Foreign Payment Service Provider vs. Czech Dispute Legal Options Explained

For foreign PSPs, EMIs, and financial institutions in the Czech Republic, passporting isn’t enough — you need a sharp grasp of the Czech Payment System Act, the Financial Arbitrator’s reach, and the strict rules of local courts. From consumer complaints to B2B fee disputes or CNB inquiries, early strategy is everything. ARROWS, a leading Prague law firm, navigates these challenges daily to keep your business protected and compliant.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

Regulatory Framework: The Reality of Passporting into the Czech Republic

Many foreign fintechs and banks operate under the assumption that a license from their home Member State (e.g., Lithuania, Ireland, or Germany) provides a "shield" against Czech regulatory intervention. While the "single European passport" grants market access under the freedom to provide services, it does not exempt you from Czech conduct of business rules. 

The Czech National Bank (CNB) aggressively supervises foreign entities to ensure compliance with Act No. 370/2017 Sb., on Payment Systems, particularly regarding consumer protection, information duties, and contract termination. Even simple-looking steps often contain legal traps and hidden risks for laypeople, especially regarding the localization of Terms and Conditions (T&Cs).

The definition of "payment transaction" and "payment account" under Czech law aligns with PSD2, but the interpretation by local courts often leans heavily towards the consumer. A foreign PSP relying on generic, English-language T&Cs often finds them unenforceable in a Czech dispute because they fail to respect specific mandatory provisions of the Czech Civil Code regarding consumer contracts. 

For example, the rules governing unilateral changes to framework contracts are strictly enforced; if your notification period or method of delivery does not precisely match Czech standards, the changes are void, and you may be forced to refund fees collected under those new terms.

How can you avoid legal risk with the Czech National Bank?

The CNB is not a passive regulator; it actively monitors the market and processes complaints from Czech users. If a pattern of non-compliance is detected—such as failing to provide information in the Czech language when targeting Czech consumers—the CNB can impose significant fines and, in extreme cases, restrict your ability to onboard new clients in the territory. This conduct supervision is entirely separate from the prudential supervision (capital, liquidity) exercised by your home regulator.

ARROWS handles this agenda daily and can significantly reduce the client's risk by reviewing your T&Cs against local mandatory law.

We often see foreign clients surprised by the requirement to report specific statistical data to the CNB even when operating under a passport. The failure to submit these reports, or submitting them incorrectly via the SDAT system, acts as a red flag to the regulator. A proactive audit of your reporting obligations is far cheaper than defending against an administrative proceeding.

What’s the next step for compliance?

If you are already active in the Czech market or planning to enter, you must conduct a legal gap analysis. This involves comparing your standard EU-wide documentation with the specific derogations and consumer protection mechanisms in the Czech Republic. As an international law firm operating from Prague, European Union, ARROWS serves as a crucial bridge for foreign companies, ensuring your documentation survives local scrutiny.

Regulatory Compliance & Passporting

Risks and penalties	How ARROWS helps (office@arws.cz)
Unenforceable T&Cs: Generic EU terms may be void under Czech law, preventing fee collection.	Localization Review: We adapt your T&Cs to comply with Act No. 370/2017 Sb. and the Civil Code.
CNB Fines: Penalties for breaching conduct of business rules can reach millions of CZK.	Regulatory Defense: We represent you in administrative proceedings before the CNB.
Reporting Failures: Missing statistical reports  triggers regulatory scrutiny.	Compliance Mapping: We identify exactly which reports your branch or entity must file.
Reputational Damage: Public sanctions by the CNB can destroy trust with local partners.	Crisis Communication: Legal strategies to mitigate the public impact of regulatory findings.
Contract Termination: Invalid termination clauses can trap you in unwanted client relationships.	Drafting Services: We draft robust termination protocols that hold up in court.

