XXIII International Scientific Conference, 21 April 2022
SUMMARY OF
THE GOOD-FAITH-BASED APPROACH
AS A LEGAL WAY TO PROTECT CONSUMERS’ RIGHTS
WHEN BANKS CLOSE ACCOUNTS UNILATERALLY
Aleksejs Jelisejevs
Turiba University, Latvia
EXACERBATION OF PROBLEMS
FOR MODERN CIVIL CIRCULATION
UNILATERAL TERMINATION
of contractual relations
is both at the forefront of the sanction state regulation
and in the arsenal of tools of private businesses
to demonstrate their political and ethical positions.
LEGAL RULES CENTRAL CORE
do not require closing is freezing funds, which
bank accounts of the cannot be executed
sanction subjects without bank account
when ceasing partnership with
customers to whom sanctions
apply or if there is any doubt
about this matter
ZERO-TOLERANCE
PRACTICE
DE-RISKING
when banks terminate business
relationships with clients to
avoid rather than manage risks
UNDER LETTER OF LAW
SUBJECTIVE RIGHT OF ANY BANK
ART.55 (3) OF (EU) 2015/2366 PAR.35 OF 2014/92/EU
Terminating framework Access to payment
contract which has been account with basic features
entered into for indefinite should be ensured
period by the payment irrespective of consumers’
service provider financial circumstances
Such right of the bank Payment service user should
should be expressly be informed thereof at least
agreed by parties in the two months in advance
framework contract before the termination
ADAM SZUBIN LOUIS DE KOKER
US Treasury Under Secretary Prof. of Law, La Trobe University
De-risking is problematic when De-risking is a situation
financial institutions terminate when the bank may
relationships without careful reduce risk by closing
examination of the risks. They accounts while actually
do not use available tools to increasing the risks for
manage them society
MĀRTIŅŠ KAZĀKS KRIŠJĀNIS KARIŅŠ
President of Bank of Latvia Prime Minister of Latvia
Unfortunately, we see that in The Latvian financial
many cases banks choose not sector should start to
to manage the risks, but to focus more on risk
avoid risks. management than to
avoid any risk.
De-risking should never be an excuse for a
bank to avoid implementing a risk-based
approach, in line with the FATF standards
ZERO-TOLERANCE FOR BANK CUSTOMERS' PROTECTION
TOTAL COOPERATION DETECTED
COMPLAINTS ISSUES VIOLATIONS
2016 161 MOSTLY 0
2017 189 MOSTLY 0
2018 290 MOSTLY 0
FINANŠU UN
2019 213 76 0
KAPITĀLA TIRGUS
2020 277 107 0 KOMISIJA
2021 276 55 0
TOTAL 1 406 MOSTLY 0
GOOD-FAITH-BASED APPROACH
bank’s right to unilaterally withdraw
from a payment service contract
against the consumer's will and the
actual exercise of this subjective right
should be limited by tools of good
faith, including the systemic and
teleological interpretation of legal
and contractual regulations
under this general civil principle
ART.55(3) OF EU DIRECTIVE 2015/2366 ART.14(4) OF EU DIRECTIVE 2015/849
Art.67(3) of LV Law on Payment Services Art.28(2) of LV Law on Prevention of ML
Unilateral termination of a Termination of business
payment account contract relations by a bank if it
by the bank against the does not obtain the true
will of the payment MUST BE information necessary
service user PERFORMED for the compliance
under general
Unilateral principles and Unilateral
in permissible
withdrawal manner transaction
from a contract to terminate
permitted by law contractual relations
ART.1589 OF LV CIVIL LAW ART.1403 OF LV CIVIL LAW
ART. 138 OF GENERAL PART
OF ESTONIAN CIVIL CODE
ART. 1.5(1) OF
LITHUANIAN CIVIL CODE
ART. 1 OF LATVIAN CIVIL LAW
Rights shall be exercised and
duties performed in good faith
KASPARS BALODIS
Everyone should exercise its
subjective rights and perform its subjective
duties considering reasonable interests of others
Katram savas subjektīvās tiesības jāīsteno un subjektīvie
pienākumi jāpilda, ievērojot citu personu pamatotās intereses
MĪRONS KRONS BERNHARDS BERENTS
Sworn Lawyer, Latvia (1906-1941) Minister of Justice, Latvia (1892-1946)
CL 1. pantā ietvertā prasība tiesību Article 1 of the Civil Law
izlietošanā un pienākumu pildīšanā ievērot contains requirement for
citu personu pamatotās intereses vienlaikus general justified, mutually
nozīmē arī to, ka tiesību subjekti nedrīkst correct, dependable and
savas tiesības izlietot netaisnprātīgi loyal behaviour.
