com-pleted and conducted proceedings in 2015 compared to 2014.

Graph 19 shows percentage overview of finalized proceedings by banks in 2015.

Graph 19 shows that the highest share of settled pro-ceedings upon clients/guarantors’ objections with banks referred to Crnogorska Komercijalna Banka AD Podgorica and Prva banka Crne Gore osnovana 1901, AD Podgorica.

Graph 20 shows percentage overview of finalized proceedings by banks in 2014 and 2015.

Graph 20 shows an overview of finalized proceed-ings by banks in 2014 and 2015 There is an evident annual growth in the number of finalized proceed-ings in many banks in 2015.

Graph 19 - Percentage overview of finalized proceedings by banks in 2015

Graph 20 - Overview of finalized proceedings by banks in 2014 and 2015


9.4. Completed processed proceedings referring to MFIs

Table 15 shows an overview of completed proceedings by MFIs in 2014 and 2015.

Table 15 - Overview of completed proceedings by MFIs in 2014 and 2015.

MFI Completed proceedings in 2014

Completed proceedings in 2015

1. MFI Monte Credit d.o.o. Podgorica 3 4

2. MFI Alter Modus d.o.o. Podgorica 2 1

3. MFI Montenegro Investments Credit d.o.o. Podgorica 1 -

Total 6 5

Table 15 shows that the majority of finalized pro-ceedings upon processed clients/guarantors’ objec-tions with MFIs refer to MFI Monte Credit ltd. Pod-gorica or as much as 50% of total settled objections referring to MFIs.

Graph 21 shows percentage structure of finalized proceedings by MFIs in 2015.

Graph 21 – Percentage structure of finalized proceedings by MFIs in 2015

Graph 22 - Overview of completed conducted proceedings by MFIs in 2014 and 2015


9.5. Protection of clients/guarantors’ objections pursuant to the Banking Law

9.5.1. Banks’ and MFIs’ actions upon the clients’ and guarantors’ objections

This part of the report will focus on the manner in which the banks and MFIs enforced the legislation in the area of client/guarantor protection in 2015. Chapter 6 of the Banking Law (OGM 17/08, 44/10, 40/11) provides the obligations of banks and MFIs in the protection of clients.

a) Article 87 of the Law stipulates the obligation of banks and MFIs to inform the client, upon his request, on condition of the loan or deposit account and provide him with the access to other information that may be available to the client.

b) Article 88 lays down that a bank is obliged to post in its business premises on a visible location general operating conditions and their amendments as well. General operating conditions mean each document that contains standard operating conditions that may be applied to all clients of the bank. General conditions refer to the relationship between the clients and bank, communication between the clients and bank and the general conditions of performing transac-tions between the clients and the bank. The client may require from the bank additional explanations and instructions that refer to the implementation of general operating conditions.

c) Article 89 of the Banking Law contains obligation to calculate and report effective interest rate. A bank is obliged to calculate and report lending effective interest rate on loans granted and other banking products (banking cards, overdrafts, etc.) and effective deposit rate on deposits taken. It also lays obligation to inform clients and public on the amount of effective interest rates on these products in the manner specified in the regulation of the CBCG.

d) Article 91 of the Banking Law stipulates the internal procedure conducted by bank/MFI in case of client’s objection. A client that deems that the bank has breached his financial rights may submit an objection to the bank/MFI. The same Law set out that bank/MFI is obliged to conduct an internal proceeding on the client’s/guarantor’s objection, which the bank has to conduct within 30 days as of the day of submission of objection. After finalizing the proceeding, the bank/MFI is obliged to respond to the complainant within 30 days. After ending the internal proceeding, a bank/MFI is obliged to inform the the complainant on the decision from the internal proceeding within statutory deadline. If bank/MFI does not conduct internal proceeding on client’s/guarantors’ objection, it breaches Article 91 of the Banking Law. Moreover, if bank/MFI does not inform the complainant on the decision from the internal proceeding within statutory deadline, it also breaches Article 91 of the Banking Law.

In 2015, the banks/MFIs started to take the obligation of client protection defined in the Banking Law more seriously. However, some banks and MFIs did not comply to the obligations from the Banking law regarding the protection of clients and guarantors.

These banks still insufficiently inform their clients, and especially guarantors, on the implementation of contracts for banking products, particularly regarding current accounts and bank cards. For several years, even up to ten, banks did not warn their clients about their debt for maintaining current account or bank cards that are not in use, and thus transferred this accumulated and not-agreed amount to factoring companies or engaged public enforcement officers for collection. This is emphasised since multiple clients’ objections refer ti such behaviour of banks.

In 2015, there were 399 cases where clients/guarantors were instructed by the Banking Ombudsman to initiate internal proceedings before the bank/MFI, by submitting an objection to the bank/MFI, or seeking for other manner of protection due to breaching of financial rights. The most of clients/guarantors were instructed to initiate internal proceedings before the bank/MFI.

Compared to the previous year, banks and MFIs took more seriously the obligation stemming from the Banking Act to protect clients in 2015. This, in general, refers to better information of clients/guarantors, more promptly conducting of internal proceedings, eliminating activities that are present in forging of guarantorship. The significant improvement of quality occurred in procedures and objectivity of assessing clients/guarantors’ creditworthiness by banks/MFIs, and in improving the application of standards for protection from credit and other risks. Today, banks/MFIs observe creditwor-


thiness of clients and their guarantors in an objective and comprehensive manner compared to the credit boom period, they seriously and more professionally inspect documents submitted by clients/guarantors, verify the accuracy of infor-mation in the documents, verify the authenticity of documents submitted, and the like.

9.5.2. Banks’ and MFIs’ actions upon the clients’ and guarantors’ objections

9.5.2.1. Internal proceeding

If bank/MFI does not conduct internal proceeding on client’s/guarantors’ objection, it breaches Article 91 of the Banking Law. Moreover, if bank/MFI does not inform the complainant on the decision from the internal proceeding within statutory deadline, it also breaches Article 91 of the Banking Law.

The Banking Ombudsman noted that most of banks were more accurate in conducting internal proceed-ing by clients/guarantors’ objections in 2015 com-pared to 2014.

Out of total number of processed proceedings (81) during the reporting period, the internal proceed-ings were not conducted in 31 proceedings. The following banks failed to conduct internal proceed-ing, thus breaching Article 91 of the Banking Law: Crnogorska komercijalna banka (13 proceedings), Prva banka (8 proceedings), Hypo Alpe-Adria Bank (6 proceedings),NLB Montenegrobanka (2 proceed-ings), and Hipotekarna banka and Komercijalna banka AD Budva (1 proceeding) each.

Graph 23 shows an overview of non-conducted inter-nal proceedings in 2014 and 2015 by banks

9.6. Banking Ombudsman urgent requests to banks and MFIs

During the reporting period, there were delays in submitting the information and documentation by the banks to the Banking Ombudsman. In 2015, the Banking Ombudsman sent urgent requests to Crnogorska Komercijalna Banka in six cases and Prva Banka in four cases, and NLB Montenegrobanka and Hypo Alpe-Adria Banka (in one case each), requiring them to submit requested information and evidence. Untimely submission of statements resulted in prolongation of these proceedings.

Graph 23 – Non-conducted internal proceedings in 2015 by banks

Graph 24 - Non-conducted internal proceedings in 2014 and 2015 by banks

53X • Banking Ombudsman’s recommendations to banks and MFIs and their implementation

X BANKING OMBUDSMAN’S RECOMMENDATIONS TO BANKS AND MFIs AND THEIR IMPLEMENTATION

In line with the statutory powers, the Banking Ombudsman sent recommendations to banks and MFIs for the purpose of improving management of relations with clients and guarantors. These recommendations are based on the clients/guaran-tors’ objections to banks and MFIs. They referred to all the banks and MFIs.

Information

Generally speaking, informing of clients and guarantors was not satisfactory in 2015. Level of information of clients and guarantors differed between entities, and it was not the same in all banks and MFIs. Although the procedure and method of informing clients and guarantors is defined by the Consumer Credits Law, which implementation started as of 1 Febru-ary 2014, there is a significant portion of obligations for its full implementation in banks/MFIs. Informing of clients and guarantors is required, from advertising banking products and services until the completion of executing the contract on the use of these products. This legal act defines the obligation of banks/MFIs on informing clients and their guarantors according to EU directives. Adequate and timely information is a precondition for solid relations between the bank and its clients/guarantors. Consumer Credits Law defines obligations of a bank/MFI in informing the client/guarantor in the pre-contract process, the contractual period, and on informing clients/guarantors in the period of implementation of the contract until its termination. In the area of informing consumers, new legal acts will be adopted in accordance with EU directives. In particular, there is ongoing work on adopting the Law on Illicit Advertising.

General operating conditions

In line with Article 88 of the Banking Law, a bank/MFI is obliged to post general operating conditions in its business premises on a visible location. Majority of banks’/MFIs’ clients and guarantors were not familiar with the general operat-ing conditions of the entities they are doing business with. Therefore, the Banking Ombudsman issued recommendation for this area to banks/MFIs Recommendation of the Banking Ombudsman given on this matter yielded some results; however there is still room for further implementation of this recommendation.

Conducting the internal proceedings in banks/MFIs

Article 91 of the Banking Law stipulates conducting an internal proceeding on client’s/guarantor’s objection. Recommenda-tion of the Banking Ombudsman on conducting of the internal proceedings in banks and MFIs refers to regular and adequate conduct of internal proceedings upon the clients’/guarantors objections. In the decisions of internal proceedings in banks and MFIs conducted before the appointment of the Banking Ombudsman, banks and MFIs failed to give statements regarding all the issues of the dispute. A number of banks and MFIs failed to observe the obligation to end the proceeding and submit the decision in the written form to the client/guarantor within the 30 days from the clients’/guarantors objection. The recom-mendation referring to the internal proceedings resulted in the improvement of precision and accuracy of conducting the proceedings in most of the banks and MFIs. The Law on Protection of Financial Services Consumers, adopted in July 2015 and which entered into force in February 2016, obliges banks/MFIs to inform the CBCG and the Banking Ombudsman on conducted internal proceedings on complaints/objections of clients/guarantors, which has not been the case so far. The Bank-ing Ombudsman expects that the beginning of implementation of this Law will significantly improve the quality in this area.


Client protection programmes

A significant number of clients/guarantors pointed out that they were unable to repay the loans in due time because of the global crisis effects. The banks and MFIs failed to develop comprehensive programmes for client/guarantor protection, in order for them to continue servicing their loan obligations. In 2013, the CBCG and Ministry of Finance in cooperation with the World Bank ordered the banks to develop client protection programmes in support of their initiative for the resolution of NPLs individually by the client. Some banks participated in the pilot-project for non-performing loans workout in 2013 following the “Podgorica Approach”. This activity continued in 2014. The Parliament of Montenegro adopted the Law on Voluntary Financial Restructuring of Debts towards Financial Institutions. This Law provides the possibility of regulat-ing non-performing loans of entrepreneurs, companies and natural persons. Workout of non-performing loans of natural persons through voluntary financial restructuring will enable many citizens, unable to repay their loans, to repay them and to exit indebtedness. However, according to CBCG information from 2015, there were no single contract concluded on voluntary restructuring of debts, although the level of NPLs is still high.

Interest rates

Many clients and guarantors complained about the amount of interest rates on loans granted in 2015. Pursuant to Article 92 of the Banking Law (OGM 17/08, 44/10, 40/11) and Article 12 of the Banking Ombudsman (OGM 15/09, 2/12), in the recommendation given in March 2014, the Banking Ombudsman asked the banks/MFIs to lower lending interest rates. The CBCG also issued the Recommendation to Banks on reducing the interest rates in July 2014. A mild interest rate de-cline happened in Q4 2014. A mild interest rate decline trend continued in 2015.

Lending interest rates of banks, and particularly MFIs, are still high. This is the opinion of clients of companies, entre-preneurs and citizens, as well as of experts. The Banking Ombudsman pointed out this fact several times in 2015. A slight decline in interest rates which began in late 2014 continued in 2015, to avoid the restriction that the CBCG would impose. According to the Banking Ombudsman, there was no significant decline in lending rates in 2015. With the level of lending rates at the start of 2016 and the total costs and credit terms, substantial intensification of economic activities in the real sector, and better living standard may not be expected. The Banking Ombudsman asked from banks to return client (user of banking products and services) to the focus of their attention.

Detailed control of loan documentation

Pursuant to Article 92 of the Banking Law (OGM 17/08, 44/10, 40/11) and Article 12 of the Banking Ombudsman (OGM 15/09, 2/12), the Banking Ombudsman recommended banks/MFIs to control the documents along with the loan appli-cation letter. The guarantors continued to object to banks and MFIs on insufficiently detailed control of documentation enclosed by the clients along with the loan application during the credit boom, as well as that the banks’/MFIs’ employees failed to identify guarantors when making loan arrangements, which resulted in criminal acts - counterfeits, abuse and fraud, when regulating guarantorship. The number of objections regarding the guarantorship forging is declining, how-ever it remains present when it comes to loans granted during the credit boom.