FAQ – Legal tips about Passporting and CNB Supervision

• Can we use English T&Cs for Czech consumers?
  It is highly risky. While not explicitly banned in all cases, if you target the Czech market (e.g., a.cz website), consumer protection laws generally require communication in a language the consumer understands. Using English T&Cs with average Czech consumers can lead to the contract being voidable or unfair terms being struck out. Need your T&Cs localized? Contact us at office@arws.cz.
• Does a foreign PSP need a physical branch in Prague?
  Not strictly for passporting, but if you have a permanent presence (staff, office) managing the business here, you may constitute a branch. This triggers registration in the Commercial Register and tax obligations. For a detailed assessment of branch requirements, email office@arws.cz.
• What happens if we ignore CNB reporting requests?
  Ignoring the regulator is the fastest way to escalate a minor inquiry into a major sanction. The CNB cooperates with home state regulators and can request your home authority to intervene. Our lawyers are ready to assist you – email us at office@arws.cz.

The "Physical Presence" Trap for EMIs

For Electronic Money Institutions (EMIs) considering establishing a headquarters in the Czech Republic rather than just passporting, the CNB requires "genuine physical presence". The era of the "letterbox company" is over. You must demonstrate that the "mind and management" of the firm are actually in Prague. This includes having resident directors or managers who are "fit and proper" and capable of making strategic decisions locally.

The CNB conducts "fit and proper" tests on your management team. If your appointed directors lack relevant financial experience or have a checkered regulatory history in other jurisdictions, the license will be denied. Furthermore, the operational infrastructure—servers, risk management systems, and internal audit—must be accessible and controllable from the Czech Republic.

ARROWS supports over 250 limited liability companies and can guide you through the structural requirements of establishing a licensed entity. We are insured for damages up to CZK 500 million, making us a safe partner for high-stakes licensing projects.

The Financial Arbitrator: The Consumer's Powerful Shield

Foreign PSPs often misunderstand the role of the Czech Financial Arbitrator (Finanční arbitr). It is not a voluntary mediation service; it is a state-appointed, out-of-court body with the power to issue binding, enforceable decisions. If a Czech consumer files a complaint against you regarding payment services, electronic money, or consumer credit, you are legally obliged to participate in the proceedings.

The Financial Arbitrator is competent to decide disputes even if you have no branch in the Czech Republic, provided you offer services here.

The proceedings are free for the consumer, removing the financial barrier that usually deters litigation. This creates an asymmetric risk: consumers can file complaints with zero financial risk, while you must expend legal resources to defend yourself. The Arbitrator handles disputes ranging from unauthorized transactions (phishing, stolen cards) to fee disputes and blocked accounts.

How can you avoid legal risk in these proceedings?

The most dangerous aspect of the Financial Arbitrator is their inquisitorial power. Unlike a civil judge who largely relies on evidence presented by the parties, the Arbitrator actively gathers evidence and can demand sensitive internal documents from you. Failure to cooperate or provide documents within the strict deadlines (often 15 days) can result in fines of up to 100,000 CZK for procedural non-compliance alone.

Even simple-looking steps, like responding to a consumer complaint, often contain legal traps. A casual email rejection of a client's claim can be used as evidence of "bad faith" or failure to properly investigate.

What’s the next step if you receive a notification?

You must treat a notice from the Financial Arbitrator with the same seriousness as a court summons. The first step is usually to determine if the Arbitrator actually has jurisdiction. Disputes involving B2B relationships (e.g., a corporate client) or issues outside the scope of financial services (e.g., purely data protection claims) may be outside their competence. Challenging jurisdiction early is a key defense strategy.

ARROWS handles this agenda daily and can significantly reduce the client's risk and save time. We know the specific argumentation styles that resonate with the Office of the Financial Arbitrator.

Financial Arbitrator Disputes

Risks and penalties	How ARROWS helps (office@arws.cz)
Binding Awards: The Arbitrator's decision is enforceable by bailiffs, just like a court judgment.	Defense Strategy: We draft persuasive legal submissions to challenge the consumer's factual claims.
Procedural Fines: Fines up to 100,000 CZK for delay or failure to provide evidence.	Deadline Management: We ensure all submissions meet strict procedural deadlines.
Systemic Impact: A single adverse decision can set a precedent for thousands of similar clients.	Root Cause Analysis: We advise on changing processes to prevent recurring complaints.
Jurisdictional Creep: The Arbitrator may try to adjudicate disputes that belong in court.	Jurisdiction Challenge: We rigorously contest the Arbitrator's competence where applicable.
Unfair Terms Declaration: The Arbitrator can declare your fee structure or T&Cs invalid.	Contract Review: We proactively revise T&Cs to withstand "fairness" scrutiny.

