| CREDIT CARD ISSUES IN FINLAND – Comments by ECRC’s Finnish partner Kuluttajavirasto (The Consumer Agency). |
Extract from The Finnish Consumer Agency's Newsletter 3/2008
PAYMENT CHANGES SHAKING UP CONSUMER ROUTINES
As the Single Euro Payments Area (SEPA) takes form, consumers will be encountering changes in their everyday payment tasks. Smart cards with embedded microprocessors will be used for making payments, PIN codes will replace signatures, and account numbers will get longer.
The implementation of SEPA began this spring. During the transitional period, planned to be three years, current Finnish payment methods will gradually be replaced by new European services.
Changes always create some concerns. Making payments is an unavoidable, basic part of daily life that affects everyone. SEPA will change practices within Finland as well, affecting not just the people who make international payments. Becoming accustomed to new functions may be uncomfortable for consumers, and forgetting about how things used to work is often more difficult than learning how to do something completely new.
SWITCHING TO SMART CARDS MEANS PAYMENT TERMINALS WILL BE OPERATED BY THE CONSUMER
Smart cards with microprocessors are already in many consumers' wallets, and smart card terminals will increasingly be used in stores. The same PIN code will be used for payments as for cash withdrawals from automatic teller machines. The payment experience using a smart card terminal is different from just signing a receipt presented by a salesperson. Since the terminals are different, making payments will require more effort than usual at first.
It is unfortunate that in the international usage of combined debit/credit cards, the credit option is the one that terminals display first, while people in Finland prefer to use the debit feature.
The needs of special groups should also be kept in mind during the transition to smart cards: there should be contact between the business sector and associations for elderly and disabled persons, for example, to ensure that payments will be equally safe and easy for everyone and that the best practices for everyone involved will be adopted.
A SYSTEM WITH A PRICE TAG
Banks will have different solutions for adapting to SEPA. Even within Finland, each bank will independently choose the time at which changes will be implemented in its own systems. This could confuse consumers who have gotten used to the common models and practices that banks have shared until now. Pricing of payment services will also change; SEPA will make certain basic services uniform in all countries, but banks may offer various additional services to their customers as well.
One of the most certain outcomes of SEPA at this point is that the creation of a new system on such a massive scale will cost a lot. The critical concern for consumers is how the costs will be distributed and what the actual benefits to consumers will be relative to the costs. Although the standardized payment processes are ultimately intended to be much more efficient and may lead to lower costs, this will take time and funds will be needed in the interim.
PAYMENT SERVICES DIRECTIVE TAKES EFFECT IN MEMBER STATES
The adoption of uniform SEPA services and terms in 31 countries (the EU countries, Iceland, Norway, Lichtenstein and Switzerland) requires a uniform legislative framework to support it. This will be provided by the EU Payment Services Directive, which is now being implemented in member states. Many of the anticipated benefits to consumers from SEPA, such as uniformity of bank transfers (no longer to be categorized as domestic, EU or SEPA transfers), will be achieved only when the legislation has taken effect.
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CHARGE CARD STUMBLING BLOCKS
Various types of charge cards have become a standard payment method for consumers. Every once in a while, however, there are problems with their use.
Visa Electron took one cent extra
The Finnish Consumer Agency contacted the Federation of Finnish Financial Services after receiving a report from a consumer about a Visa Electron card that charged more than the designated amount for filling up a car at a service station. The consumer was filling up at a Neste service station. Before purchasing petrol with a Visa Electron card, one must designate the amount to be charged, 60 euro, for example. This consumer's bank statement later showed a charge of 60.01 euro, however. According to Neste Oy, the extra cent was charged because the pumping mechanism sometimes releases a few additional drops at the end of filling up. The Consumer Agency urged both Neste Oy and the Federation of Finnish Financial Services to make sure that any such overcharges due to pumping equipment should come out of the company's pocket, not the consumer's.
Consumer confused by bill for combination card
Many bank cards can be combined with a credit card function. One consumer had a Visa combination card of this type from Sampo Bank. The bill that was issued for it was so unclear, however, that the consumer did not understand the remaining balance started to accrue interest if only the minimum payment was made. The consumer thus unwillingly and unwittingly became a user of credit for which interest was charged. The Finnish Consumer Agency intervened in Sampo Bank's billing practices. A bill must be clear enough for a consumer to easily understand that when he or she chooses the option to pay only part of the total accrued balance of debt, interest will be charged for the remainder. The company clarified its billing in this respect.
Getting a new card did not require credit functionality to be added
OP Bank announced to its customers that it was introducing new cards, the old "Kulta" bank cards would be discontinued, and customers should apply for a new OP Visa. One customer applying for the card asked if it was absolutely necessary to include credit functionality. The answer from the bank was that a credit limit should be established for the card even if it was only going to be used as a debit card. Later, it was revealed that the customer could have chosen to apply for an OP Visa Electron card instead, which would not function as a credit card. This alternative was indicated neither in the letter received by the customer nor when the customer mentioned not wanting to have a credit card. The Finnish Consumer Agency cautioned OP Bank, as well as the banking industry via the Federation of Finnish Financial Services, to ensure consumers will continue to have a genuine opportunity to choose. The need for transparent marketing will be heightened during the transition to smart cards.
