Current Issues in Consumer Law 1/2010 02/03/2010

Latest Current Issue

PDF versions

The consumer's financial risks and developing new services

FROM THE EDITOR In certain sectors the very nature of business entails considerable financial risks to consumers. This has led to special arrangements for consumers' protection.

Strong supervision despite meagre resources

A report evaluating the legal activities of the Consumer Agency, published in 2009 by Professor Jyrki Tala, finds that the Consumer Agency has successfully developed new supervisory measures. It has accomplished this despite having a broad field to...

No purchase without due consideration

Last autumn the Finnish Communications Regulatory Authority requested a statement from the Consumer Agency regarding the designation of universal service providers and the reasonable pricing of universal service products. This is not the first time...

Other headlines:

Establishing co-operation between EU authorities in cross-border supervision

Dalli appointed European Commissioner for Health and Consumer Policy

The Services Directive and the Act on the Provision of Services

A more accurate definition given for "unfair"

New consumer protection legislation

The consumer's financial risks and developing new services

FROM THE EDITOR In certain sectors the very nature of business entails considerable financial risks to consumers. This has led to special arrangements for consumers' protection.

For instance, real estate agents and investment advisors are required to have statutory liability insurance, while banks have their own system of deposit insurance. In addition, certain services are governed by minimum capital requirements.

These systems have been created at different times and their existence is primarily justified by the argument that housing and saving pose the most significant risks in terms of consumers' personal property. With the consumer's operating environment becoming electronic and increasingly complicated and the supply of services growing and broadening, we must wonder whether the consumer is still sufficiently protected from risks. The consumer's information and expertise simply aren't adequate to assess the risks of each new service on the market. This problem has already become evident in the context of investment products. Certain investment instruments may not be as safe as consumers might assume based on the information provided to them.

Security services becoming more than guarding duty

It isn't always easy for the consumer to know whether a service falls under special regulation with specific statutory provisions concerning the responsible persons, procedures and risk coverage. New service concepts purport to offer the consumer a simple and safe existence. Unfortunately the providers of new services also include businesses who look to exploit the consumer's confidence.

Old definitions may not apply in the present as planned. Security services, for instance, are becoming more than guarding duty and protecting assets from theft and damage. Savings are now often in the form of something more complicated than bank accounts or bonds. As the world around us grows more complex, there is increasing demand for services that make it easier to manage daily affairs. Constructing new services often requires consumers' personal information. Damages can now potentially extend beyond traditional physical property. For instance, misuse of personal information may result in the consumer suffering much more than just financial losses.

Businesses must minimise the risks to consumers of new services

What should be done? New services entering the markets is a good thing. What is needed is experiences of their use. The consumers with the most complete skill sets are often both the first target group of service providers and the most eager early adopters. This may make it unlikely that the risks are realised. Things are quite different when there is little proof of the effectiveness and risks of a service, yet it is marketed aggressively and its use rapidly becomes widespread. Legislation may lag behind in such cases. Legislative amendments may not even be necessary when it is unclear whether the service is a fad or on the market to stay. Even in the short term, however, consumers may lose time, money, their personal information as well as their trust. It's the duty of supervisory authorities to intervene in illegal practices, but due to the time required by the intervention process the consumers' losses may not always be prevented. Disseminating information is another option, but it never reaches every single consumer.

Balancing between the need to develop new services and the duty to avoid risks to consumers is first and foremost a job for the businesses themselves. A responsible business takes the requirements of consumer protection and privacy protection into consideration from the start. A responsible business communicates openly to consumers regarding its products and services and does not hide from sight if problems arise. This would be a good starting point for successful innovations that bring genuine added value.

Anja Peltonen
Director

----

A more accurate definition given for "unfair"

Chapter 2 of the Consumer Protection Act, with provisions on marketing, was amended in October 2008. The amended provisions state clearly what practices are considered unfair to consumers and thereby in breach of the Consumer Protection Act.

One significant aspect of the amendment was that Chapter 2 of the Consumer Protection Act was extended to cover not only how a business operates in marketing, but also how the business operates in customer relationship after an agreement with a customer has been concluded. The concept of customer relationship covers the handling of customer complaint as well as the practices employed in debt collection. The chapter also provides a new and more accurate definition of what practices are considered unfair to the consumer and thereby in breach of the Consumer Protection Act. The amendments were brought about by the EU Directive on Unfair Commercial Practices, which was adopted into Finnish legislation through this amendment of the Consumer Protection Act.

The legislative amendment has resulted in new case law at the Consumer Agency. The following provides examples of how matters brought to the Consumer Agency's attention have been resolved based on the amended legislative provisions.