REINER SCHULZE IRENE KULL
Prof., University of Münster, Germany Prof., University of Tartu, Estonia
Good faith also entails Acting under good faith means behaving fairly
obligation to cooperate (honestly), being reliable, keeping given word,
with other party where the cooperating, reckoning with reasonable interests
aim of transaction requires of others and abstaining from unreasonable and
participation of both parties unwarranted behaviour or damnification of others.
ACCOUNT CLOSURE
PUBLIC INTERESTS
BANKS AS ANALYSTS WHEN CLOSING ACCOUNT
to fight against bank evades its
financial crime and obligations to identify
prevent money funds subject to
laundering sanction restrictions
ENJOYMENT OF BANKS’ RIGHTS
must respect the interests
of society to be protected from
using the financial system
for criminal purposes
to prevent cases when persons act
when exercising according to the
subjective rights letter of the law or
in an unjustified legal transaction
manner or form but contrary to
unjustified aims their true goals
GOOD FATH TENET
It doesn't allow It is a tool
creating new rules
or adjusting each
to interpret
situation based legal rules &
only on general contractual
reasons of fairness provisions
GENERAL MEASURES Assessment of interests
to use Good-Faith-Based Approach Interests of both a bank and
consumer must be assessed
to measure whose interests
Freedom of contract have priority and should be
Freedom of contract should protected in this situation
be respected, there are valid according to purpose of law
reasons for intervention in and circumstances of the
private autonomy particular case
Legal framework Rights implementation
Objective incompatibility of The bank uses its subjective
results of applying specific rights in the form formally
legal rule or the transaction consistent with letter of law
with the sense, meaning or text of legal transaction
and goals of regulating relevant legal but contradicts their true goals and
relationship or general idea of law from meaning, as well as does not consider
viewpoint of justice and public interest interests of the consumer and society
1
FREEDOM
OF CONTRACT
and private autonomy
JUSTICE & CONTRACTUAL EQUALITY
Requirements of good faith
incompatibility behavior in themselves
of behavior or transaction should also not exclude trust
in a freely given word
terms with socially prevalent
Osvalds Ozoliņš
(generally accepted) views on
good faith actions, justice,
or moral values
Reinhard Zimmermann
The law of contracts should JUSTIFIED REASONS
primarily provide a framework
within which individuals may TO INTERFERE IN
operate, and it does not usually
serve a protective function PRIVATE AUTONOMY
FREEDOM OF CONTRACT
1. has
PAYMENT SERVICE CONSUMER
limited freedom in
2. there
FOR THE CONSUMER
is no real opportunity
choosing to enter or not to enter to influence these
contractual relations with a bank contractual terms at all
3. non-discussion
WITH RESPECT TO CONTRACTS
presumption has
4. IT LEADS TO
contractual imbalance
been established by the law itself against the consumer
5. ITbyCAN BE CORRECTED
positive actions of a judge as a
6. TOOL AND YARDSTICK
is good faith as a general
person unconnected with the guideline to eliminate injustice
actual parties to the contract and restore legal equality in
favor of the consumer
Court’s intervention in private autonomy based
on good faith approach has a valid reason.
-------------------
Framework contract interpretation
and correction favoring payment service
consumer respects freedom of contract.
ALEKSEJS JELISEJEVS
2
ASSESSMENT
OF INTERESTS
and their balance
In cases of unilateral closure This precedence should
of payment accounts by survive until it is proven that
banks due to de-risking, the consumer acted unlawfully
conflicting interests of or was otherwise implicated
consumers have priority in in money laundering and
their legal protection. terrorist financing.