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A CHARGE CARD FOR BAR FLIES
The Neocard charge card courting young party-goers was to be used in nightclubs and pubs. The deeper one sank into debt, the more benefits one was promised, such as free admission and skipping the queue into nightclubs. The Finnish Consumer Agency intervened in the inappropriate marketing for this product.
This charge card, which targeted primarily young people, was causing some indignation several years ago and the Consumer Agency received numerous reports about it. It was generally frowned upon that, at a time of much concern from all quarters of society about drinking among young people, a product would be marketed that actually goads them into buying alcohol.
The charge card could be used up to a certain limit in various nightclubs and pubs. The balance due was payable on the last day of the month as a direct debit. The card could also be combined with a credit card, allowing the credit limit to be increased. If account funds were insufficient for paying off the balance, the excess amount was charged to the credit card. Debt could be paid off with debt, in other words. The more one bought with the card, the more benefits one received. Once one spent a sufficient amount of money, one would get a card with a greater credit line and more benefits.
QUESTIONABLE PROMOTIONAL METHODS
The marketing of the card was not viewed favourably. Regardless of the credit type, consumer credit is a product for which marketing is held to higher standards than for other consumer products. In this case the evaluation was even more strict because of the target group, young people.
It is not appropriate for credit marketing to emphasize drawings and prizes, such as the various VIP benefits in this case. The benefits drew the consumer's attention to irrelevant factors. This made it easy to ignore considerations such as whether one needs credit or will be able to pay it back, and to forget about comparing the product with other financial alternatives. In addition to the benefits offered, marketing for the Neocard included a drawing for a camera phone, which could only be entered by opening a charge account and paying the card fee.
Another marketing ploy was to encourage word-of-mouth advertising: the more friends one could recruit to sign up for a card, the more benefits one would receive. This type of marketing campaign is especially unsuitable for credit because credit should be taken out only based on need and an evaluation of one's ability to pay. In this case, inappropriate means were used to entice young people. Furthermore, young people were encouraged to use inappropriate means of getting their friends to cooperate.
PAYING FOR CREDIT WITH CREDIT
The concept behind the card was that the more it was used, the more benefits would accrue. Responsible lending should take into account that young people are still developing financial management skills and gaining life experience. Lenders should avoid actions that are likely to lead to payment difficulties and over-indebtedness.
The Neocard was recommended for combination with a credit card so one wouldn't have to worry about a balance limit, but could charge any excess amount to the credit card. Practices like these teach young people to be flippant about accruing debt and makes them more likely to develop an indifferent attitude towards living in debt.
Neocard Oy, the company marketing the card, changed its marketing approach and the contractual terms for the card. It also extended the use of the card from pub venues to other products.
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DISCOUNT USED AS INCENTIVE TO APPLY FOR A CREDIT CARD
A consumer was shopping at a Hemtex store and wanted to make a cash purchase. The salesperson, however, suggested a billing option so that the consumer could receive a discount. After filling out the application papers, the consumer received a 10% discount on the purchase, only to discover later that this had meant becoming a line-of-credit customer of a financial services company called Ikano Rahoitus. A surcharge of two and a half euro was added to the bill sent by the company.
Responsible lending and good lending practices require that a consumer be given plenty of time to consider taking out credit and to study the essential credit terms. A responsible lender does not use discounts, promotional games or other additional benefits to market consumer credit. It is especially inappropriate to offer an instant discount at the counter for those who fill out a credit card application on the spot. This kind of marketing is uncalled for and encourages people to take out credit without thinking it through.
At the time a sale is made, if credit is being offered to pay for the purchase, a seller must always talk to the consumer about the type of credit that is being offered, the costs and fees associated with it, and the main credit terms. It is improper to bind a consumer to a credit agreement without his or her being aware of it. A consumer must be able to make an independent decision about whether or not to finance a purchase with credit and whether to commit to a credit card offer or an instalment plan. He or she must also be given sufficient time to think about taking out credit or paying with credit.
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TO THE CONSUMER, DATE DUE MEANS DATE OF PAYMENT
When should a bill be paid? On the due date, of course, the man on the street would say. The travel agency Tjäreborg and the credit card company American Express, however, thought that payments should be received by them on the due date, not just entered into some bank system.
Consumers consider a bill to have been paid on time if the payment was made by the due date. This way of thinking is well-established and supported by the Consumer Protection Act. According to this view, the date of payment is the date on which a bank or post office accepted the payment order. Thus it is sufficient for a consumer to pay a bill on the due date, and a late fee will not be charged even if the creditor does not receive the money until after the due date.
The payment terms of Tjäreborg and American Express required consumers to make payments so that they would be recorded in company systems on the due date. If a payment is made from a different bank group than the one where the recipient's bank is, a consumer cannot know with certainty how long it will take for the funds to show up in the recipient's account. Therefore, it is reasonable for all consumer contracts to define a timely payment as one that a consumer makes by the due date. The Finnish Consumer Agency discussed the matter with the two companies involved, and both agreed to change their terms so that the due date is the date by which the consumer must pay the bill.
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| ID: |
41226 |
| Author(s): |
SCR |
| Publication date: |
28/04/08 |
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Created: 28/04/08. Last changed: 28/04/08.
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