Professional conduct of employees

In 2015, a number of clients and guarantors objected to a non-professional conduct by the banks’ and MFIs’ employees, as well as to unkindly communication while doing business.

The Banking Ombudsman insisted on recommending banks/MFIs to invest more effort in improving the level of profes-sional skills of their employees who deal with clients and guarantors. The Banking Ombudsman insisted on the application of good banking practice in banks.

Employers

Through a public notice, the Banking Ombudsman recommended the employers to discontinue the practice the practice of issuing, verifying and registering the employee’s loan documentation many times, thus giving the client/guarantor an unrealistic creditworthiness. Thus, employers will disable their employees to take multiple loans with banks and MFIs and be over indebted.

55XI • Legislation in 2015

XI LEGISLATION IN 2015

11.1. Law on Voluntary Financial Restructuring of Debts Towards Financial Institutions

Law on Voluntary Financial Restructuring of Debts Towards Financial Institutions (OGM 20/15) provides the basis for regulating mortgage loans with difficulties in repaying. Non-performing loans (NPLs) are present in the real and retail sectors. The global economic and financial crisis led to the economic activity decline in all sectors of the economy. The effects of the economic and financial crisis are reflected also in the level of NPLs.

At end-November 2015, NPLs amounted to 333.5 million euros, or 13.3% of total loans. Law on Voluntary Financial Re-structuring of Debts towards Financial Institutions tackles the issue of NPLs. Adoption of the Law on Voluntary Financial Restructuring of Debts towards Financial Institutions is aimed at creating a fostering framework, which would support real restructuring in the out-of-court proceedings, economically sustainable economic entities and thus eliminate the reasons leading them to bankruptcy, which, as a rule, means more difficulties for creditors and debtors.

The Law is based on the concept of voluntary participation in restructuring. Debtors and their creditors engage in debt ne-gotiations voluntarily, with a view to reaching a solution favourable for both parties. From the debtors’ view, in comparison to the consequences of bankruptcy proceedings initiation, the negative perception of their financial position is mitigated and control maintained over the management of the economic entity. From the creditors’ view, this can help achieve better asset recovery by investing joint effort in supporting the improvement of the position of debtor, who is in financial prob-lems and a significant reduction of costs and shortening of deadlines tied to regular court proceedings in comparison to bankruptcy proceedings initiation. In addition, out-of-court debt restructuring secures the flexibility of the restructuring mechanisms which can be resorted to when planning the resolution of the incurred situation.

The Law is also based on the concept of coordinating activities for financial restructuring. To provide necessary coordina-tion, it was assessed that it is needed to create legal assumptions to perform financial restructuring through the institution that provides pursuing of the mediation proceeding with the participation of licenced mediators. To that end, the Law proposes that the institutional intermediation is carried out by the Centre for Mediation, which has licenced mediators trained for effective and efficient pursuing the mediation procedure and who have shown significant results in resolving corporate disputes in their operations.

Moreover, the Law may also resolve difficulties in repaying mortgage loans of households which individual amounts are the largest in the household loans portfolio.

11.2. Law on the Conversion of Swiss Franc (CHF) - Denominated Loans into Euro (EUR) - Denominated Loans

The Parliament of Montenegro adopted the Law on the Conversion (OGM 46/2015) on 31 July 2015, and stipulated dead-lines for its implementation. The Law came into force on 22 August 2015. Loans denominated in Swiss Francs were ex-tended only by HAAB. This law covers loans denominated in the foreign currency Swiss franc extended to clients by HAAB, including the loans that have been unilaterally terminated by banks due to clients’ inability to repay loans. The


basis for loan conversion is the amount that a client received in the bank as at the loan agreement date. According to the Law, the HAAB is obliged, after converting loans into Euro, to recalculate loans at the flat interest rate of 8.2% per annum. Moreover, the HAAB is obliged to convert all Swiss franc (CHF) – denominated loans to loans denominated in Euro (EUR) within 30 days following the entry into force of this Law. The HAAB is also obliged to offer to loan beneficiaries, new loan conversion and loan restructuring agreements within 45 days following the entry into force of this Law. The CBCG super-vises the implementation of the Law. The CBCG will prescribe detailed regulations governing the supervision of HAAB within 30 days following its entry into force. The CBCG submitted the Special report on the supervision of the implemen-tation of Law to the Parliament of Montenegro. Representatives of associations of loan beneficiaries believe that this will make repaying of the remaining debt easier, as they will have a fixed amount of principal outstanding and of instalment, which will no longer depend on the exchange rate of the Franc against the Euro. The significant changes in exchange rates to the detriment of the euro in recent years resulted that, regardless of the repayment, the principal amount increased and the instalments were much higher.

HAAB submitted the initiative to the Constitutional Court challenging the constitutionality of the Law.

57XII • Laws to be applied in 2016 and 2017

XII LAWS TO BE APPLIED IN 2016 AND 2017

12.1. Law on Protection of Financial Services Consumers

The Parliament of Montenegro adopted the Law on Protection of Financial Services Consumers on 16 July 2016. The Law is published in OGM 43/2015 of 31 July 2015, it came into force on 8 August, and its implementation started on 8 February 2016. This Law regulates the rights of consumers of financial services provided by banks and financial leasing providers.

The Law excludes some categories of contracts on using financial services. Provisions of this Law do not apply on:

• Loan contracts in the amount lower than 500 euros and higher than 75,000 euros;• Leasing contracts which do not provide the option for the lessee to acquire ownership of the leasing object;• Overdraft contract agreements with the repayment obligation of 30 days;• Loan contracts concluded within the settlement procedure before the court or another government body;• Loan contracts which relate to the deferred payment of an existing debt, free of charge; • Loan contracts free of any charge and loan contracts under which the credit has to be repaid within three months;• Loan contracts secured by lien on personal property, if the liability of the consumer is limited to the value of the

pledged item;• Loan contracts on financial arrangements with continuous performance, by which the vendor undertakes to sup-

ply a certain kind of goods or provide a certain service to the consumer over a longer period, and the consumer undertakes to pay the price in instalments over the period of goods supply or service provision.

• credit agreements where claims are secured by a mortgage on immovable property or another comparable means of security against immovable property or other rights on immovable property;

• credit agreements where the credit is intended for acquisition or retaining ownership over existing or planned immovable property/building;

• credit agreements where credit, in line with the law and general interest, is approved under more favourable terms to a specific group of clients.

Financial services providers safeguard the protection of consumers’ rights and interests by adopting and consistently ap-plying the general terms of business operation and other internal regulations, which must be aligned with the regulations and based on good business practices and fair treatment of consumers, in compliance with the principle of consumer protection, namely:

• right to equality between financial services consumer and provider,• right to protection against discrimination• right to information• right to agree on the obligations that are specific or specifiable, and• right to appeal and compensation of damage.

The Law lays down that financial services providers are obliged to adhere to the abovementioned principles during all stages of establishing relations with the consumer (advertising, negotiations and delivery of draft agreement, agreement conclusion, use of service and duration of contractual relation).


Advertising

One of primary and first provisions of the Law is advertising. Financial services must be advertised in a clear and under-standable manner, and advertisement shall not make use of incorrect and false information or information that may be misleading to an average consumer, nor make use of any information that may create a wrongful picture of the terms of use of а specific service and lead the consumer to make a decision that they would otherwise not make, nor make use of any information that harms or is certain to harm another service provider.

Rules of contracting

The Law lays down precise rules for contracting between the provider and the financial services’ beneficiary. A financial service agreement (hereinafter: agreement) is drawn up in writing. Each contracting party, guarantor and mortgage credi-tor receives a copy of the agreement.

The agreement may not contain any provisions whereby the consumer waives the rights guaranteed herein. The agreement becomes effective upon final consent of all the contracting parties, i.e. 30 days from the date of delivery of the agreement; the contracting parties, guarantor and mortgage creditors may appeal against the essential elements of the agreement. If the contracting parties do not provide their consent within the prescribed deadline, it will be considered that no agree-ment was concluded. The Law emphasises defining of monetary contractual obligations in a specific manner. Monetary contractual obligation must be specific or specifiable. Monetary contractual obligation shall be specifiable with regard to its amount if the agreement includes the information which enables such amount to be set, i.e. if it depends on the agreed variable elements, or variable and fixed elements, where variable elements are those that are officially published (reference interest rate, consumer price index, etc). Monetary obligation is time-specific. This is achieved if it is possible to determine the time when it falls due based on the agreed elements.

The elements that define it must be of such nature that they are not subject to the unilateral will of any of the contracting parties. Unilateral will does not include the financial service provider informing the consumer of any modification in the agreed elements that are considered to be variable and their application, when the elements are beyond financial service provider’s control.

Agreements do not include general references to the business policy concerning the mandatory elements of the agreement envisaged herein.

The Law stipulates that when a monetary contractual obligation, with regard to the terms or service provision and use, is unspecified or unspecifiable, the agreement shall be considered null and void.

If the contracting parties regulated their relations with lack of consent i.e. under threat, substantial error or fraud, the other, innocent party may request the agreement to be declared null and ask for compensation of any damage incurred, in line with the law governing contracts and torts.

The Law stipulates that if the financial service agreement was drawn up based on unauthorised use of personal data, or in case the client’s or the guarantor’s signatures have been forged, the agreement shall be considered absolutely null and the contractual relation shall be suspended immediately, with the citizen entitled to receive compensation from the financial institution.

In such case, the commission of the criminal offence of signature forging, misuse of personal data and misuse of official posi-tion is reported to the competent state prosecution authority. Upon the report, the financial institution initiates court proceed-ings for determining the nullity of the agreement, based on which the parties to the proceeding shall receive compensation.

General operating conditions

General terms of business of financial services providers shall mean the terms applicable to consumers, the terms for establishment of the relationship between the consumer and provider of a financial service, and the procedure for their mutual communication, as well as the terms for concluding the transactions between the consumer and provider.

Through general terms of business, the financial service provider shall ensure application of good business customs, good business practices and fair treatment of the consumer, as well as the compliance of these terms with the regulations.


Financial service provider shall ensure, at the provider’s business premises or on the webpage, that the consumer is ac-quainted the general terms of business in one of the languages in official use in Montenegro at the latest 15 days prior to their application, and shall provide the consumer with any relevant explanations and instructions referring to the applica-tion of these terms concerning a specific financial service, and shall deliver such terms to the consumer, upon consumer’s request, in writing or on another durable data storage device.

Annual effective interest rate

Effective interest rate is the discount rate equalising, on an annual basis, the present values of all cash flows i.e. the present values of all cash receipts with the present values of all cash expenses related to the use of financial services, which are known at the time of disclosure of the rate.

The cash flows referred to in paragraph 1 hereof includes:

• all credit repayments and lease/deposit payments;• costs payable by the financial services consumer or by the financial service provider on behalf and for the con-

sumer pending refund (e.g. interest, fees, taxes etc.) i.e. benefits available to the consumer (interest and other unconditional benefits);

• costs related to ancillary services which are prerequisite for the use of the financial service or for its use in a specific manner (e.g. costs of life insurance, property and personal insurance etc.).

If opening an account is a prerequisite for using the financial service, the cash flows include the costs of opening and main-taining that account, as well as all costs related to the execution of such cash flows.

The cash flows do not include:

• costs incurred due to a breach of contractual provisions;• costs related to purchase of goods incurred irrespective of whether the payment was conducted in cash or in an-

other manner;• cost of insurance instruments.

The effective interest rate calculation shall be based on the following assumptions:

• that the financial service agreement will remain in force during the agreed period;• that the parties will fulfil their respective contractual obligations and that they will do so within the deadlines

specified in the agreement;• that the nominal interest rate and other costs will remain unchanged throughout the duration of the agreement.

Bank, microcredit institution or leasing provider calculates the effective interest rate in a uniform prescribed manner so as to enable comparison across same-type offers of different financial service providers.

The CBCG determine the detailed terms and method of calculation of the effective interest rate.

Information

When advertising deposit and credit services and leasing operations where the advertising message includes the interest rate or any numerical data related to price or income, the bank and leasing provider state the following clearly and pre-cisely, by means of a representative example:

• type of cash deposit/credit/leasing object;• level and variability of the annual nominal interest rate;• effective interest rate;• agreed currency of the deposit/credit/leasing;• period for which the deposit/credit/leasing is agreed;• criteria for deposit/credit/leasing indexation;• total amount of deposit/credit/leasing;• all costs payable by the consumer.


When advertising leasing, the leasing provider also specifies the following information:

• gross purchase value of the leasing object, the amount of front payment and the amount of net financing;• number and amount of leasing instalments, as well as the interval in which they are due (monthly, quarterly etc.).• In the advertisements, the effective interest rate should be indicated i.e. written in the way that makes it more

prominent than the other elements.

The advertisements include the advertisements pursuant to the law governing advertising – advertising in the media, at the premises of the bank and leasing provider (brochures, leaflets etc.), or on the webpage.

Where the conclusion of an agreement on ancillary services (in particular insurance agreements) is required for the con-clusion of the credit agreement or leasing agreement, and the cost of the ancillary service cannot be determined in advance – the existence of such an obligation is to be stated in a clear, concise and prominent way, together with the indication of the effective interest rate.