FAQ – Legal tips about Financial Arbitrator Proceedings

• Can we appeal the Financial Arbitrator's decision?
  Yes, but the path is specific. First, you must file "objections" (námitky) within 15 days of the decision. If the Arbitrator rejects these, the decision becomes final. To overturn it, you must file a lawsuit in a civil court to review the decision. This effectively moves the dispute to the court system, but the burden of proof is high. For immediate assistance with appeals, write to us at office@arws.cz.
• Does the Arbitrator handle disputes with our corporate clients (B2B)?
  Generally, no. The Arbitrator's competence is focused on consumers. However, the line between a consumer and a micro-enterprise (entrepreneur) can be blurry in practice. If a freelancer uses a personal account for business, the Arbitrator might try to claim jurisdiction. Need legal help determining jurisdiction? Contact us at office@arws.cz.
• Is the hearing public?
  Proceedings are generally written, and there is usually no oral hearing unless necessary. This saves time but places immense importance on the quality of your written submissions. Get tailored legal solutions by writing to office@arws.cz.

Unauthorized Transactions and "Gross Negligence"

A massive volume of disputes before the Financial Arbitrator concerns "phishing" or unauthorized transactions. Under the Payment System Act, the PSP is generally liable for unauthorized transactions unless it can prove the user acted with "gross negligence".

How can you avoid legal risk with phishing victims?

Defining "gross negligence" is the core legal battle. Is it gross negligence if a client gives their PIN to a scammer calling from a "fake bank"? The Financial Arbitrator often takes a pro-consumer stance, arguing that sophisticated scams can fool even reasonable people. If you automatically reject all fraud claims without a detailed investigation report proving the client's specific negligence, you will lose before the Arbitrator.

ARROWS represents many foreign clients in these disputes. We help structure the investigation reports to meet the evidentiary standard required by Czech law to prove gross negligence.

Review your fraud response templates. If they are generic denials, you are vulnerable. Contact us at office@arws.cz for a review of your fraud dispute protocols.

Commercial Litigation: B2B Disputes and the High Cost of Justice

When your dispute is with a Czech corporate client (B2B) or another financial institution, the Financial Arbitrator has no jurisdiction. You enter the realm of civil courts. The first hurdle is establishing where the trial will be held. Under the Brussels I bis Regulation, jurisdiction is usually determined by the defendant's domicile or the place of contractual performance.

If you are a foreign PSP suing a Czech company for unpaid fees or breach of contract, you will likely be litigating in a Czech court unless your contract contains a valid, exclusive jurisdiction clause pointing elsewhere. Note that post-Brexit, UK judgments are no longer automatically recognized under Brussels I bis, making the choice of forum even more critical for UK-based firms.

Czech courts are formalistic. If you sue in the wrong court, or if your jurisdiction clause is deemed invalid (e.g., because it wasn't "freely negotiated" in standard terms), the case can be dismissed or transferred, wasting months. It is safer for the client to have the matter handled professionally by ARROWS.

The Financial Barrier: Court Fees

Litigation in the Czech Republic is not cheap. Unlike some jurisdictions with nominal caps, Czech court fees (soudní poplatky) act as a significant gatekeeper. They are calculated as a percentage of the amount in dispute.

The fee structure under Act No. 549/1991 Coll. is as follows:

• Claims up to 20,000 CZK: Flat fee of 1,000 CZK.
• Claims between 20,000 CZK and 40,000,000 CZK: 5% of the claimed amount.
• Claims over 40,000,000 CZK: 2,000,000 CZK plus 1% of the amount exceeding 40 million (capped at a calculation base of 250 million CZK).

Real-life example: If you are suing a partner for 1,000,000 EUR (approx. 25 million CZK), you must pay a court fee of 1,250,000 CZK (approx. €50,000) immediately upon filing. This is a massive upfront cost that impacts cash flow.

This high fee can be a strategic tool. It deters frivolous lawsuits against you. Conversely, if you are the plaintiff, you must be absolutely sure of your case's merit and the debtor's solvency before filing. Suing an insolvent company is throwing good money (the 5% fee) after bad debt.

