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A troublesome privilege

Parliamentarians seek to strip banks of the opportunity to use bank writs of execution while awarding a comparable privilege to credit unions.

In recent weeks there have been at least two notable legislative events in Poland concerning bank writs of execution. The bank writ of execution has been highly controversial for some time, and the subject of strong criticism, but supporters of this institution raise some valid arguments.

An excellent illustration of the controversy was provided by the exchange of arguments upon submission of the parliamentary proposal for the Act of 11 April 2013 Amending the Banking Law and Certain Other Acts (Sejm document no. 1441). The proposal calls for complete elimination of the institution of the bank writ of execution, which the sponsors of the amendment claim is inconsistent with the Polish Constitution because it gives banks rights comparable to those of a court, in violation of fundamental principles of the rule of law. They also point out that other European legal systems do not contain institutions comparable to Poland’s bank writ of execution.

The proposal was criticised by representatives of the banking industry (the Polish Bank Association) and public authorities (the National Bank of Poland and the Financial Supervision Authority), claiming that special rights for banks in execution proceedings should continue to be a feature of the Polish legal system. They raised the traditional argument in this context that effective enforcement of bank claims is first and foremost in the interest of depositors, as well as some interesting new comments—for example, that if banks were required to pursue ordinary civil execution proceedings instead of using a bank writ of execution, it could paralyse the justice system and significantly increase the costs of enforcement of banks’ receivables.

The proposal discussed above seeks to eliminate the bank writ of execution from the Polish legal system altogether. Meanwhile, another legislative initiative has gone in the opposite direction. Under a major amendment to the Act on Cooperative Savings and Loan Associations (i.e. credit unions, known in Poland by the acronym SKOK), which went into effect on 12 June 2013, the privilege of issuing writs of execution on the basis of banking records has now been extended to Poland’s credit unions.

Thus, notwithstanding the efforts to amend the Banking Law to eliminate bank writs of execution, the group of entities entitled to use this privileged method of executing on receivables has in fact been broadened. The privilege now given to credit unions appears at first glance to be nearly identical to a bank writ of execution, but a closer reading of the new Art. 29a of the SKOK Act reveals some significant differences. A thorough presentation of the differences would require a separate article, but a few of the most important differences may be highlighted here.

First and foremost, the regulations set forth in the SKOK Act are much less extensive than the comparable provisions in the Banking Law. For example, there are no detailed guidelines for form or content of a writ of execution issued by a credit union. Issuance of a writ of execution by a credit union, unlike a bank writ of execution, need not be preceded by the debtor’s submission of a confession of judgment, which should be regarded as a highly original solution. This means that the privilege awarded to credit unions is much more far-reaching than the current entitlement enjoyed by banks in this regard. This was probably not the real intention of the proponents of the amendment, particularly since the notion of giving credit unions the right to issue writs of execution was not included in the proposed amendment until the bill reached the Sejm committees.

The regulations concerning credit unions display evident imperfections. The amending act did not make any changes to the Civil Procedure Code. Thus there is no provision comparable to the current Art. 7862 of the Civil Procedure Code, which defines the scope of review by the court in a proceeding for issuance of an enforcement clause for a bank writ of execution. Consequently, it is unclear how the court will review writs of execution issued by credit unions. This fact, combined with the failure to address the formal aspects of such writs, may render judicial review of such writs issued by credit unions illusory. The amended SKOK Act also lacks a provision analogous to the current Art. 97(1) of the Banking Law, which may raise doubts whether a writ of execution issued by a credit union may actually serve as grounds for execution, or if so, under what conditions.

It will be important to observe how the new rules are applied in the near future by the credit unions. But it may also be predicted with a high degree of probability that the practical application of their new privilege will be accompanied by many doubts that will be difficult to overcome.

Krzysztof Wojdyło, Payment Services Practice, Wardyński & Partners