Terms qualifying the credit or leasing as ‘free’ or similar must not be used in advertising a credit or leasing, if granting of such credit or leasing is contingent on the conclusion of another contract or on anything that represents a cost for the consumer or generates another obligation.

Consumer information during the negotiation stage

Bank, microfinance institution or leasing provider shall provide to the consumer information on the terms and all relevant characteristics of the service offered, in the form of a standard info-sheet, using a representative service example, in writ-ing or in electronic format, referring to the deposit/credit/leasing agreement, overdraft facility, agreement on opening and maintaining an account or agreement on payment card issuance and use (hereinafter: offer) in a manner that will enable the consumer to compare the offers of different providers of the same service and assess whether the agreement suits their needs and their financial situation, but will not mislead the consumer at any point.

The info-sheet includes the following:

• type of service;• business name and address of the service provider;• amount of the service, denomination of currency and terms of use;• duration of agreement;• level and variability of the nominal interest rate;• effective interest rate and total amount payable or receivable by the consumer;• amount and number of credit installments and the intervals when they are due (monthly, quarterly etc.),• costs of maintenance of one or more accounts where payment and withdrawal transactions will be recorded, un-

less opening of an account is only an option on offer, together with the costs of use of a specific repayment instru-ment, both for payment transactions and for withdrawals, and any other fees and costs arising from the agree-ment, with a specification as to whether these are fixed or variable and the terms for their modification;

• information in case it is required to use services of a notary public when concluding the agreement;• information concerning the obligation to conclude any agreement on ancillary services linked with the principal

agreement, especially when conclusion of such an agreement is required to obtain the service under the terms advertised;

• interest rate applicable in the event of default and rules concerning its modification, and other fees payable in the event of default,

• security instruments, if required;• amount of compensation for early repayment;• consumer’s right to request and receive a free copy of draft agreement, unless the bank assesses, at the time of

submission of the request, that the conditions for establishing a relation with the consumer in the specific legal transaction are not in place;

• period during which the bank is bound by the information provided during the negotiation stage;


• terms and conditions for making a cash deposit with the bank, if this is a prerequisite for credit approval, and the possibility and terms and conditions for settling credit and deposit.

All data and information concerning the service offered by the bank are to be written in equal font size and equally promi-nent in the standard info-sheet.

Contents of banking services and leasing agreements

Credit agreement

A credit agreement has to contain the following compulsory elements:

• type of credit;• period for which the credit is approved;• business name, name and address of contracting parties;• approved credit amount and conditions for withdrawal of funds;• for credits indexed to foreign currency – the currency in which the bank indexes the credit, type of the exchange

rate applicable for credit approval and repayment (buying or selling rate of the CBCG or the official mean rate or the buying or selling rate of the bank) and the date of calculation;

• nominal interest rate, with a specification as to whether it is fixed or variable, and if it is variable – the elements for its determination (reference interest rate, consumer price index, etc.), their level at the time of conclusion of the agreement, periods in which they will be changed, as well as any fixed element, if agreed;

• effective interest rate and total amount payable by the consumer, calculated on the date of conclusion of the agree-ment;

• credit repayment schedule and the consumer’s right to receive such schedule free of charge throughout the dura-tion of the agreement, whenever changes occur or once a year if changes occur; if interest and charges are repaid without concurrent repayment of the principal, the credit repayment schedule shall contain only the terms and conditions of interest and charges repayment;

• The method of interest calculation (the compound interest method, pro rata interest method, etc.);• default interest rate at the time of agreement conclusion, applicable in the event of default, and the rules for its

adjustment, and any other fees payable in the event of defaulting on the obligations;• warning of consequences in case of default, conditions, procedure and consequences of termination or cancella-

tion or the credit agreement in accordance with the law governing contracts and torts, as well as information on the conditions and manner of cession of claims in the event of default;

• type and level of all fees charged to the borrower, with a specification as to whether they are fixed or variable, and, in the latter case, the adjustment periods, as well as the type and level of other costs (taxes, fees to competent bodies, etc.);

• types of security and possibility of its replacement during the period of credit repayment, as well as conditions for its seizure in the event of default;

• conditions and manner of early credit repayment and amount of relevant compensation;• consumer’s right to withdraw from the agreement, and the conditions and method of such withdrawal;• the right to complaint and the possibility of instituting mediation proceedings for out-of-court settlement of the

dispute;• as required, a clause on mandatory use and payment of the costs of notaries’ services.

Total credit costs to the consumer include interest, fees, taxes and any other charges and costs directly linked with credit approval and use, and shall be included in the calculation and presentation of the effective interest rate.

The total amount payable by the consumer represents the sum total of the credit amount and total credit costs borne by the consumer.

On credit disbursement, the bank delivers to the consumer, together with the agreement, a copy of the credit repayment schedule, which is considered to make an integral part of the agreement; the other copy of the schedule shall be kept on file by the bank.


Compulsory assessment of creditworthiness

Before entering into a credit or leasing agreement, the bank or leasing provider assesses the creditworthiness of the con-sumer, guarantor or another person individually backing the settlement of liabilities, on the basis of relevant documents and data furnished by the consumer and on the basis of consultation of credit registries - provided prior written consent of the person concerned - as well as consultation of public registries and databases.

Before entering into a credit or leasing agreement, the financial service provider - provided prior written consent of the consumer, guarantor or another person individually backing the settlement of liabilities - informs them and acquaint them with the documents and data obtained in the course of assessment of creditworthiness.

Leasing agreement

A leasing agreement contains all the compulsory elements in line with the law governing leasing. In a leasing agreement – the interest, fees and other charges, if variable, must depend on the agreed elements that are publicly disclosed (reference interest rate, consumer price index, etc.) and which are of such nature that a change in their value cannot be effectuated by unilateral will of any of the contracting parties.

When concluding a leasing agreement, the leasing provider shall deliver to the consumer a copy of the leasing repayment schedule and a summary of compulsory leasing elements, containing the main data on the leasing, which are considered an integral part of the agreement. The lease provider shall keep a second copy of this schedule and of the summary of main elements on file.

Revolving credit agreement

Revolving credit agreement is an agreement whereby the bank makes available to the consumer, for a specific period of time, a certain amount of money, which may be used by the consumer at any point during the period approved. The credit is approved in a tentative amount. Any use diminishes the funds available, and credit repayment replenishes them up to the approved tentative amount. The consumer shall be entitled to terminate a revolving credit agreement at any time, in the usual manner, without charge, unless a notice period of up to one month is agreed. The bank may cancel the revolving credit agreement, with the obligation to notify the consumer in writing at least 30 days in advance, if so agreed or if the consumer, even after temporary suspension, withdraws funds contrary to the revolving credit agreement. The bank may, for justified reasons (unauthorised use of credit from paragraph 1 hereof, significant worsening of the consumer’s credit-worthiness etc.) and if so agreed, deny the right to withdrawal of funds either temporarily or permanently; the bank shall inform of the reasons thereof in writing or in electronic form, if possible immediately or within three days, unless such notification is prohibited by other regulations.

Agreement on issuance and use of a payment card

An agreement on issuance and use of a payment card contains the following compulsory elements:

• business name/name and address of contracting parties;• characteristics, manner of use and restrictions on the use of the card;• consumer actions for the sake of safe use of the card;• percentage of minimum monthly liability for a credit card;• currency for calculating the debt on the card;• notification of the fee for cash withdrawal from other banks’ cash machines;• consumer course of action in the event of identification of unauthorised use of card data, damage, theft or loss of

the card;• consumer’s and bank’s course of action in the event of card blockage;• consumer and bank’s responsibility and compulsory course of action in the event of card theft and loss, i.e. in the

event of unauthorised use of card data;• consumer’s right to withdraw from the agreement, and the conditions and method of such withdrawal;• the right to complaint and the possibility of instituting mediation proceedings for out-of-court settlement of the

dispute;


Agreement on deposit and savings deposit

A deposit agreement contains the following compulsory elements:

• The type of deposit, and the period for which the bank receives the deposit;• The amount that bank takes as the deposit;• The currency in which the consumer deposits and the bank pays deposit funds (euro), and in case of a deposit with

agreed currency clause – the type of currency applicable for depositing and for payment of deposit (the official middle exchange rate), as well as the date of calculation;

• The nominal annual interest rate, with an indication whether the consumer is due to pay taxes;• The effective interest rate and the total amount payable to the consumer, calculated on the date of conclusion of

the agreement;• Unconditional benefits provided by the bank in connection with the deposit;• Variability of the nominal interest rate (fixed or variable);• The elements for determining the agreed variable nominal interest rate, their level at the time of conclusion of the

agreement, periods in which they will be changed and manner of changing, as well as a fixed element, if agreed;• The method of interest calculation (the compound interest method, pro rata interest method, etc,);• Terms and conditions of using deposit funds by the consumer;• type and level of all fees charged to the borrower, with a specification as to whether they are fixed or variable, and, in

the latter case, the adjustment periods, as well as the type and level of other costs (taxes, fees to competent bodies, etc.);• Terms and manner of automatic extension of the depositing period;• The amount of insured deposit;• The terms for disposal of deposit or savings deposit prior to expiration of the deadline for which the bank has

prepared the deposit, i.e. savings deposit, as well as documenting of fulfilment of those terms;• the right to complaint and the possibility of instituting mediation proceedings for out-of-court settlement of the

dispute;

For the deposit agreement – the interest, fees and other charges, if variable, must depend on agreed elements that are of-ficially disclosed (reference interest rate, consumer price index, etc.) and which are of such nature that the change in their value cannot be affected by unilateral will of any of the contracting parties.

On conclusion of the deposit agreement, the bank delivers to the consumer a copy of the summary of compulsory elements of the deposit, containing main data on the deposit, which are considered an integral part of the agreement. The bank keeps a second copy of this summary of main elements on its file.

When concluding the savings deposit agreement the bank issues a savings book to the consumer. In the case of automatic extension of the deposit term, the bank informs the consumer, at least 15 days before the expiry of the term of deposit, of the new extended term of deposit and of the new interest rate, and the consumer shall be entitled to terminate the contract within 30 days from receipt of that information, without charges and with interest agreed for the expired term. This ap-plies to savings deposits.

Agreement on account opening and maintaining

An agreement on account opening and maintaining, in addition to elements defined by regulations governing payment operations, contains the following compulsory elements:

• the type and level of all fees and other costs charged to the consumer, with indication whether they are fixed or variable, and in the latter case – adjustment periods;

• information whether the bank is paying interest, the rate at which the interest is calculated, with indication whether the rate is fixed or variable, and in the latter case – elements whose change affects the interest rate, ad-justment periods, method of adjustment and reasons for adjustment, as well as the interest calculation method applied (compound, pro-rata, etc.);

• the interest rate and additional costs charged in the case of overrun;• information on conditions and manner of assignment of claim from the consumer in case of default;


• the right to complaint and the possibility of instituting mediation proceedings for out-of-court settlement of the dispute;

If the bank increases fees and other costs above the level set by the agreement, it has to inform the consumer no later than 15 days before it starts implementing these changed fees or other costs. In case of cancellation of agreement, the consumer may at his request, immediately after settling his liabilities on the account, free of charges transfer the funds to another bank or withdraw the amount in cash and close the account, and the bank has to enable him to do so.

If the agreement on deposit or current account stipulates issuing and use of payment card, the agreement contains the following necessary elements:

• Currency in which calculation is done for the debt of the card;• A notice on fees for withdrawing cash at the ATMs of other banks;• Rights and obligations, actions of consumers in case of unauthorized use of data from the card, damage, theft or

loss of the card,• Rights and obligations, actions of consumers and banks in case of card blocking and• Liability of the consumer and the bank that issued the card, in case of theft and loss of the card, i.e. unauthorized

use of the data card.

Variable nominal interest rate

The variable nominal interest rate is the interest rate the level of which depends on agreed variable or variable and fixed ele-ments, where variable elements are those that are officially published (reference interest rate, consumer price index, etc.). The variability of interest rate cannot be affected by unilateral will of any of the parties. The bank, i.e. the lessor display in their business premises and make available to the consumers the information about the changes in the value of agreed variable elements referred to in paragraph 1 of this Article.

Agreement on other banking services

Agreements on issued guarantees and sureties, letter of credit, agreement on safe deposit box as well as other agreements on other banking services provided in accordance with the law contain the type and amount of all fees and other costs charged to the consumer. The CBCG may prescribe the compulsory elements of the agreement for other agreements.

Right of Withdrawal

The financial services provider cannot make available the credit facilities for the consumer prior to expiration of deadline of 14 days from the day of agreement conclusion, except upon the explicit request of the consumer. The consumer is en-titled to withdraw from the credit agreement, agreement on authorised overdraft facility, agreement on issuing and use of a credit card – within 14 days from the date of conclusion of the agreement, without giving any reason for withdrawal.

In case of a credit agreement secured by a mortgage and in case of agreements the subject-matter of which is the purchase or financing of purchase of real estate, the consumer may withdraw from the agreement provided he has not started to use the credit or financing.