”If you are not satisfied, we will give you your money back”

A company's marketing campaign promised unsatisfied customers their money back after a 14-day trial. However, the terms and conditions of the campaign included a clause limiting the compensation to 10 euros. The promise made in the advertisement, ”If you are not satisfied, we will give your money back”, conveyed the impression that all expenses arising from buying the product would be refunded against receipts.

The main message in advertising must convey an accurate impression of the contents of the offer. The terms and conditions of the offer may not include limitations that are in conflict with the main message.

As a result, the marketing campaign in question was deemed to be misleading and unfair. In the Consumer Agency's view setting a limit in euros for the promise of a refund was not acceptable. In order to be considered fair and acceptable, the compensation should have covered the total amount the consumer paid for the product, as evidenced by receipts.

The company agreed to discontinue using limits in euros when marketing products with the promise of giving dissatisfied customers their money back.

Insurance marketed with letters that look like invoices

A company marketed bicycle insurance by sending consumers letters that looked like invoices. The company also sent payment reminders to consumers who had not paid the "invoices" sent earlier.

Marketing may not be contrary to good practice and practices that are unfair to consumers may not be used. Marketing may not convey incorrect or misleading information to consumers. Putting pressure on the consumer in order to have them make the purchase decision is also in breach of consumer protection legislation.

Based on the above grounds the marketing of bicycle insurance by using faux invoices was deemed misleading and aggressive. The Consumer Agency made it clear that consumers do not need to pay these types of "invoices" or "payment reminders".

The company in question responded to the Consumer Agency stating that the insurance was marketed on its behalf by a telephone marketing firm. Its practices were not entirely appropriate. The company discontinued its partnership with the telephone marketing firm. The company also settled the matter with those customers who had reported the matter to the Consumer Agency and promised to refrain from that type of marketing in the future.

Electronic direct marketing despite the consumer declining it

A company sent a customer advertisements through his mobile phone despite the customer having declined this type of marketing several times.

The Act on the Protection of Privacy in Electronic Communications states that sending direct marketing is subject to receiving voluntary and specific approval for this from the consumer in advance. Under the Act, direct marketing is allowed when the recipients are existing customers of the company. The customer does, however, have the right to decline electronic direct marketing and the company must comply.

According to the marketing provision in the Consumer Protection Act, inappropriate and aggressive practices comprise persistent and unwanted sales contacts by telephone, telefax, e-mail or other distance communication means.

Based on these legislative provisions, the Consumer Agency notified the company that it must give consumers the opportunity to decline the use of their contact information for direct marketing purposes. The company must also include information in each direct marketing message on how the consumer can decline the marketing in question. In addition, the Consumer Agency required that the company comply with requests to decline direct marketing made by consumers.

Using telephone numbers subject to surcharges in debt collection

A debt collection company used a telephone number subject to surcharges as its customer service number.

The Act on the Collection of Debts states that debt collection may not incur unreasonable costs to the debtor. According to the Act, the debtor must pay for the costs of sending debt collection letters and preparing a payment plan. Incurring costs other than those specified in the legislation is deemed to be contrary to good collection practices and in breach of law.

Good debt collection practice also calls for the company to encourage the debtor to pay off the debt. This is also important from the perspective of the company's social responsibility. A debtor often contacts the debt collection company by telephone. Calling a telephone number subject to surcharges, however, increases the costs borne by the debtor and makes the debtor less inclined to contact the debt collection company.

The Consumer Agency resolved the matter based on both the Act on the Collection of Debts and the amended provisions of Chapter 2 of the Consumer Protection Act. Debt collection is considered part of the customer relationship, and as such inappropriate practices are not allowed.A practice may be deemed inappropriate e.g. if it is contrary to generally acceptable appropriate business practices. Using a customer service telephone number subject to surcharges for debt collection was deemed to be inappropriate on these grounds

The debt collection company discontinued the use of the customer service number subject to surcharges. In conjunction with the case in question, the Consumer Agency notified the debt collection industry of the guidelines it issued. The guidelines state that using telephone numbers subject to surcharges is contrary to good debt collection practice.

----

New consumer protection legislation

Public Transport Act and EU Regulation on Rail Passenger Rights

The Finnish Public Transport Act and the EU Regulation on Rail Passenger Rights entered into force on December 3, 2009. The Act includes a provision concerning the operator's duty to give a quality promise regarding transport services. According to the paragraph on the Act's entry into force, the quality promises must be drafted and published by the end of 2011.

According to the EU Regulation on Rail Passenger Rights, the Finnish state rail operator VR must pay standard compensation when a train is over one hour late (25% of the ticket price when the train is at least one hour late, 50% of the ticket price when it is at least two hours late). In addition, the Regulation includes provisions concerning meals and refreshments, the provision of information, the rights of disabled persons and persons of reduced mobility etc. The scope of the Regulation does not cover district trains in the Helsinki region or rail services to Russia.