ARROWS handles this agenda daily. We conduct preliminary asset checks and solvency analysis to ensure that litigation is a commercially viable option, not just a legal right.

Commercial Litigation & Costs

Risks and penalties	How ARROWS helps (office@arws.cz)
High Upfront Fees: Paying 5% of the claim value can drain operational cash flow.	Cost-Benefit Analysis: We analyze the probability of recovery before you pay the fee.
"Loser Pays" Rule: If you lose, you pay your costs AND the opponent's legal costs.	Risk Assessment: Precise evaluation of success chances to minimize cost exposure.
Procedural Errors: Failure to serve documents or attend hearings leads to default judgments.	Representation: We act as your process agent, ensuring no deadline is missed.
Length of Proceedings: Commercial cases can drag on for 2-3 years.	Settlement Negotiation: We leverage the threat of litigation to secure out-of-court settlements.
Service Issues: Serving a foreign entity without a databox is complex and slow.	Databox Management: We manage electronic service to speed up proceedings.

FAQ – Legal tips about Commercial Courts

• Is there a cheaper alternative to the 5% court fee?
  Yes. If you apply for an Electronic Payment Order (elektronický platební rozkaz - EPR), the fee is reduced to 4% for claims over 20,000 CZK. However, the EPR is capped at claims of 1,000,000 CZK. For larger commercial disputes, the standard 5% fee usually applies. Get tailored legal solutions by writing to office@arws.cz.
• Can we recover the court fee if we win?
  Yes. Under the "loser pays" principle, the court typically orders the losing party to reimburse the winner for the court fee and legal representation costs. However, legal costs are calculated according to a statutory tariff, which may be lower than your actual legal spend. Do not hesitate to contact our firm – office@arws.cz.
• Must we send a warning letter before suing?
  Absolutely. You must send a "pre-litigation call to pay" (předžalobní výzva) at least 7 days before filing the lawsuit. If you fail to do this, the court may refuse to award you reimbursement of legal costs, even if you win the case. Need a compliant warning letter? Contact us at office@arws.cz.

The "Safe Harbour" of Arbitration

Given the duration of court proceedings (often 12-18 months for a first-instance decision), arbitration is often a superior option for B2B contracts. The Arbitration Court attached to the Czech Chamber of Commerce and the Agricultural Chamber of the Czech Republic is a respected institution. Awards are enforceable and generally faster than court judgments.

ARROWS welcomes innovative business ideas and can help you draft arbitration clauses that keep your disputes out of the public court system and in a more controlled, expert environment.

The Nuclear Option: AML Compliance and Account Freezing

For foreign PSPs, the most operationally dangerous area of Czech law is Anti-Money Laundering (AML) compliance under Act No. 253/2008 Sb. (the AML Act). The Czech Financial Analytical Office (FAÚ) is the fierce financial intelligence unit responsible for receiving Suspicious Activity Reports (SARs/OPO).

If your transaction monitoring system flags a suspicious transfer involving a Czech client, you are legally obligated to report it to the FAÚ without delay. Under Section 20 of the AML Act, you may be required to postpone the transaction for 24 hours to allow the FAÚ to intervene.

The FAÚ can then issue a decision extending this blocking period to 72 hours (3 working days) to conduct an initial investigation. If they find evidence of criminal activity, they file a report with the police, and the account can be frozen for months or even years.

This is where the trap lies: The client will be furious. They will demand to know why their money is stuck. They may threaten to sue you for "holding their funds hostage."

The "Tipping Off" Trap (Section 38)

Section 38 of the AML Act imposes a strict duty of confidentiality. You are strictly prohibited from telling the client why their payment is delayed or their account is blocked. You cannot say "The FAÚ is investigating you." You cannot say "We filed a Suspicious Activity Report."

This is known as "tipping off." Breaching this is a criminal offense and carries massive fines (up to 1,000,000 CZK or more).

This puts you in a terrible position:

1. If you tell the client, you violate the AML Act and face fines/criminal charges.
2. If you don't tell the client, they sue you for damages and breach of contract.

You need a legally vetted communication strategy. Telling a client "we are conducting internal security checks" is standard, but if pushed by a client's lawyer, you need a robust legal defense. ARROWS handles this agenda daily. We communicate directly with the FAÚ and the police on your behalf. We can ascertain the status of a freezing order (without tipping off the client) and advise you on exactly what you can and cannot say to avoid liability.