When withdrawing from the agreement referred to in paragraph 1 of this Article, and prior to expiry of the term referred therein, the consumer shall notify the bank, the lessor, or the vendor of his intention in the manner that provides confirma-tion of receipt of that notification, where the date of receipt of that notification is considered the date of withdrawal from the agreement. This notification is to be delivered in writing.

The consumer who withdraws from the credit agreement, agreement on authorised overdraft facility or agreement on is-suing and use of a credit card shall immediately, and no later than 30 days from the dispatch of the notification repay to the bank the principal and interest accrued under the main deal for the period the credit has been.

The consumer who withdraws from the leasing agreement with an option to buy the leasing object returns the leasing object to the lessor immediately after dispatching the notification. The consumer referred to in the present paragraph shall immediately, and no later than 30 days from the dispatch of the notification, compensate the lessor for any loss sustained


through value reduction of the leasing object and shall pay the agreed interest under the main deal for the period between the signing of the agreement and the date when the interest is paid.

The consumer who withdraws from the financial arrangement with a vendor shall immediately return the object of pur-chase to the vendor. The consumer referred to in the present paragraph shall immediately, and no later than 30 days from the dispatch of the notification referred to in paragraph 4 of this Article, compensate the vendor for any loss sustained through value reduction of the object of sale and shall pay the agreed interest under the main deal for the period between the conclusion of sales agreement and the date when the interest is paid.

Service providers shall not be entitled to any other compensation except compensations and costs incurred with compe-tent authorities. The bank shall be entitled to reimbursement of actual costs incurred in connection with the conclusion of the credit agreement. The consumer shall be informed of actual costs before the conclusion of the credit agreement.

If service providers or a third party on the basis of an agreement with such providers supply ancillary services relating to financial services - the consumer shall no longer be bound by the ancillary service contract if the consumer exercises his right of withdrawal from the main agreement - except when the consumer started using the service in accordance with another agreement. The credit consumer shall withdraw in writing and explicitly state that he is also withdrawing from the ancillary service.

Early repayment

The consumer is entitled to discharge fully or partially his obligations under a credit agreement at any time, in which case he shall be entitled to a reduction in the total cost of the credit for the amount of interest and the costs for the remaining duration of the contract (early repayment), but he shall inform the bank on his intention to repay the credit earlier within the agreed deadline. In case of early repayment, the bank is entitled to objective and justified compensation for costs directly related to early repayment, providing that the early repayment was made in the period when the fixed nominal interest rate was applied, and for the credit agreement the subject of which is purchase of real estate, if the fixed or variable nominal interest rate is agreed, and if the amount of early repayment of credit in the period of one year exceeds the limit values determined by the CBCG.

Compensation may be agreed up to the amount of sustained loss due to early repayment, but may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed term for fulfilment of the obligation under the credit agreement exceeds one year. If the period is shorter than one year, this compensation may not exceed 0.5% of the amount of credit repaid early.

The bank may not claim the compensation for early repayment:

• if the repayment has been made under an insurance contract intended to provide a credit repayment guarantee,• if repayment is made within a period for which the variable nominal interest rate is agreed, with the exception of

credits the subject of which is purchase of real estate and• in the case of authorised overdraft facilities.

Compensation for early repayment may in no case exceed the amount of interest the consumer would have paid during the period between the early repayment and the agreed date for fulfilment of the obligation under the agreement. The CBCG may prescribe additional terms for early repayment of the credit. This applies also to the leasing agreement.

Changes to compulsory elements of the agreement

If the bank or lessor intends to change any of compulsory elements of the agreement, it shall obtain prior written consent of the parties, before application of that change, except for the change of variable interest rate, agreed in accordance with the provisions of this law.

If the consumer does not agree with the change of compulsory elements of the agreement, the bank, i.e. the lessor cannot unilaterally change the terms of agreement, nor unilaterally terminate or cancel the agreement, except for the reasons envisaged by the regulations for contracts and torts.


The bank, i.e. the lessor shall, within the deadline and in the manner defined by the agreement, inform the consumer about the changes of data that do not represent the compulsory elements of the agreement.

Information on variable nominal interest rate

If the variable nominal interest rate is agreed - the bank i.e. the lessor shall inform the consumer of the change in that rate in writing or via email, before it starts to implement the changed rate, or periodically in accordance with the agreement, and shall specify in that information the date as of which the changed rate will be applied.

Along with the information, the bank in the case of a credit agreement or the lessor in the case of a leasing agreement shall deliver to the consumer in writing the changed credit repayment schedule or the leasing object repayment schedule, respectively.

The bank or the lessor shall make the schedules referred to in paragraph 2 of this Article available to the consumer, at his request, throughout the duration of the agreement and free of charge.

The obligation of providing information shall also exist in the case of change to variable elements that influence the amount of other pecuniary liabilities.

Information on the outstanding debt and account overdraft

The provider of financial services shall at least once a year, at the request of the consumer, deliver to the consumer free of charge a statement of his outstanding debt under the credit agreement, the leasing agreement or a credit card in writing or via email.

In case of authorised overdraft facility, the bank shall at least once a month deliver to the consumer free of charge, in writing or via email, information - a statement of account showing all transactions in the account and shall deliver that information to the consumer without delay at his request, with the right to charge a fee for such information in accordance with the general terms of bank policy presented to the consumer when the agreement on overdraft facility was concluded.

Information shall contain the following data:

• the account number,• the period to which the statement of account relates,• the date of transaction, description of transaction, the amount and kind of transaction (credit or debit),• previous and new balance of account and the date of the statement,• the applied nominal interest rate and• any costs charged.

In the case of significant overrunning exceeding the period of one month, the bank shall inform the consumer without delay, in writing:

• about the amount of overrunning,• about the interest rate to be applied to the amount of overrunning and• about any other charges and penalties.

If the consumer fails to fulfill his obligation within the agreed time, the outstanding due liability shall be subject to the rules of interest charged in case of debtor’s default laid down in the law regulating contracts and torts.

If circumstances that result in consumer’s difficult financial situation or other pertinent events beyond the influence of the consumer occur during the period of the agreement, the bank, i.e. the lessor may, at the consumer’s request, declare suspension of payment (moratorium) for a specified period in which the bank. i.e. the lessor shall not calculate the default interest on past due claims.

The bank, i.e. the lessor may by their internal regulations lay down criteria for declaring the suspension of repayment in accordance with the regulations of CBCG.


Right to the same method of interest calculation

If the consumer has an obligation of making special-purpose deposit with the agreed interest rate to obtain credit, he shall be entitled to the same method of interest calculation on that deposit as the method applied to the interest calculation on the amount of extended credit, and the bank shall enable him to exercise that right.

Rights concerning an account

The consumer shall have the right to withdraw in cash, free of charge, funds from his euro or foreign-currency account at a bank where this account is opened. The consumer shall have the right to withdraw the funds from his account, free of charge, as soon as inflow is recorded. The customer shall be entitled to close an account free of charge.

Rights concerning a payment card

The bank shall ensure that only the consumer has access to the personal identification number until the card is delivered to him.

The bank issuing a payment card shall bear risk associated with the delivery of the payment card and the personal identi-fication number to the consumer.

The consumer shall without delay report to the bank any loss or theft of a payment card and shall request from the bank to block its further use, and the bank shall enable him to do this at any time. If the bank which issued a payment card does not enable the consumer to report loss, theft or transaction by unauthorised use of the payment card and/or data from the payment card, the consumer shall not bear consequences of unauthorized use – unless he himself or any member of his family committed a fraud.

The consumer shall bear all losses relating to any transaction made as a consequence of fraud committed by himself, and shall also bear losses resulting from his failure to fulfill his obligations arising from prescribed conditions for issuing and use of a payment card, obligation to report without delay to the bank any loss, theft and abuse of the payment card and obligation to adequately safeguard the personal identification number.

The consumer shall not bear losses relating to transactions made after he reported to the bank the loss, theft or unauthor-ised use of the payment card i.e. data from the payment card reported , unless he himself committed fraud or participated in fraud or acted with an intention to commit fraud, which also applies to the members of his family. The customer shall be entitled to extinguish a payment card free of charge.

Assignment of claims

In the event of assignment of the bank’s claim under a credit agreement to another bank or financial organisation licensed by CBCG – assignee, the consumer shall retain all agreed rights in relation to the assignee that he had in relation to the original bank, and may point out to the other assignee, except the complaint against him and complaints he had against the bank from the credit agreement, and the assignee bank may not place the consumer in less favourable position than the position he would have if the claim had not been assigned and the consumer may not be subject to additional costs as a result of the assignment.

The bank shall inform the consumer of the assignment of claim , except if it continued to charge the consumer in the name and for the account of assignee for the credit.

This shall also apply to the assignment under a leasing agreement, agreement on authorised overdraft, agreement on issu-ing and use of a payment card and agreement on opening and maintaining an account.

Agreement on authorised overdraft facility

The agreement on authorised overdraft facility shall also contain the amount of authorised overdraft for the current account, charges paid when the agreement was concluded, as well as the terms and procedure for termination of the agreement.

The bank shall issue and deliver a bank statement, in an agreed manner at least at the end of each year, in order to regu-larly inform the consumer on initial balance, changes on the account balance due to payments, transactions, collection,


charges, and commissions and fees the bank has for the services rendered, as well as about the final account balance for the reporting period.

In addition to the bank statement, the bank shall inform the consumer on applied interest rates in the reporting period, as well as the changes in the interest rates, fees and costs before their application, within the deadline and in the manner stipulated by this law.

The consumer shall be entitled to withdraw the funds from his account in the amount available in the account and without any charges.

If the bank is tacitly allowing for overdraft in the current account, it shall inform the consumer on the amount of nomi-nal interest rate, its calculation method and other costs that will be charged from the consumer’s current account due to overdraft, as well as on the change in the amount of interest rate or costs. In case that the overdraft lasts more than three months, the bank shall conclude an agreement with the consumer on overdraft in the current account.

Linked credit agreements

If the consumer exercises his right to withdrawal from the agreement on purchase of goods or provision of service in ac-cordance with the law regulating consumer protection, he shall not be bound by the linked credit agreement.

the seller shall notify the bank of the withdrawal from the agreement for purchase of goods or provision of a service within eight days and the bank shall return to the consumer the repaid amount of principal of credit that the consumer has repaid to bank by the time of withdrawal, without delay and no later than 30 days after being notified of the withdrawal.

If the agreement on purchase of goods or provision of a service is concluded, and the credit under a linked credit agreement is not approved - the agreement on purchase of goods or provision of service shall be terminated, unless the person who has not been approved a credit decides to keep that agreement in force. The aforementioned shall also apply by analogy to a leasing agreement.

Unfair contractual provisions and unfair dealing

Provisions of the law regulating consumer protection shall apply by analogy to unfair contractual provisions and unfair dealing, as well as to the procedure for their prohibition.

Exercising consumer’s rights and interests

The consumer, surety or other person that personally fulfils the obligations of the consumer shall be entitled to a com-plaint, if he thinks that the provider fails to abide by legal provisions, general terms of business, good business practice and obligations under the agreement concluded with the consumer.

The provider of financial services shall organize activities to resolve the complaints, issue written procedures and pro-cesses, to provide the response to the complainant within 30 days from the filing of complaint, and keep accurate records of received and resolved complaints, of which it shall report to the protector of customers’ rights (hereinafter referred to as: the Banking Ombudsman). If the provider of financial service fails to respond within the deadline, or the complainant is not satisfied with the response, the complainant shall be entitled to inform the banking ombudsman in writing on this matter and to lodge a complaint to the Banking Ombudsman.

Upon receipt of written notice or complaint of the consumer, the Banking Ombudsman shall require from financial service providers to comment within eight days on the allegations from the notice or complaint.

If the service provider within the deadline fails to comment or comments, and the Banking Ombudsman decides that there are no violations of provisions of this law that regulates consumer protection, for which the misdemeanour penalties are envisaged, the Banking Ombudsman, consumer or provider of financial services may give a proposal to initiate media-tion procedure in the dispute. If the Banking Ombudsman on the grounds of facts from the written notice, i.e. the com-plaint of the consumer, and after comments of financial services provider on those facts, decides that there are violations of provisions of this law that regulates consumer protection, for which misdemeanour penalties are envisaged, he shall send the case to the competent organizational unit of the CBCG for further actions. The financial services provider shall cooper-


ate with Banking Ombudsman with the aim of fair and speedy solving and overcoming disagreements and disputes from complaints. The Banking Ombudsman shall prescribe the terms and manner of filing of complaint , procedure for action of the bank upon complaint and reporting to the CBCG, as well as the CBCG procedure after receiving the notification and complaint. The financial service provider shall allow CBCG and other control authorities authorized by a special law, to inspect the agreements concluded with the consumer on the service, and to give them their copies, and deliver other data and documents necessary for supervision.

Requirement of minimum professional competence

The employees engaged in the sale of financial services or in advising consumers shall possess adequate qualifications, knowledge and experience and professional and personal qualities to act in accordance with good business customs and professional ethics, respect the customer’s person and integrity, and inform customers fully and accurately of the terms of use of such services.

Financial services providers shall ensure that the employees engaged in the sale of financial services or in advising con-sumers possess adequate qualifications, and shall ensure training of such employees.

