Before the enactment of the new Bank Cards and Credit Cards Law No. 5464 ("Law No. 5464"), due to the lack of particular legislation regulating credit cards in Turkey, the relationship among the credit card issuer, member workplaces and cardholders was regulated under various provisions of the Code of Obligations, Law No. 4077 on the Protection of Consumers ("Law No. 4077"), the Communiqué of the Turkish Banking Association on the Professional Classification Recommendation regarding Credit Card Practices No. 924, and the Communiqué of the Turkish Banking Association on the Mandatory Principles to be Followed by Banks During the Consumer Credits Practice. The Banking Regulation and Supervision Agency ("BRSA") stated that "the lack of a unified regulation to solve problems caused by the increasing level of credit card utilization and relations engendered by it in Turkey, necessitated the introduction of a legislation to regulate credit card transactions and parties affected by it." Thus, in order to unify the credit card legislation under a single statute and in line with the "88/590/EEC EU Commission Recommendation Concerning Payment System and in Particular the Relation Between the Cardholder and Card Issuer", Law No. 5464 was enacted on 23 February 2006.
The scope of Law No. 5464 includes organizations and entities that establish a card system, issue cards and enter into merchant agreements as well as merchants and cardholders themselves. However, persons or entities that issue cards or establish a system for the forward sales of goods or services and for tracking accounts payable and accounts receivable solely within their own workplace, or persons or entities that issue cards up to a certain predetermined amount or level without any crediting transaction or without being subject to any account are excluded from the provisions of Law No. 5464. Furthermore, with respect to corporate credit cards that are furnished to merchants, the following provisions of Law No. 5464 are not applicable:
(i) Article 8/2 (Cancellation of the Credit Card in case of Failure in Payment of the Minimum Amount);
(ii) Articles 9 (Limits of Credit Cards);
(iii) Article 12 (Unlawful Use of and Insurance Cover For Cards);
(iv) Article 24 (Conditions of Agreement);
(v) Articles 25 (Amendments to Agreement);
(vi) Article 26 (Interest Calculation); and
(vii) Article 44 (Competent Courts and Authority).
The BRSA as the Regulatory Agency
Law No. 5464 is a detailed piece of legislation, aiming to provide an improved regulatory framework in compliance with EU directives and international standards. Under Law No. 5464, the BRSA is the competent governmental agency to regulate and supervise the credit card sector. Within this context, organizations intending to establish a card system, issue cards, enter into agreements with merchants, exchange information, or engage in clearing and settlement activities are required to obtain a license from the BRSA in order to initiate their activities. In addition, the BRSA is authorized to impose administrative fines, revoke licenses, approve amendments to the articles of association, and approve the transfer of shares exceeding certain thresholds of participating organizations.
The existing organizations other than banks that were operating in the credit card market prior to the enactment of Law No. 5464 are expected to apply and obtain the required licenses from the BRSA within three months following the date of promulgation of the prospective regulation, which is yet to be issued by the BRSA.
Credit Card Agreement
In order to protect the cardholder, Law No. 5464 provides that the relationship between the card issuing organization and the card holders must be governed under a written agreement. The new law further assigns to the BRSA the duty to specify the form and the minimum contents of such agreements.
Moreover, with respect to the credit card agreement, Law No 5464 imposes certain obligations on the card issuing organizations such as to provide detailed information to the cardholder about the use of the card and the provisions of the agreement as well as to notify the proposed amendments to the card holders.
Furthermore, the card issuing organizations are not allowed to set the minimum payable amount in the credit card agreement less than 20% of the outstanding debt.
Provisional Article 4
One of the major aspects of Law No. 5464 is to provide relief to the credit card debtors pursuant to a restructuring mechanism that enables such debtors to benefit from a repayment schedule. Under Provisional Article 4 of Law No. 5464, credit card debtors who have received a payment notice for their debts, against whom an execution proceeding has been initiated as of 1 March 2006 or who have fallen in default by 31 January 2006, will have the right to repay their debts in 18 equal installments together with an accrued interest rate of 18% per annum, provided that they apply in writing to the relevant credit card issuing organization, or to its lawyers, within sixty days and fulfill the other procedural requirements set forth under this provision. If the debts have already become the subject of an execution proceeding, then such amount will also include the court and execution proceeding’s costs and attorney fees.
A major consequence of the restructuring of credit card debts is the suspension of the execution proceedings initiated against the debtor. However, in the event the credit card debtor fails to pay any one of the installments on its due date, all rights and interests granted under the provisional article will be forfeited, and the pending execution proceeding will be resumed together with the applicable current default interest rate.
The Turkish Central Bank ("TCB") is authorized to fix the maximum contractual and default interest rates under Law No. 5464. As mentioned in the TCB’s press release dated 2 April 2006, the monthly maximum interest rates on credit cards are set by adding a 0.5 point market margin to the weighted average interest rates of the banking sector. The same method is used for determining the maximum default interest rates.
According to Law No. 5464, institutions that issue cards should make necessary adjustments in their interest rate calculations within three months in accordance with the provision of Law No. 5464. Consequently, banks are obligated to adjust their credit card interest rates in accordance with the maximum interest rates mentioned above as of 1 June 2006.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.