Remind the reader that ARROWS is insured for damages up to CZK 500 million. It is therefore safer for the client to have the matter handled professionally than to risk a "tipping off" violation.

AML & Account Freezing

Risks and penalties	How ARROWS helps (office@arws.cz)
Tipping Off Penalty: Fines up to 1 million CZK and potential criminal liability for staff.	Communication Scripts: We prepare safe, compliant communication templates for support teams.
Damages Claims: Clients suing for lost profits due to blocked funds.	Liability Defense: We prove that compliance with FAÚ orders legally exempts you from liability.
FAÚ Fines: Up to 5 million CZK for failing to report a suspicious transaction.	AML Policy Audit: We review your detection systems to ensure they meet Czech reporting standards.
Indefinite Seizure: Police freezing orders can last years without challenge.	Active Defense: We file complaints against police seizure orders to attempt to release funds.
License Revocation: Systemic AML failures can lead to loss of license.	Regulatory Representation: We negotiate with the FAÚ and CNB to prevent escalation.

FAQ – Legal tips about AML Blocking

• Can we tell the client the police blocked the account?
  Only if you have received a formal resolution from the police (usnesení) that is not under a specific secrecy seal. However, during the initial FAÚ phase (the first 72+ hours), you generally cannot disclose the involvement of the FAÚ. This is a very thin legal line. Our lawyers are ready to assist you – email us at office@arws.cz.
• What if the blocking causes the client to go bankrupt?
  The AML Act provides a safe harbour for PSPs: if you acted in good faith to comply with the reporting duty, you should generally not be liable for damage caused to the client. However, clients often argue you acted negligently or with "excessive caution." Need legal help defending against damage claims? Contact us at office@arws.cz.
• How long can the FAÚ block funds?
  The FAÚ itself can block for up to 72 hours (3 working days). After that, if the Police do not seize the funds, you must execute the transaction. A common error is PSPs keeping funds blocked "just in case" after the 72-hour window expires without a police order. This exposes you to massive liability. For urgent AML advice, write to office@arws.cz.

Debt Collection: Getting Paid in the Czech Republic

If a Czech client owes you fees, or if you have paid out funds erroneously that need to be recovered, you face the challenge of cross-border debt collection. For undisputed claims (e.g., unpaid invoices for service fees), the European Payment Order (EPO) is a powerful tool.

The EPO is valid across the EU (except Denmark) and does not require a full court hearing initially. You file a standard form, and the Czech court issues the order. If the debtor does not oppose it within 30 days, it becomes fully enforceable.

How can you avoid legal risk with EPOs?

The trap lies in the opposition. If the Czech debtor files a simple statement of opposition (they don't even need to explain why at first), the EPO is cancelled. The case then transforms into a standard, expensive Czech court proceeding. You must then pay the full court fees (5%) and prove your case in a hearing.

Do not file an EPO blindly. You need to assess whether the debtor is likely to oppose. If they are litigious, it might be better to file a standard lawsuit with robust evidence immediately.

ARROWS handles this agenda daily. We can verify the debtor's solvency (insolvency register checks) before you throw good money after bad. As a leading Czech law firm in Prague, EU, we are experts in tracing assets and executing judgments.

Enforcement and Asset Tracing

Winning a judgment is only half the battle. Enforcing it is the other. In the Czech Republic, enforcement is carried out by private bailiffs (exekutoři). They have extensive powers to seize bank accounts, garnish wages, and sell property.

The risk is "winning" against an empty shell. Czech law allows you to check the Insolvency Register (Insolvenční rejstřík) for free. If your debtor is in insolvency, filing a lawsuit is usually a waste of money; you must file a claim in the insolvency proceedings instead.

ARROWS operates in 90 countries globally and can coordinate cross-border asset tracing if the debtor has moved assets out of the Czech Republic.