Supervision

The CBCG shall supervise the financial service providers in accordance with this law and laws regulating banks and lessors.

The body competent for consumer protection shall supervise the providers of financial arrangements, in accordance with the law regulating consumer protection.

Relations with other regulations

The provisions of the regulations governing consumer protection, bank operation, leasing providers and payment opera-tions using the valid currency and foreign payment instruments, as well as provisions of the laws governing contracts and torts shall apply to any issues concerning consumer protection that are not covered herein.

Penalty Provisions

The legal entity – the bank or the leasing provider shall be fined in the range between 2,500 and 20,000 euros.

The responsible person in a bank/microcredit financial institution or lessor shall be fined in the range between 500 and 2,000 euros.

A vendor who is a sole proprietor shall be fined in the range between 500 and 6,000 euros.

Transitional and Final Provisions

Regulations for the implementation of this Law shall be adopted within three months from its coming into force. Financial services providers shall make their internal regulations compliant with the provisions of this Law and regulations within three months from the adoption of these regulations. The CBCG shall undertake measures against financial services pro-viders who fail to act in accordance with the provisions regulating their respective operation.

The Law comes into force on the eighth day following its publication in the “Official Gazette of Montenegro” and shall apply after the expiry of six months from its coming into force.

12.2. Law on Consumer Bankruptcy

The Law on Consumer Bankruptcy (OGM 46/15, 3/16) will be applied as of 1 January 2017. This Law regulates the general rules of consumer bankruptcy, attempts at reaching an out-of-court agreement, conditions for opening bankruptcy pro-ceedings over the assets of consumers, legal consequences of its opening and implementation, procedure before the court, as well as the conditions and consequences of the consumer’s remaining debt discharge.

The consumer bankruptcy proceedings shall be carried out to create conditions for servicing consumer’s debts, to en-courage agreements between the creditors and the consumer regarding the restructuring of the existing liabilities, settle


creditors by liquidating the assets of consumers and distributing the collected funds to creditors, provide instructions on responsible and economically rational consumer conduct, in order to ensure group settlement of creditors from the assets of bankrupt consumers.

After the passage of the period of verification and examination of his conduct, conscientious and recovered consumers shall be provided with the possibility to be discharged of the remaining debt to creditors.

Consumer as Bankruptcy Debtor

Within the meaning of this Law, consumers are deemed to be all natural persons, other than independent traders and craftsmen, who conclude a legal transaction or act in the market outside of their trade, business, economic or professional activities.

The provisions of this Law shall also apply to persons performing an independent business activity, in cases where:

• they do not have more than 10 creditors;• their liabilities arising from the performance of an independent business activity do not exceed the amount of

15,000 euros;• they do not have liabilities under labour relations arising from the performance of an independent activity;• pre-bankruptcy or bankruptcy proceedings have not been started.

The consumer bankruptcy proceedings shall be conducted on consumer assets, except for the primary home in which the consumer - bankruptcy debtor lives.

Reasons for Bankruptcy

The consumer bankruptcy proceedings may be started if the consumer is insolvent. Insolvency, within the meaning of this Law, means inability to meet financial liabilities matured for payment over a longer period of time. Insolvency of the consumer shall occur if they are late for more than six months with one or more mature liabilities, whose total amount exceeds seven times the amount of his salary or other compensation received regularly in the same periods that are not longer than two months, or if he is unemployed and in arrears with regards to liabilities amounting to more than 2,500 euros for more than five months.

OUT-OF-COURT SETTLEMENTS

Purpose of extra-judicial proceedings

Extra-judicial proceedings shall be based on the principle of voluntariness and conducted in view of concluding an out-of-court agreement between the consumer and the creditor. Extra-judicial proceedings shall be conducted by mediators in counselling centres under the rules agreed upon by the parties. Counselling centres, within the meaning of this Law, are deemed to be services that are authorized to conduct mediation procedures in order to reach out-of-court agreements between consumers and creditors, suitable persons – mediators (hereinafter referred to as: mediators) who have been trained to professionally advise consumers on the manners of servicing their debts. The mediator shall treat personal data in accordance with the provisions of a separate regulation governing the protection of personal data. The Rulebook on the criteria for the selection of services and mediators referred to in paragraph 2 of this Article, manner of work of counselling centres, their funding and the conditions for conducting mediation activities, shall be adopted by the ministry in charge of judicial affairs (hereinafter: the Ministry of Justice).

Start and Course of Proceedings

The creditor or the consumer who intend to present a bankruptcy petition to the court shall, before presenting the petition to the court, file an application to the counselling centre or the mediator to try to reach an out-of-court agreement. Creditors shall submit, together with the application to conduct an extra-judicial procedure, documents demonstrating the credibility of the existence of their claim. The consumer shall, in the process of trying to reach an out-of-court agreement, put together a debt repayment plan. In the process of trying to reach an out-of-court agreement, the consumer shall prepare a list of as-sets that he shall deliver on prescribed forms. The form and contents of the extra-judicial procedure application template, list of assets, creditors and debts templates, shall be laid down by a separate rulebook adopted by the Ministry of Justice.


In the process of trying to reach an out-of-court agreement, creditors shall, at the request of the consumer, and at their own expense, give a written statement of their claims within eight working days, with an obligatory designation of primary and secondary claims. Joint debtors and guarantors of the bankruptcy debtor may, as bankruptcy creditors, seek the recovery of funds they paid for the bankruptcy debtor after the opening of bankruptcy proceedings, provided that they are entitled to a recourse action against him.

Registration of Creditors’ Claims

Registration of creditors’ claims shall be made by filing a written application with the bankruptcy court, containing the following data:

• name and main office or permanent residence of the creditor, with a contact address;• company registration number or personal identification number for natural persons;• number of the business or current account;• legal grounds of the claim;• the amount of the claim and in particular the amount of the principal claim with calculated interest;• the item over which the creditor acquired a secured right, in case of secured claims, and the amount of his claim,

which is not secured, if his claim is not fully secured;• a specific request of creditors, pursuant to the provisions on the contents of the lawsuit from the law governing

civil proceedings;• the amount of the claim in the claim currency, if creditors have claims in a foreign currency.

If claims subject to litigation are registered, the report shall state the court before which the proceedings are conducted with a designation of the files.

List of Assets, Creditors and Debts

The consumer shall attach a list of assets, creditors and debts to the mediator or service in the process of attempting to reach an out-of-court agreement. The list of assets shall include all existing assets, income and liabilities while specifying the amounts or values thereof, a list of all creditors, claims, expected income and expected inheritance.

When compiling the list of assets, the following shall be considered in particular:

• the list of assets needs to specifically indicate income from employment and other income, as well as their amounts over the past three months;

• when stating the liabilities, indicate data on current costs such as utilities, maintenance obligations and insurance premiums;

• specify the existence of monetary or some other claims against third parties;• specify all other rights that constitute consumer’s assets;• indicate the existence of funds in bank accounts, and with which banks these accounts are held;• warn if any of the creditors or debtors is an immediate family member;• specify all the property, if the consumer is a person performing a freelance activity, while specifically separating

those assets which are reported in his business records.

The consumer shall indicate in the list of assets whether any disposals of assets under property law which equal a gap in the equitable title of property between him and members of his family and other persons have happened over the past ten years preceding the submission of the application to institute proceedings. Members of the immediate family for the pur-poses of this Law means: spouses, direct blood relatives and their spouses, brothers, sisters, stepchildren, adopted children, children entrusted for accommodation, education or care outside the family, stepmother, stepfather, adoptive parent and persons whom the customer has to maintain under law.

Termination of Extra-judicial Procedure

Out-of-court agreement reached between consumers and creditors, in accordance with this Law, shall have the force of an out-of-court settlement, and if it is confirmed by the notary, it shall also have the status of being executable, and constitute


a plan of repaying consumer’s debts. If an out-of-court agreement cannot be reached between consumers and creditors, the consumer or the creditor may submit a petition to the court to start consumer bankruptcy proceedings.

The attempt to reach an out-of-court agreement with creditors shall be considered unsuccessful, if any of the creditors initiates enforcement proceedings once negotiations have started aimed at reaching an agreement on servicing consumer’s debts or expressly and unequivocally states that he does not agree with the out-of-court agreement. In such case, the mediator or the service shall issue to the consumer or creditor without delay a certificate of a failed attempt to reach an out-of-court agreement.

In the process of reaching an out-of-court agreement, the consumer may, together with the debt repayment plan, submit a remaining debt discharge application or give a statement that he would not request such a discharge in the court procedure.

COURT PROCEDURE

Jurisdiction

The court in Montenegro shall have jurisdiction in consumer bankruptcy proceedings:

• when the consumer has a permanent or temporary residence in the state of Montenegro,• when the consumer who does not have a permanent or temporary residence in the state of Montenegro, earns a

salary in Montenegro and/or other regular income, or if his assets are in the territory of the state of Montenegro.

The basic court in whose territory the consumer has permanent or temporary residence, court in whose territory the consumer earns his salary and/or other regular income or the court in whose territory his assets are located shall have exclusive jurisdiction in consumer bankruptcy proceedings.

Personal Administration

In the ruling to open consumer bankruptcy proceedings the court may authorize the consumer, at the proposal of the consumer and with the consent of creditors, to administer and dispose of the bankruptcy estate himself, in which case it shall not appoint a bankruptcy trustee. Before rendering the decision, the court shall especially be mindful of the number of creditors and of the amount of claims and on the predictable complexity of procedure. The court shall reject the motion of the consumer to administer and dispose of the bankruptcy estate himself and revoke already given approval under the following conditions:

• If established at the preparatory hearing that consumer assets that would enter the bankruptcy estate are insuf-ficient to meet the costs of proceedings or are of insignificant value, the court shall render a decision to open and close the consumer bankruptcy proceedings and at the same time appoint a bankruptcy trustee and decide on the remaining debt discharge application, if such an application had been filed.

• If the remaining debt discharge application has not been filed nor accepted, the bankruptcy trustee may, after the conclusion of the procedure, but at the latest within two years after the decision, liquidate the assets of the con-sumer on behalf of the consumer, and for the account of the bankruptcy estate, and settle the costs incurred in the procedure using the collected funds.

Bodies in Court Proceedings

The bodies in proceedings before the court shall be the judge and the bankruptcy trustee.

Bankruptcy Trustee

Natural person who is a national of Montenegro, who has a university degree, passed bankruptcy trustee qualifying exam and who is on the list of bankruptcy trustees may be appointed bankruptcy trustee. When appointing the bankruptcy trustee, one shall specifically be mindful of the fast that bankruptcy trustee has to have the necessary expertise and work-ing experience to conduct bankruptcy proceedings. A lawyer may also be appointed bankruptcy trustee provided that he is on the list of bankruptcy trustees. The list of bankruptcy trustees shall be compiled and managed by the Ministry of Justice.


Duties of the Bankruptcy Trustee

Bankruptcy trustees shall represent the consumer in the procedure of his bankruptcy. The bankruptcy trustee shall act conscientiously and properly and take care, with the diligence of a prudent owner, of the completion of consumer’s initi-ated but uncompleted tasks and businesses needed to prevent the occurrence of damage to consumer’s means. The bank-ruptcy trustee shall take care of realising the claims of the creditor. The bankruptcy trustee shall submit to the court a writ-ten report at least once a year, outlining the state of consumer’s assets, new circumstances that may affect the possibility of discharging consumer’s liabilities, the total amount of funds paid to a particular creditor, as well as other data that are important and that may influence the course of the procedure.

The bankruptcy trustee shall liquidate the assets of the bankruptcy estate without delay and distribute it evenly to the creditors.

Remuneration and Costs Reimbursement to the Bankruptcy Trustee

The bankruptcy trustee shall be entitled to a monetary compensation for his work and to the reimbursement of actual costs in accordance with the time spent and the complexity of work. The court shall issue a ruling fixing remuneration to the bankruptcy trustee, according to the calculation of actual costs, and on the basis of a written, reasoned and document-ed report he submitted. The court shall fix the one-off financial compensation to the bankruptcy trustee in the amount of 500 euros, as well as a percentage after each liquidation or division of assets.

Monetary compensation shall be fixed in proportion to the amount of liquidated or divided assets, as follows:

• up to 3,000 euros: 3%• from 3,000.01 to 5,000 euros: 2.5%;• from 3,000 euros: 2%

Provisions of the Bankruptcy Law governing the remuneration and costs reimbursement to the bankruptcy trustee shall apply accordingly to the reimbursement of costs to the bankruptcy trustee. If there are no funds in bankruptcy proceed-ings for the payment of remuneration and reimbursement of costs to the bankruptcy trustee, the fee including reim-bursement of costs shall be paid from the Bankruptcy Proceedings Costs Coverage Fund. The method of establishing the Bankruptcy Proceedings Costs Coverage Fund and of paying remuneration to bankruptcy trustees shall be regulated by a separate rulebook issued by the Ministry of Justice.