Compliance with the Regulation in Finland is monitored by the Transport Safety Agency Trafi, the Consumer Agency and the Consumer Disputes Board, each within their jurisdiction. The Consumer Agency monitors compliance with the Regulation from the perspective of the consumer collective. Individual disputes are handled by the Consumer Disputes Board.

Act on long-term savings with tax incentives

The new Act on long-term savings with tax incentives and related amendments to tax legislation entered into force on January 1, 2010. Under the new legislation consumers can make tax deductions not only based on voluntary pension insurance, but also other fixed pension saving plans. The savings agreement can be concluded with a bank, an investment firm or a fund management company. Businesses can begin offering these new savings products no earlier than April 1, 2010.

Decree on the minimum rate of functional Internet access as a universal service

The Decree on the minimum rate of functional Internet access as a universal service was issued on October 15, 2009.Effective on July 1, 2010, Internet access of at least 1 Mbit/s will be deemed a universal service. This means that telecommunications companies designated as universal service operators must be able to provide, from the beginning of July, reasonably priced and good quality Internet access of at least 1 Mbit/s to every permanent home or place of business. The average minimum rate of downstream traffic must reach at least 75% of the required minimum rate in any 24-hour measuring period. The rate must also reach at least 50% of the minimum rate in any 4-hour measuring period.

Regional State Administrative Agencies and the Centres for Economic Development, Transport and the Environment began operating on January 1, 2010.

Consumer and competition matters previously handled by State Provincial Offices have now been transferred to Regional State Administrative Agencies under their areas of responsibility of basic public services and legal rights. Their tasks include, among others, monitoring the marketing of consumer credit and price indications and supervising real estate agencies and package travel providers.

More information:

Public Transport Act (Finlex, in Finnish)
EU Regulation on Rail Passenger Rights
The public transport law reform to improve passenger status was ditched half way through (Current Issues in Consumer Law 7/2009)
Act on fixed long-term saving (Finlex, in Finnish)
Decree of the Ministry of Transport and Communications on the minimum rate of functional Internet access as a universal service (Finlex, in Finnish)
Reform Project for Regional Administration (Ministry of Finance)

-----

Extract from Current Issues in Consumer Law 7/2009 16 December 2009 (p17)

Regulations regarding the offers for consumer credit are reformed – consumer protection remains, partly even improves

The Ministry of Justice working group preparing the Consumer credit Directive proposes national regulations to supplement the directive. The directive is mainly completely harmonised, but there is room for manoeuvre nationally. Implementation of the directive does not substantially change the Finnish consumer protection; it will remain and partly even improve. It will be easier to compare credits

For consumers the significant practical change is the standard information form provided before the credit contract is signed, which makes it easier to compare credits. Another improvement is registering the good practise in credit provision in law. The credit provider should operate responsibly and transparently taking into account the consumer’s interests when marketing the credit, and signing the credit contract as well as when settling any possible disputes. In connection with the overall reform a national proposition about registering the credit providers and the requirements for registration was also prepared. The supply of quick loans has brought out the need to set certain minimum requirements for the credit providers. Only reliable and professionally qualified credit providers would be included in the register.

Mortgages and small Euro-loans to be included in the scope of application

The scope of application for the consumer credit legislation would still remain extensive in Finland. Contrary to the regulations in the directive it would also cover mortgages and credit below 200 Euros. The mortgage usually has a significant implication to the consumer’s finances so there is a special need for regulations protecting the consumer. Small quick loans have caused many payment difficulties for consumers so the need for regulations concerns them, too.

Differing opinion about the principle of joint responsibility

The Federation of Finnish Financial Services delivered a differing opinion for the working group’s consideration. According to them the legislation should not hold on to the current regulation regarding the joint responsibility between the credit provider and product vendor or the service provider. By virtue of the regulation the consumer could, for instance, refuse to pay a charge for a credit card because the product he/she has paid for has not been delivered as agreed. FFFS deemed the proposed regulation for joint responsibility to be too extensive and that the proposal is against the complete harmonisation in the EU.

The consumer’s ongoing credit must not be stopped just in case

The consumer’s right to use a credit card could be stopped based on the credit provider’s estimate, made in advance, that it is unlikely that the consumer will be able to pay the credit back. The Consumer Agency does not think that the proposal is justifiable and left a statement for the working group’s consideration. It is very difficult for the credit provider to reliably estimate a consumer’s repayment abilities. Consumers are a heterogeneous group, inside which the ability to cope with a tight financial situation varies. The opportunity to use ongoing credit is intended to balance income and expenditure. There is a special need for this opportunity when the ability to pay is already reduced. It is sufficient that the credit provider can stop the credit if the payment is at least one month late and remains unpaid. The proposition contradicts the aim of the Finnish legislation to prevent the consumers with paying difficulties from being ignored.

The Ministry of Justice working group left its consultation document on consumer credit on

30.10.2009