Restrictions of the But in the case of unilateral
consumers' fundamental closure of payment account
rights may be considered by bank, its abstract
justifiable to preclude application of terms of
money laundering for "undiscussed" contract and
preventive purposes as effect from formal exercise
long as the consumers' of its subjective rights may
contractual relationship become absolutely unfair to
with the bank continues. discarded consumer.
RESTRICTIONS & CONDITIONS
for assessment of contractual parties’ interests
WHETHER WHETHER
there have been significant bank has taken all
and unpredictable changes necessary measures to
in ratio of parties’ obligations, adapt terms of cooperation
which have worsened the with this consumer to
contractual position of bank preserve their contractual
in comparison with its relationship, considering
counterparty. changes arising.
WHETHER
consumer has fulfilled his or her obligations to
bank reasonably to protect bank from possible
damage in connection with unpredictable
changes that have arisen.
Following the good faith principle, courts
should have the authority to prevent the bank
from exercising its subjective right to withdraw
from the contract unilaterally if the conflicting
interests of the consumer take priority under
the circumstances of the particular case and it
objectively causes the negative consequences
for the life of this consumer.
ALEKSEJS JELISEJEVS
3
LEGAL AND
CONTRACTUAL
FRAMEWORK
INCOMPATIBILITY WITH SENSE
along with formally following the text of the relevant legal rules and
contractual conditions, to determine whether under specific circumstances
the law and the contract allow the bank to withdraw from the contract
without its client’s consent, the good faith approach must clarify:
1. whether the bank has sufficient, reasonable, justified, and legitimate
grounds to terminate the payment service contract unilaterally, and
it has informed its client
2. whether any transformations in the counter execution of consumer’s
obligations can correct the emergent imbalance of counterparties’
interests without a clean break of the contractual relationships
3. whether it is possible to preserve the effect of the payment service
contract by establishing related (additional) bank obligations to
which the bank could agree following a reasonable assessment of
the case circumstances if it wanted to keep this contract in force
4
IMPLEMENTATION
OF SUBJECTIVE
RIGHTS
IMPERMISSIBLE ACTIONS
1. ABUSE OF THE RIGHT (aemulatio vicini)
bank does not have sufficient, reasonable, and objectively justified
grounds to refuse service to consumer, or bank’s behaviour is formal and
unfair, or bank acts contrary to idea and purpose of its subjective rights
2. CONTRADICTORY CONDUCT (venire contra factum proprium )
unilateral severance of contractual relationship conflicts with bank’s
previous behaviour, including previously given legally non-binding but
sufficiently concrete promises to client, or if the bank, while
encouraging or provoking client’s manner and actions, later declares
them as grounds to withdraw from contractual relations with this client;
3. LOSS OF RIGHT
bank forfeits the right to terminate a payment service contract
unilaterally due to extended disuse of this subjective right.
Closure of bank accounts that de facto is not
connected with business relations with particular
clients but is only the result of a general change
in the bank’s policy or its superficial approach to
fulfilling obligations to the state regulator (for
example, to provide formal statistics in exchange
for reduced punishment for actual violations of
AML procedures) is an abuse.
ALEKSEJS JELISEJEVS
CONCLUSIONS
AND RECOMMENDATIONS
When examining the unilateral
closure of consumer’s payment
account by a bank, a court has
not only the option but also the
duty to intervene in these legal
relationships by interpreting or
even correcting both
contractual conditions and the
ALEKSEJS actual exercise of the bank’s
JELISEJEVS subjective rights under the
good-faith requirements.
In view of justice, even if bank
has acted in violation of the
good-faith principle, the special
public functions imposed on it
by the state should release it
from any responsibility when
the account closure comes as a
predictable consequence of the
ALEKSEJS consumer’s misconduct which
JELISEJEVS is directly or indirectly related to
money laundering.
THANKS!
ALEKSEJS JEĻISEJEVS
e-mail: [email protected]
phone: +371 29127640 / fax: +371 26570833