Coverage of the Minimum Remuneration for the Bankruptcy Trustee

Upon a proposal of the bankruptcy trustee, the court shall decide to reject the remaining consumer debt discharge ap-plication, if amounts paid to him for the previous year of his work are not sufficient to cover his minimum remuneration, and the consumer did not pay the lacking amount, provided that the bankruptcy trustee had invited him in writing to do so within fifteen days and warned him at the same time of the possibility to be denied the right to the remaining debt discharge.

Additional Charge for the Conduct of Proceedings

In addition to the court fees for the petition to institute proceedings, the creditor who proposes the start of consumer bank-ruptcy proceedings shall pay an additional fee of 1,000 euros for the Fund, intended to cover the bankruptcy proceedings costs that cannot be paid from the assets of the consumer and for advance funds taken for the conduct of proceedings until the necessary funds have been collected in those proceedings. The court fee paid and the additional fee shall be the costs of consumer bankruptcy proceedings and the creditor who paid the advance shall be entitled to their reimbursement.

Liquidation Rules of Consumer’s Assets

When liquidating the assets of consumers, the bankruptcy trustee shall be mindful of the dignity of consumers and of their basic needs, assessing in particular the obligations of consumers relating to the maintenance of household mem-bers, settling costs and fulfilling the needs of joint life. The bankruptcy trustee shall ensure that the consumer is left with enough funds on a monthly basis to satisfy his basic needs, i.e. for a modest life. The consumer shall have the power to pro-pose to have creditor’s claims settled in some other way, not by liquidating real estate, family jewellery and objects which


have a special value for the consumer. The consumer shall provide reasons for the proposal in writing and submit it to the court. The court shall decide on the proposal within eight days from the date of submission of the proposal. The creditors and the consumer may lodge an appeal against the decision within three days of its lodging.

COURT PROCEDURE

The basic court in the territory of the municipality in which the consumer has a permanent or temporary residence shall have jurisdiction in consumer bankruptcy proceedings.

Application of the Rules of Civil and Bankruptcy Procedures

Rules of civil procedure and provisions of the law governing bankruptcy proceedings shall apply accordingly in consumer bankruptcy proceedings, unless provided otherwise by this Law.

Principles of Procedure

(1) The consumer bankruptcy proceedings shall be started upon the proposal of consumer or creditor.(2) The consumer bankruptcy proceedings shall be urgent.(3) As a rule, the court shall render decisions without an oral hearing.(4) The court shall be empowered ex officio to establish the facts relevant to the proceedings by examining witnesses

and experts, as well as by examining the appropriate registers and records, in accordance with separate laws.

Delivery of Documents

• Documents issued in consumer bankruptcy proceedings shall be published through the website, e-bulletin board and court notice board.

• It shall be deemed that the delivery of communications to parties has been made after the passage of the eighth day of the publication of documents on the web site, e-bulletin board and court notice board.

• If creditors are natural persons, the first delivery of documents in proceedings shall be made in accordance with the rules of the Law on Civil Procedure on the delivery of documents.

• Participants in proceedings may request that documents be delivered to their home address or email address.

Decisions and remedies

Decisions in consumer bankruptcy proceedings shall be rendered in the form of rulings and conclusions. An appeal may be brought against the ruling issued in bankruptcy proceedings. The deadline for the appeal shall be eight days after the date of delivery of the ruling. An appeal against the ruling shall not stay its execution. If an interlocutory appeal is allowed against the ruling, the court shall duplicate the part of the document to which the appeal relates and submit to the second instance court a transcript of that part of the document with the appeal. A petition to reopen proceedings may not be filed in consumer bankruptcy proceedings.

OPENING CONSUMER BANKRUPTCY PROCEEDINGS AND THE LEGAL CONSEQUENCES THEREOF

Opening the Proceedings

The court shall issue a ruling to open the consumer bankruptcy proceedings following a petition of the consumer or credi-tor after completing the process of trying to reach an out-of-court agreement and when the court received from the propo-nent a certificate that the procedure was conducted, and that the out-of-court agreement has not been reached. The court shall appoint a bankruptcy trustee in the ruling to open consumer bankruptcy proceedings and instruct that the ruling to open consumer bankruptcy proceedings be entered into the land register and other relevant documents. Creditors may lodge an appeal against the ruling to open bankruptcy proceedings only as regards the debt repayment plan. The second instance court shall decide on the appeal within two months from the date of its lodging.

Cases in which Opened Consumer Bankruptcy Proceedings are not Conducted

If established at the preparatory hearing that consumer assets that would enter the bankruptcy estate are insufficient to meet the costs of proceedings or are of insignificant value, the court shall render a decision to open and close the consumer


bankruptcy proceedings and at the same time appoint a bankruptcy trustee and decide on the remaining debt discharge application, if such an application had been filed. If the remaining debt discharge application has not been filed nor accept-ed, the bankruptcy trustee may, after the conclusion of the procedure, but at the latest within two years after the decision, liquidate the assets of the consumer on behalf of the consumer, and for the account of the bankruptcy estate, and settle the costs incurred in the procedure using the collected funds.

BANKRUPTCY ESTATE AND CREDITORS IN BANKRUPTCY

Bankruptcy Estate

The bankruptcy estate shall include all of consumer’s assets that the consumer acquired up to the conclusion of proceed-ings, or until the passage of the conduct verification period, except for the assets which cannot be subject to attachment in accordance with the provisions of the relevant law.

Consumers’ Disposals of the Bankruptcy Estate

Following the opening of consumer bankruptcy proceedings, consumer’s disposals of items from the bankruptcy estate shall have no legal effect, except for those disposals subject to the general rules of protection of interests and registered in the public registers.

Actions in Favour of Consumers

If a third party meets a liability directly to the consumer after the opening of consumer bankruptcy proceedings and prior to the public announcement of the opening of proceedings, even though the liability was supposed to be met in favour of the bankruptcy estate, the third party shall be discharged of his liability owing to such a meeting, if it proves that at the time of its meeting it did not know that the consumer bankruptcy proceedings were opened.

In such case, the consumer shall pay the amount he was given by the third party in order to settle his liability into a special account opened by the bankruptcy trustee in order to conduct the consumer bankruptcy proceedings.

Inheritance

If the consumer acquired inheritance before the opening of or during the consumer bankruptcy proceedings, the assets acquired on that basis shall be entered into the bankruptcy estate. If the consumer waives inheritance after the opening of consumer bankruptcy proceedings or immediately before its opening, the court shall evaluate the reasons for such a waiver, and it shall take into account the evaluation of reasons when deciding on the remaining debt discharge, and if it finds that the consumer waived the inheritance with the intention to damage creditors, the court may decide to discon-tinue the remaining debt discharge procedure.

Liquidation Rules of Consumer’s Assets

When liquidating the assets of consumers, the bankruptcy trustee shall be mindful of the dignity of consumers. The bank-ruptcy trustee shall ensure that the consumer is left with enough funds on a monthly basis to satisfy his basic needs and costs of living.

The bankruptcy trustee shall determine the amount of funds by applying accordingly a separate regulation governing the rights from the social protection system and by comparing data on average costs of living, average basket of consumer goods, education costs and health needs of consumers.

At the request of the consumer, a real estate he needs for housing purposes may not be sold:

• if he does not own another real estate;• if he does not have another form of accommodation available, nor is he able to get one; or• if the real estate in question is commensurate with his needs and with the needs of his immediate family.

The court shall be mindful of the real estate being commensurate with the basic housing needs of the consumer. If the court assesses, on the basis of relevant indicators, that the home is disproportionately big for the consumer, it may propose its sale up to the level needed for the debt repayment, under the condition that the purchase of an appropriate home for the consumer has been ensured.


Transfer of Consumer’s Rights to the Bankruptcy Trustee

Consumer’s property rights shall be transferred to the bankruptcy trustee by opening consumer bankruptcy proceedings, as well as consumer’s rights to manage and dispose of the property that becomes part of the bankruptcy estate, so that:

• the consumer cannot conclude contracts nor perform other legal transactions or actions, the subject matter of which is the disposal of his assets which become part of the bankruptcy estate;

• without the court’s consent, the consumer may not: - take out a loan or be a guarantor; - open a new transaction or other bank account.

The consumer shall transfer his pledgeable claims to the bankruptcy trustee by means of a statement given before the court.

CLOSING THE CONSUMER BANKRUPTCY PROCEEDINGS

Compiling a Final List of Claims and Deciding on the Remaining Debt Discharge Application

The bankruptcy trustee shall compile a final list of claims to be discussed at a separate hearing. Creditors shall provide justifications for their objections to the final list of claims, and decisions on objections shall be rendered by the bankruptcy trustee led therewhile by the principle of probability of merits of certain claims. Claims shall be deemed fixed if recognized as such at the hearing by the bankruptcy trustee and not disputed by any one of the creditors. Provisions of the Law on Bankruptcy shall apply accordingly to disputed claims. After compiling the final list of claims, the court shall render a decision on the remaining debt discharge application, if the preconditions prescribed by this Law have been met and if denial of discharge does not happen at a later time.

After compiling the final list of claims and the decision on the remaining debt discharge application, the court shall con-clude bankruptcy proceedings. If a decision was rendered to accept the remaining debt discharge application, the satis-factory conduct verification period shall start to run as of the conclusion of consumer bankruptcy proceedings, until the decision on the remaining debt discharge or the decision to reject the remaining debt discharge.

Conclusion of the Procedure

The court may conclude consumer bankruptcy proceedings after the ruling on the remaining debt discharge application becomes final. The court shall define a conduct verifying period in the ruling accepting the remaining debt discharge ap-plication, which shall begin to run from the conclusion of consumer bankruptcy proceedings. During the conduct verifica-tion period, the bankruptcy trustee shall liquidate and repeat the distribution of consumer’s assets in accordance with a final list of claims and the provisions of this Law.

CONDUCT VERIFICATION PERIOD AND REMAINING DEBT DISCHARGE

Remaining Debt Discharge Application

In accordance with the provisions of this Law, consumers may be discharged of their liabilities to creditors that remained unmet in bankruptcy proceedings. Upon a written application, consumers may be discharged of the remaining debt to creditors, if they file to the court an appropriate application in accordance with the provisions of this Law.

Consumers may file the application referred to in para. 1 of this Article together with the petition to open consumer bank-ruptcy proceedings, that is, at the latest until the conclusion of bankruptcy proceedings.

Satisfactory Conduct Verification Period and the Remaining Debt Discharge

Before a decision is rendered on the remaining debt discharge application, the court shall determine a consumer conduct verification period. The court shall order a satisfactory conduct verification period that may not be shorter than two years or longer than seven years.

After the expiry of a certain satisfactory conduct verification period, the court shall issue a ruling to discharge the con-sumer of the remaining debt under the preconditions prescribed by this Law.


Consumer’s Obligations during the Satisfactory Conduct Verification Period

Consumers shall perform an adequate profession during the satisfactory conduct verification period and they may not re-ject an appropriate employment or performance of activity. The consumer may not reject seasonal jobs if he is qualified to perform them. The consumer shall hand over to the bankruptcy trustee half of the value of the assets he acquires through inheritance or in consideration of the future right to inheritance.

The consumer shall report to the bankruptcy trustee once a month. The consumer shall report to the bankruptcy trustee without delay each change of his place of residence or of employment. The consumer may not conceal any amount included into the statement of assignment, nor assets, so he shall provide information to the court and the bankruptcy trustee, upon their request, on his employment or his endeavours to find employment, as well as on his income and assets.

In case of a personal administration, consumers shall effect payments to settle the creditors in such a manner as not to give preference to any of the creditors. If the court assesses that the consumer obviously does not know how to manage his assets rationally, he shall send him to an appropriate counselling centre for instruction.

If the consumer fulfils all of the stated obligations during the period of delays in debt repayment, the court may discharge him of the remaining liabilities after the expiry of the period of delay.

Announcement of the Remaining Debt Discharge

If it establishes that the reasons for rejecting the application for discharge do not exist, the court shall order to discharge consumers of the remaining liabilities under specific conditions laid down in this Law.

Assignment of claims

The consumer shall assign, by means of a statement of assignment, its pledgeable claims arising from employment or other appropriate current claims, to the bankruptcy trustee during the satisfactory conduct verification period. Enforcement in favour of individual creditors shall not be allowed during the assignment.

Decision on the Remaining Debt Discharge Application

Before rendering a decision upholding the remaining debt discharge application, the court shall obtain the opinion of creditors. If the court upholds the remaining debt discharge application, it shall impose a conduct verification period that may not be shorter than two years or longer than seven years.

