Ecuador’s Constitutional Court has provisionally suspended a rule requiring certain savings and credit co-ops to convert into companies on the grounds that it is unconstitutional.
Under the Eleventh Transitory Provision, part of a recent Organic Law on Public Integrity, certain saving and credit co-ops deemed to “represent a systemic risk” due to their scale would be required to convert the company model.
The case against the change was filed by Juan Pablo Guerra Galán, executive director and legal representative of the Association of Integration Organizations of the Popular and Solidarity Financial Sector. He argues it would be contrary to the constitutional right to freedom of association, in relation to the restriction of rights and the progressive development of rights.
In its ruling, the court argued that the provision “could impact the structural principles of the constitutional economic model by imposing legal transformations on savings and credit co-operatives.
“This also underlies the seriousness and irreversibility of the damage, as this court considers it plausible that the legal transformation of co-operatives into corporations, if implemented, would generate structural effects that would be difficult to reverse later, which constitutes irreparable damage to the legal nature of these entities and their founding principles.”
The decision was welcomed by the Cooperative Law Committee of the International Cooperative Alliance (ICA). The committee said it “reflects a clear judicial understanding of the gravity of the constitutional injury at stake”.
A statement by the ICA added: “This move is significant, as it indicates the court’s preliminary assessment that the plaintiff’s arguments are plausible and that immediate, irreparable harm could occur without judicial intervention.
“While the court has not yet issued a final judgment on the law’s constitutionality, it has taken a necessary measure to prevent irreversible harm to the legal nature of savings and credit co-operatives and their foundational principles while the case is being fully considered. The order requires the presidency, National Assembly, and attorney general’s office to submit their defence of the challenged norms within 15 days of the date of the order. This will allow the court to conduct a thorough analysis of the case.
“The ICA reaffirms its endorsement of the statement by the Cooperatives of the Americas and expresses hope that the final decision will not ‘dilute or reverse’ the interim order, and that the Ecuadorian judiciary will ultimately uphold the constitutional freedoms of association and the right to co-operate.”
Related: New law poses threat to financial co-ops in Ecuador
Earlier in July, the ICA General Assembly unanimously adopted a resolution on the law, which stated that co-operatives operate independently of state ownership or direct public participation, and, as such, “the rationale for mandating such conversions appears insufficiently grounded in legal or economic necessity, undermines the guiding principles and vitiates the constitution of the Republic of Ecuador.”
The new rule, which would apply to certain saving and credit co-ops deemed to “represent a systemic risk” due to their scale, would also change the regulator for these co-ops, from the social and solidarity economy regulator to the banking regulator.
Edgar Peñaherrera, president of Asofipse, an apex body representing financial co-ops in Ecuador, told Ecuadorian television network Ecuavias that no co-operative should become a bank. He argued that while the sector is not opposed to the state imposing more controls on financial co-ops, regulators needed to understand “the logic of the co-operative market, which is different from that of banking”.
The court has invited the state to challenge its reasoning and defend the rule within 15 days of the order.