Debt Collection & Enforcement

Risks and penalties	How ARROWS helps (office@arws.cz)
Opposition to EPO: Turns a cheap process into a full, expensive lawsuit.	Strategic Assessment: We predict the likelihood of opposition based on debtor profile.
Cost Preclusion: Failure to send the pre-litigation letter means no cost recovery.	Formal Demands: We draft and serve compliant pre-litigation notices (Section 142a).
Insolvency Trap: Suing a bankrupt company is a waste of court fees.	Asset Tracing: We check insolvency registers and asset databases first.
Enforcement Failure: Winning a judgment is useless if the bailiff can't find assets.	Bailiff Cooperation: We work with aggressive bailiffs to seize accounts and property.
Prescription: Commercial claims generally expire after 3 years.	Timely Action: We monitor limitation periods to ensure you don't miss the deadline.

FAQ – Legal tips about Debt Collection

• Is it worth suing for small amounts?
  It depends. For very small amounts (e.g., under 1,000 EUR), the legal fees and court fees might exceed the debt. However, obtaining a judgment allows you to write off the debt for tax purposes in some jurisdictions. We provide a cost-benefit analysis. For immediate assistance, write to us at office@arws.cz.
• Can we enforce a UK judgment in the Czech Republic?
  Post-Brexit, this is harder. It is no longer automatic under Brussels I bis. You must rely on the Hague Convention or private international law rules. It is often faster to initiate fresh proceedings or use the EPO if applicable (not for UK). Get tailored legal solutions by writing to office@arws.cz.
• How fast is the Electronic Payment Order?
  If validly filed, the court often issues the order within weeks. If the debtor accepts it (or fails to pick up the mail under strict delivery fiction rules), you can have an enforceable title in 2-3 months. Our lawyers are ready to assist you – email us at office@arws.cz.

Why You Need a Safe European Harbour

Entering the Czech market offers significant rewards for foreign payment service providers, but the legal environment is riddled with traps for the unwary—from the pro-consumer stance of the Financial Arbitrator to the strict formalism of the Civil Courts and the severe penalties of the AML Act.

This is not a guide, but the professional insight of experienced lawyers. Individual steps that seem simple—like translating T&Cs, blocking a suspicious account, or suing for an unpaid invoice—have hidden exceptions, procedural details, and risks that laypeople often do not see until it is too late.

ARROWS International law firm operating from Prague, European Union, serves as your bridge. We combine the agility of a modern fintech-friendly firm with the security of a large institution, insured for CZK 500 million. We support over 150 joint-stock companies, 250 limited liability companies, and operate globally. Do not risk errors, damages, or fines. Safely leave the whole matter to ARROWS.

FAQ – Most common legal questions about Czech Payment Disputes

1. What is the statute of limitations for commercial claims in CZ?
Generally, 3 years from the moment the right could be first exercised. However, this can be extended to 10 or 15 years for intentional damage. Missing this deadline is fatal to your claim. Check your deadlines with us – email office@arws.cz.

2. Can a foreign company be a plaintiff in a Czech court?
Yes. EU companies have the same standing as Czech companies. Non-EU companies may sometimes be asked to post security for costs, though this is rare for standard commercial disputes involving EU/EEA entities. Need representation? Contact office@arws.cz.

3. Does the "Loser Pays" rule apply to the Financial Arbitrator?
No. In Financial Arbitrator proceedings, each party bears its own costs. You cannot recover your legal fees from the consumer, even if you win. This makes efficiency and early settlement crucial. Minimize your costs by contacting office@arws.cz.

4. How quickly can we block a fraudulent transaction?
You must act immediately. You have statutory authority to delay for 24 hours to report to the FAÚ. If the FAÚ does not respond within the timeframe, you must release the funds, or you risk liability to the client. Speed is key. For urgent AML advice, write to office@arws.cz.

5. Is mediation mandatory before court?
No, generally mediation is voluntary in commercial disputes. However, a judge may order a first meeting with a mediator if they believe settlement is possible (though rarely enforced in B2B). Our lawyers are ready to assist you – email us at office@arws.cz.

6. Why choose ARROWS over a global "Big Law" firm?
We offer the "Safe European Harbour" of a top-tier firm with the localized, practical expertise of lawyers who are in Czech courts every day. We are faster, more agile, and deeply connected to the local market while understanding foreign client needs. Get tailored legal solutions by writing to office@arws.cz.

Don't want to deal with this problem yourself? More than 2,000 clients trust us, and we have been named Law Firm of the Year 2024. Take a look HERE at our references.