Rejecting the Remaining Debt Discharge Application

At the proposal of the bankruptcy trustee or creditor, the court shall reject consumer’s application and deny him the right to the remaining debt discharge:

• If the consumer has been sentenced by a final court decision during the satisfactory conduct verification period, on ac-count of a criminal offence which indicates to the consumer’s recklessness when fulfilling his duties and obligations;

• if the consumer has been sentenced by a final court sentence on account of criminal offences against the economy – against the creditors;

• if the consumer breaches his duties during the procedure and thus prevents the settlement of creditors in bankruptcy;• if the consumer, in the last year before the submission of the petition to open proceedings or afterwards, under-

took inappropriate liabilities, squandered his assets or delayed the opening of bankruptcy proceedings without prospects to improve his economic position and thus prevented the settlement of creditors intentionally or out of gross negligence;

• if consumer gave incorrect or incomplete data on his financial position over the three years which preceded the submission of the petition to open consumer bankruptcy proceedings, in order to be granted a loan, receive a pay-ment from public funds or avoid the payment of taxes or other public liabilities;

• if the consumer breached during the procedure his reporting and cooperation duties based on this Law, either intentionally or out of gross negligence;

• if the procedure stated incorrect data in the list of assets, creditors and debts, either intentionally or out of gross negligence;


• if the amounts paid for the previous year of his work are insufficient to cover the minimum remuneration for the bankruptcy trustee, and the consumer fails to pay the lacking amount within 15 days as of the date of receiving a written invitation of the bankruptcy trustee to effect the payment.

The application may be proposed within one year as of the date when the bankruptcy trustee and the creditor found of the final judgment sentencing the consumer of a criminal offence or action with which he breached his duty. Before making a decision to deny the right to the remaining debt discharge, the court shall examine the consumer, bankruptcy trustee and the creditors.

Creditors may propose to the court to reject the customer’s remaining debt discharge application, by stating mandatorily the reasons due to which he is proposing the application to be rejected. The right to appeal the ruling rejecting the remain-ing debt discharge application shall pertain to the consumer and the right to appeal against the ruling accepting the ap-plication shall pertain to each creditor who opposes the application at the final hearing.

Liabilities Exempt from Discharge

The remaining debt discharge may not be done in respect of:

• liabilities related to the maintenance of children, parents and other persons that the consumer has to maintain;• financial gain generated by a criminal offence or a misdemeanour;• compensation of damage incurred by the criminal offence or misdemeanour; and• tax liabilities.

Decision on the Remaining Debt Discharge

After the expiry of a certain satisfactory conduct verification period, the court shall issue a ruling to discharge the con-sumer of the remaining debt under the preconditions prescribed by this Law. Under the preconditions prescribed in this Law, the court shall issue a ruling discharging the consumer of the remaining debt. The consumer and creditors may lodge an appeal against the ruling to discharge the consumer of the remaining debt within eight days as of the publication of the decision on the webpage, e-bulletin board or court notice board. The remaining debt discharge shall have a legal effect on all creditors, including the creditors who did not report the claims in the consumer bankruptcy proceedings.

The final ruling shall be published together with the ruling to conclude consumer bankruptcy proceedings on the webpage, e-bulletin board and court notice board. Statements of assignment, service of the bankruptcy trustee and restrictions of consumer rights shall cease to be valid upon finality of the ruling on the discharge of the remaining debt.

Register of Consumers Discharged of the Remaining Debt

The Ministry of Justice shall keep, in the appropriate registry, records of consumers who were discharged of the remaining debt in the previous procedure.

Equal Treatment of All Creditors

During the procedure, consumer’s assets managed by the bankruptcy trustee on behalf and for the account of the consumer shall not be subject to attachment or enforced collection in favour of individual bankruptcy creditors. All agreements be-tween consumers and third parties and individual creditors giving any of them some special advantage shall be deemed null and void. The person bound may off-set his claims from the consumer by claiming the amounts covered by the statement of assignment only if he would be entitled to a compensation in case of continued consumer bankruptcy proceedings.

Continuation of Procedure

• Consumer bankruptcy proceedings shall be continued after the consumer’s demise.• The procedure shall be continued in view of reaching a complete settlement of creditors from the consumer’s assets

in bankruptcy proceedings.• The procedure shall be continued as regards the consumer’s heirs.• Heirs shall be held accountable for the debts in line with the Law on Succession.• If there are no heirs, the bankruptcy estate shall be distributed to creditors in accordance with the rules from this Law.

79XIII • Concluding remarks

XIII CONCLUDING REMARKS

• The number of clients/guarantors who approached the Banking Ombudsman regarding violation of their rights makes a significant sample that can be analysed to reach relevant conclusions.

• Protection of banking products’ beneficiaries is becoming more and more regulated area, becoming largely com-pliant with EU standards.

• All relevant legal acts in this area have been adopted ending in 2015. In addition to the Consumer Protection Law, which is in line with the latest EU Directives, the Consumer Credit Law was also adopted, which implementation started in 2014. the implementation of the Law on Voluntary Restructuring of Debts To Financial Institutions started in 2015. Moreover, the Law on Conversion was adopted (applied as of August 2015), as well as the Law on Protection of Financial Services Consumers (applied as of February 2016). The Law on Consumer Bankruptcy was also adopted in 2015, and its implementation will start in 2017. The abovementioned legal acts rounded off the legislation in the area of consumer protection, and the use of banking products and services.

• In general, the protection of banks’/MFIs’ clients/guarantors in 2015 improved in comparison to 2014 and espe-cially to the period before the credit boom. There are positive trends with the banks/MFIs when it comes to clients/guarantors’ protection. This is confirmed by the fact that the Banking Ombudsman received only few objections by clients/guarantors regarding the violation of the financial rights arising from loan agreements concluded in 2015.

• The Banking Ombudsman mostly received and resolved disputes arising from deals concluded between the clients and guarantors with banks and MFIs, from the period 2005 to 2009, when there were no relevant legislation re-garding the protection of banking products and services’ users. During the credit boom in Montenegro, banks and MFIs liberalised their credit and other risks protection criteria and standards for the purpose of better positioning in the market and bigger profits. During this period, many citizens became loan beneficiaries. They included a large number of citizens as guarantors.

• The global economic crisis had a very adverse effect on a large number of borrows and their guarantors. As a result, their financial situation deteriorated. As a result of the economic and financial crisis, clients faced many financial problems in repaying loans. This resulted in delays in repayment or inability to repay loans. During that period, banks/MFIs were facing difficulty in loan collection.

• Banks and MFIs tried to alleviate the problem by activating collection from guarantors as a means of loan security. A large number of guarantors were now forced to repay clients’ loans.

• All of the deficiencies regarding the process of issuing loans as well as the need for stronger protection of banks’/MFIs’ clients and guarantors became visible. It was necessary to pass new legislation in the area of protecting clients/guarantors,

• There was also need to strengthen the mechanisms of protection of clients/guarantors – users of the banking products/services.


• The new possibilities for protection of clients/guarantors of banks/MFIs opened - the out-of-court protection by the Banking Ombudsman. The out-of-court procedure, as a way of client and guarantor protection conducted by the Banking Ombudsman, is common in market economies adn financial systems.

• In his recommendations to banks/MFIs, the Banking Ombudsman requested an increase in the level of clients/guarantors’ protection. The Banking Ombudsman’s recommendations to banks/MFIs included improving the customer relations management, and relevant business policies, as well as application of the procedure and stand-ards from advanced economies.

• The Banking Ombudsman noticed the need for increasing the level of financial education of citizens.

• Banks and MFIs will have to invest further efforts in the area of the implementation of EU standards, good bank-ing practice, and raising professionalism, to reach the level of the developed banking systems.

• The implementation of new legislation regarding consumer protection, specifically Law on Voluntary Restructur-ing of Debts To Financial Institutions and Law on Conversion started in 2014.

• he Law on Protection of Financial Services Consumers was adopted in 2015 and it will be applied as of February 2016. The adopted legislation and best (European) practice will raise the level of banks’/MFIs’ clients and guaran-tors’ protection to a much higher level in 2016.

• It is necessary to speed up the procedure of adopting the law on maximum allowed upper limit of the contracted interest rates.

• It is necessary to adopt the law supervision of factoring companies and financial leasing.

• It is necessary to implement fully the Law on Conversion and to remove all obstacles in its implementation.

• In line with the conclusions of the Parliament’s Committee for Economy, Finance and Budget, the competences of the Banking Ombudsman need to be increased.

81XIV • Annexes

XIV ANNEXES

14.1. BANKING OMBUDSMAN 2016 WORK PROGRAMME

MISSION

The Banking Ombudsman’s mission is to protect clients of banks, micro-credit financial institutions and credit unions.

Protection of clients of banks, micro-credit financial institutions and credit unions is one of forms of maintaining sound economy and the living standard of households, as well as maintaining banking sector’s stability.

Client protection is the condition for building financial markets and their high quality development.

The need of protecting the client of a bank or other financial institution was emphasized due to the global economic crisis effects and its aftermath. Client protection is required for strengthening the position of natural person (household) as an entity in the abovementioned financial markets.

The Banking Ombudsman is an independent party that participates in the out-of-court settlement in resolution of dis-puted issues between the client and banks/MFIs and credit unions.

OBJECTIVES

• Improving the protection of rights of clients- users of banking products and services by amending legislation• Better integration of consumer protection policy, banking products and services’ users into other state policies;• Further strengthening of the institutional framework for consumer protection of banking products and services’

users;• More effective law enforcement and efficient market supervision system in the area of consumer protection of

banking products and services’ users;• Strengthening the position of consumer organizations and individual beneficiaries of banking products and services;• Developing a strong framework for regional and international cooperation in the area of consumer protection of

banking products and services’ beneficiaries;• Protection of rights of clients of banks and/or financial institutions and of their role at the banking market; • Harmonisation of legislation in the area of consumer protection of banking products and services’ beneficiaries

with the EU regulations; • Application of EU standards in the area of consumer protection of banking products and services’ beneficiaries;• Education of consumer protection of banking products and services’ beneficiaries and increasing the level of fi-

nancial literacy.

WORKING PRINCIPLES AND LEGISLATION

Working principles

In his operations, the Banking Ombudsman adheres to the principles of objectivity, independence, justice, equity, avail-ability, consistency, and informality.


For the purpose of adequate protection of clients’ financial rights, it would be necessary to establish good communication between the Banking Ombudsman and the abovementioned entities and all financial institutions. It would be necessary to establish good communication and cooperation with banks/financial institutions, clients, guarantors, media and other entities.

The Banking Ombudsman’s Work Programme is based on the following acts:

• Banking Law (OGM 17/08, 44/10, 40/11)• Law on Contracts and Torts (OGM 47/08, 4/11)• Consumer Protection Law (OGM 2/14, 6/14)• Consumer Credits Law (OGM 35/13)• Central Bank of Montenegro Law (OGM 40/10, 46/10, 6/13)• Law on Default Interest Rate (OGM 83/09)• Payment System Law (OGM 62/13, 6/14)• Law on Foreign Current and Capital Operations (OGM 62/08, 40/11, 62/13)• Law on Ownership and Proprietary Relations (OGM 19/09)• Law on Enforcement and Securing of Claims (OGM 36/11, 28/14, 20/15)• Law on Protection of Financial Services Consumers (OGM 43/15)• Law on the Conversion of Swiss Franc (CHF) -Denominated Loans into Euro (EUR)-Denominated Loans (OGM

46/15)• Law on Consumer Bankruptcy (OGM 46/15, 3/16)• Law on Voluntary Financial Restructuring of Debts towards Financial Institutions (OGM 20/15)• National Consumer Protection Programme 2015 – 2018• Decision on the Banking Ombudsman (OGM 15/09, 2/12)• Decision of the Parliament of Montenegro on the appointment of the Banking Ombudsman (OGM 66/10) • Decision of the Parliament of Montenegro on the appointment of the Banking Ombudsman (OGM 2/16) • Own experience gained since the establishment

I - IMPLEMENTATION OF THE BANKING OMBUDSMAN’S PLANNED ACTIVITIES IN 2015

Conditions under which the Banking Ombudsman operated in 2015:

1. Material and technical conditions

The CBCG provided all material and technical conditions needed for the Banking Ombudsman’s operations.

2. Administrative and Technical activities

Two employees of the CBCG, a law graduate and a business secretary – high school graduate, performed administrative and technical operations for the Banking Ombudsman.

In accordance with the Working Plan for 2015, the Banking Ombudsman also carried out the following activities:

1. Received the clients/guarantors, received telephone calls regarding violations of clients/guarantors’ rights, re-viewed clients’ objections, initiated and conducted the procedure of dispute settlement, proposed different ways of resolution of disputes;

2. Advised clients with respect to the protection of their rights;3. Gave recommendations to banks/MFIs for the purpose of resolving individual cases regarding the violation of

clients/guarantors’ rights and to improving their relations with clients and guarantors;4. Performed other activities contributing to improving the protection of clients/guarantors’ financial rights.5. Pursuant to the Decision on the Banking Ombudsman, the Banking Ombudsman submitted regular quarterly

reports to the CBCG. The Banking Ombudsman also submitted Annual Report for the previous year to the Parlia-ment of Montenegro, CBCG, and other institutions.

83XIV • Annexes

6. The Banking Ombudsman established contacted with the international network of Banking Ombudsmen and be-came a member of this international organisation. The Banking Ombudsman contacted the Banking Ombudsmen in Croatia and Serbia, learned about their experience and legislation, and the protection system in these countries.

II - NATIONAL CONSUMER PROTECTION PROGRAMME 2015 – 2018

National Consumer Protection Programme 2015 – 2018, for 2016

The Ministry of Economy of the Government of Montenegro adopted the National Consumer Protection Programme 2015-2018. The Programme identifies the holders of activities and the deadlines for realisation of their activities. The An-nual Action Plan for 2016 is an integral part of the Programme containing activities of the sectors relevant for the protec-tion of consumers’ rights, along with the holders of activities and deadlines for their realisation.

The Montenegrin Economic Policy set the strengthening of consumer protection as an objective in 2016. The Policy aims at ensuring that they have the same rights as the consumers in EU. Providing information and education of consumers represents one of the main priorities when it comes to further improving of consumer protection in the our country. This also refers to finance, and particularly the protection of banking products and services’ users.

Activity: Implementation of the National Consumer Protection Programme 2015-2018 for 2016

Timeline: Ongoing

III - ACTIVITY PLAN REGARDING CLIENTS’ AND GUARANTORS’ PROTECTION IN 2016

Implementation of the National Consumer Protection Programme 2015 -2018

Protection of banks’ and MFIs’ clients and their guarantors is one of main systems for preserving a sound economy and a living standard of citizens. Thus, it is necessary to constantly improve the protection of clients of banks and other financial institutions, by:

• Implementing legislation and strengthening protection through institutions in charge of protection of the clients/guarantors’ rights;

• Strengthening mechanisms of resolution of disputes between clients and banks/MFIs;• Insisting that banks/MFIs apply good (EU) banking practice in their operations with clients and their guarantors;• Improving clients/guarantors’ education and awareness.

Admission and resolution of clients/guarantors’ objections

Clients may visit the Banking Ombudsman during the working hours (8 AM to 4 PM), upon their request, in his office (Miljana Vukova bb). The Banking Ombudsman can also be contacted by phone at + 382 20 230 695. Objections and re-quests can be sent by registered mail or e-mail ([email protected]). A client of the bank or MFI may appeal to the Banking Ombudsman only if it has previously used all legal possibilities of protection of its rights in the proceedings before the bank or MFI.

A client/guarantor can initiate a proceeding before the Banking Ombudsman by submitting a written objection (request) for protection of rights, or by reporting a violation of financial rights in immediate communication with the Banking Om-budsman. In that case, the Banking Ombudsman will write a statement on initiation of the proceedings.

The written request may come as a filed form that can be found on the web page www.bankarskiombudsman.org.

In addition to written objection (request), the client/guarantor submits documentation and evidence, which represent a precondition for conducting a procedure and determining facts.

After receiving the written request and all needed documentation, the Banking Ombudsman informs the client about his rights.


Once it has been determined that the client exploited all legal possibilities for protection in the procedure before the bank (internal proceedings), i.e. financial institution, the Banking Ombudsman conducts a proceeding for settling of dispute between the client and the bank/financial institution.

If the client/guarantor refuses to submit the requested documentation and evidence, the Banking Ombudsman may refuse to take into consideration the request (objection) of the client/guarantor.

Settlement of disputes

After conducting the proceedings for settlement of disputes between the client and bank or MFI, the Banking Ombuds-man makes a decision based on the established facts and gives a proposal for settlement of dispute.

For the purpose of dispute resolution between a client and a bank/financial institution, the Banking Ombudsman may:

• Suggest settlement between the client and the bank/financial institution;• For the purpose of dispute settlement, recommend to the bank/MFI to amend the act, take actions or remove

deficiencies which have influenced the dispute between the client/guarantor and the bank/MFI;• Advise the client regarding to the finalization of the dispute.• When assessing that the Bank breached the Law on Consumer Protection – Beneficiaries of Financial Services, the

Banking Ombudsman has been authorised to forward the case to the CBCG.

During 2016, in addition to the abovementioned activities, the Banking Ombudsman will perform the following activities:

1. Advising clients and guarantors, in proceedings before bank/MFI in the internal proceeding;2. If asked for, advising clients and guarantors, in proceedings before other relevant authorities

In the proceedings of dispute resolution between the client and the bank/MFI, the Banking Ombudsman may advise the client on his rights before the relevant authority, without formal written suggestion for dispute resolution.

Engaging other parties in the proceedings

In the process of dispute resolution between the client and the bank/MFI, the Banking Ombudsman may ask for an expert opinion from the acknowledged banking and judicial experts.

Suspending of proceedings before the Banking Ombudsman

The Banking Ombudsman may suspend the proceedings when:

• the Banking Ombudsman determines that the bank/financial institution has removed the violation of the client’s rights;

• The client has refrained from the request (objection) or has withdrawn the request (objection);• the client has initiated the proceedings for the rights protection before the competent court.

Recommendations to banks and MFIs

Based on the information and findings gathered during the conducted proceedings, the Banking Ombudsman shall con-tinue to give recommendations to banks/MFIs, for improvement of relations with clients.

Once determining that violations of clients’ rights are caused by negligent and illegal acts of bank’s/MFI’s employees, the Banking Ombudsman may recommend the bank/MFI to impose adequate measures.

Activity “Visits of the Banking Ombudsman”

a) Visiting municipalities and receiving clients’ and guarantors’ objections

The Banking Ombudsman will continue to conduct activities within the “Visits of the Banking Ombudsman” programme for the purpose of receiving clients’ and guarantors’ objections to banks/MFIs. The Banking Ombudsman will give priority to those municipalities from which the clients/guarantors send invitations for visits.

85XIV • Annexes

b) Visits to banks and MFIs

the Banking Ombudsman will continue to visit banks/MFIs. At the meetings with the banks’/MFIs’ management, he will introduce them to the objections made by their clients/guarantors, and with internal proceedings conducted by banks/MFIs upon the objections of clients/guarantors, and the quality of relation management with clients/guarantors.

Activity: Implementation of the Working Programme for 2016

Timeline: Ongoing

IV - RECORD KEEPING AND REPORTING

In 2016, the Banking Ombudsman shall continue to keep record on all submitted requests, the reasons for disputes, the proceedings conducted, the proposals and advices given, and on individual records of clients and guarantors whose finan-cial rights have been violated disregarding whether they perform the protection proceeding before the Banking Ombuds-man or some other competent authority.

By regular quarterly and annual reporting, the Banking Ombudsman shall regularly inform the CBCG on submitted re-quests, type and causes of disputes, acting of banks/MFIs upon objections in internal proceedings, activities taken upon clients’ requests and Banking Ombudsman’s given proposals and recommendations for resolving the disputes between clients and banks/MFIs.

The Banking Ombudsman shall submit the Annual Report for 2016 to the Parliament of Montenegro within the specified time limits.

Activity: Improvement of reporting and providing information

Timeline: Ongoing

V - FINANCIAL EDUCATION IMPROVING PROGRAMME

The client is an important entity of the market and/or market economy. Protection of his rights represents a precondition for further development of money market and of other financial markets. The Banking Ombudsman will be involved in the implementation of the Action Plan for implementation of the National Consumer Protection Programme 2015-2018, aimed at realisation of the planned obligations of the Government, during the EU accession process.

1. Education - Improving financial literacy

The economic financial crisis highlighted the necessity to improve financial literacy. Financial crisis is a storm that caught many people (businessmen, consumers, borrowers) unprepared, mainly due to the lack of understanding of the basic prin-ciples of good financial decisions-making and responsibilities. Each such decision requires high level of financial literacy.

Today, financial literacy of all people (citizens, borrowers, consumers) is becoming more important than ever. Identifying each citizen’s knowledge on its finance and decision is the first crucial step towards the possible treatment of this problem.

Financial markets have been significantly transformed and changed during the last ten years. The development of commu-nication and IT technologies changed the entire system and direction of the financial services industry, including banks/MFIs. The development of e-banking, internet banking and other types of financial services requires a higher level of fi-nancial literacy of clients and guarantors. In addition to the fact that information is becoming increasingly available, many studies show that the users of banking services must continuously improve their financial literacy. This is the practice of developed countries.

Since the living standard represents a multiplicative function of financial resources (income and wealth), and the ability to effectively use those resources (financial literacy), it is highly indicative that those with less income and education carry additional burden since they do not have the needed capacity and skills to decide in the suitable manner when it comes to using banking products/services.


Our education activities should primarily focus on young people, pupils and university students. In case of high interest, the focus may be extended to general population and other participants in the financial sphere of life. Financial prepared-ness of youth is key for their welfare and vital for our economic future.

Young people need to improve their financial knowledge to be in a better position when making sound financial decision throughout their life. We are sure that all of us wish that pupils, students, other consumers and borrowers acquired abili-ties and skills necessary for financial competence to become capable of understanding and taking responsibilities for their decisions.

2. Educational forums

In 2016, the Banking Ombudsman will continue to organise educational fora in cooperation with the NGOs and other enti-ties. These forums are intended for clients, guarantors and citizens who want to obtain basic knowledge on new legislation, banking products, their characteristics, possibilities, and the risks they carry. In cooperation with faculties and universi-ties, the Banking Ombudsman will continue to give lectures to students about the protection of clients’ and guarantors’ rights.

Activity: Improving financial literacy

Timeline: As agreed, ongoing

VI - COOPERATION WITH PUBLIC AUTHORITIES AND OTHER INSTITUTIONS

In 2016, the Banking Ombudsman plans to cooperate with:

• the Parliament of Montenegro – Committee for Economy, Budget and Finance. • the Government of Montenegro – Ministry of Finance, Ministry of Economy and other ministries;• the CBCG, Association of Montenegrin Banks, banks, MFIs, to exercise the clients and guarantors’ rights;• Ministry of Finance The cooperation will include the public hearing on the proposal of the Law on Upper limit

when agreeing interest rates;• Ministry of Economy The cooperation will include issues related to implementation of the National Consumer

Protection Programme 2015-2018 in Montenegro;• the Police Administration, the Supreme Court, the Supreme State Prosecutor’s Office, Authorities for protection of

clients and guarantors, in cases of criminal actions;• the Chamber of Commerce of Montenegro, by cooperating with the Committee on commercial banks, insurance

companies and other financial organisations;• the World Bank Office in Montenegro;• the NGO “CEZAP” and other NGOs from the field of protection of clients, guarantors, consumers;• the media• international network of Banking Ombudsmen• Banking Ombudsmen in the neighbouring countries and the EU.

87XIV • Annexes

14.1. Financial plan for 2016

Acct. DESCRIPTION PLAN 2016

80 OPERATING EXPENSES 56,405

8200 EMPLOYEES EXPENSES 1,890

8210 Gross salaries 410

8219 Winter bonuses 410

8220 Other benefits 300

8223 Solidarity assistance

8224 Other benefits 300

8225 Other fees to employees

8230 Fee for increased expenses 1.180

8231 Official travel expenses 900

8232 Per diems 200

8235 Employees insurance 80

8300 ADMINISTRATIVE EXPENSES 37.290

8310 Stationery 410

8311 Stationery expenses 200

8312 Expenses from other materials 60

8314 Spare parts expenses 150

83141 spare parts 150

8315 Inventory, tires and personal protective safety equipment

8320 Energy expenses 470

8321 Electricity expenses 400

8322 Fuel oil expenses 70

8330 Utility services 200

8331 Water expenses 90

8333 Utility services 110

8340 Non-material services 1,110

8341 Audit expenses 810

8344 Expenses of printing books and reports

8345 Marketing & advertising expenses 300

8349 Expenses of other non-material services 0

83492 Contributions and membership fees to associations

83499 Other

8350 Fees to other private individuals 35,100

8357 Fee for salaries of the Banking Ombudsman 35,100

8400 OPERATING EXPENSES 16,575

8410 Fixed assets and equipment 1,475

8411 Property maintenance 1,390

84111 Property maintenance expenses 220

84113 Computer equipment maintenance expenses 1,110

841131 hardware 290

841132 expenses of maintenance of non-material property 820


84114 Telecommunication equipment maintenance expenses 10

84117 Anti-fire equipment maintenance expenses 50

8412 Property insurance 85

8420 Literature expenses 550

8423 Daily newspapers 550

8430 Telecommunication expenses 1,875

8431 Telecommunication expenses 1,700

84311 land-line phone expenses 1,100

84312 mobile phone expenses 600

8432 Communication services 175

84321 Expenses of automated transfer of data 145

84322 Internet 30

8440 Taxes, duties and other fees 405

8441 Property tax 405

8450 Fee expenses under service contracts 400

8451 Service contracts - private individuals

8452 Service contracts - legal persons 400

8460 Depreciation 11,70

8461 Depreciation of equipment 1,100

8462 Depreciation of buildings 10,770

8500 OPERATING EXPENSES 650

8520 Presentation expenses 650

8521 Internal presentation 350

8522 External presentation 300

85221 external presentation in the country 300

TOTAL EXPENSES 56,405

March 2016 Banking Ombudsman,Podgorica Halil Kalač, PhD

CIP - Katalogizacija u publikacijiCentralna narodna biblioteka Crne Gore, Cetiwe

342.7:336.7

BANKING Ombudsman Annual Report 2015 / prepared by Halil Kalač. - 2012 . - Podgorica (Ulica Miljana Vukova bb) : Banking ombudsman, 2016 (Podgorica: Studio Branko d.o.o. Podgorica). - 28 cm

Godišnje

ISSN 2336-9450 = Banking Ombudsman Annual ReportCOBISS.CG-ID 22706704

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