Finland news – Our Finnish partner asks that problems with credit be tackled on a broad front in her 2009 newsletter. Below is a link to the newsletter and extracts from kuluttajavirasto’s Current Issues 1 2009. The Current Issues in Consumer Law is the Finnish Consumer Ombudsman's online newsletter for all those who want to keep up to date with the latest developments in consumer law and consumer policy. ---------- PROBLEMS WITH CREDIT MUST BE TACKLED ON A BROAD FRONT The consultation document by the Ministry of Justice working group regarding ways to solve problems in the provision of quick credit hits the mark when it comes to quick credit, but offers little in terms of credit markets on the whole. Fortunately the working group on consumer credit, which was appointed in October, is expected to suggest ways to promote responsible lending. The Ministry of Justice working group has prepared a consultation document on its work to provide remedies for problems and flaws in the provision of quick credit. As a result, Chapter 7 of the Consumer Protection Act would be amended to require that the actual annual interest be specified when marketing small and short-term credit. The amended chapter would also include a provision on the creditor's obligation to reliably verify the identity of the credit applicant as well as a provision to ban the practice of having credit applied for at night at the consumer's immediate disposal. Minor amendments are also proposed to the Penal Code and the Debt Collection Act. A significant change that would have a practical effect on debtors' position is the working group's proposal to amend the Interest Act in such a way as to impose a time limit on the creditor's right to charge interest higher than the statutory penalty interest. Requiring more responsibility would also reduce costs to society The working group does not suggest ways to reduce the costs to society from quick credit. Quick credits amounting to just a few hundred euros in any given instance create a tremendous burden on the authorities (local welfare, social crediting, social assistance, debt counselling, arrangement of debts, processes related to the courts, etc.). Businesses tend to push the responsibility for such problems on the consumer and the costs of the side effects are borne by society. Quick loans have become an expensive product for society. For this reason alone, actual ways to promote more responsible lending are desperately needed and the expectations have now turned toward the consumer credit working group. We could ask whether there is a need to accelerate or feed the credit markets endlessly. The primary focus should not be on the ready availability of credit, but rather on measures to prevent losses and grievances. -------------------- I JUST CAN'T DO IT! The consumer's lot is not easy. The economic crisis has sparked discussions of how consumers should be educated to better understand the nuances and risks associated with financial products. What seems to be implied is that consumers should know better than to buy high-risk financial products. It never ceases to surprise us how corporate social responsibility and responsible lending can be primarily seen as a need to improve consumer education, monitoring and registration rather than a requirement for companies to engage in some introspection. Questions of what types of products should be made available to non-professional investors, how financial products are advertised to consumers and how the clarity of contract terms could be improved tend to receive much less attention. In this regard, credit must be given to the Norwegian Banking Complaints Board, which in a recent statement found that the nature of certain products was not clearly understandable to consumers and they should therefore not be offered to them. The discussion surrounding SMS loans is a poignant example of how complicated these questions of responsibility can be. Firstly, there is the operating environment where a credit institution can be easily established without the need for registration or a licence. The precondition for commercial success of the product is also evident - and always has been: how to get money quickly when you need to buy something and there isn't enough money on the bank account. New technology comes to the rescue and suddenly, without as much as a hello, the funds are in your account in a matter of minutes. It doesn't matter whether it's night or day. Anyone with a bit of common sense and life experience understands that the customer base for such products also includes helpless consumers. After a few years, when the consequences of such borrowing become evident to the greater public and not just the consumer authorities, good ideas are suddenly needed. And wouldn't you know it, certain actors in the business sector will suggest registration of all consumer debt and credit histories as the primary solution to the problem. Those who have witnessed the distress of SMS borrowers first hand have also clutched the idea of credit registration as a first line of defence. I can understand that, a responsible lending appears too often to be far beyond reach. Could it be possible that not all products for which there is demand should be offered? Could it be possible that an entrepreneur who has taken a calculated risk would be liable for the consequences of his actions and the consequences would not have to be borne by us all? Then again, these times are said to call for more collective thinking. In the name of collectivity, we should not adjust our existing consumption patterns, because only through continued spending, together we can work our way out of this predicament as quickly as possible. The advertising messages clearly support buying and consumption, but that aspect of collectivity tends to get overlooked. At Christmas time, the message was ”buy for yourself what you would want others to buy for you”. You should go out today and buy yourself some of that new chocolate - who else would you buy it for? But if you have to put yourself and your own welfare first, is it really such a good idea to keep on spending as you wait to find out whether you are next to get laid off? On the other hand, if I keep on buying and spending, will I be able to prevent others from getting laid off as well? The life of a consumer is far from easy: we need education! The 10th of February Anja Peltonen Director ---- MORE RESPONSIBLE LENDING TO SAFEGUARD AGAINST FUTURE FINANCIAL CRISES? In December, the OECD prepared a strategic response to the global financial crisis. Their suggestions for crisis management highlight the importance of environment-friendly solutions and warn nations against resorting to protectionism to combat recession. The strategy includes a variety of ways to promote the economy, competition, corporate governance and sustainable long-term growth - from recommendations to supervision. Strengthening the consumer's position is one way to guide the economy towards clearer waters. At the consumer level, what is needed is more information: consumers must, in the future, be offered more and better-quality information on things such as loans to help them make sensible decisions regarding their finances. Financial institutions and intermediate authorities are seen to have a central role in consumer protection and this role will come under closer scrutiny, amongst other things, regarding conflicts of interest in the provision of information. According to the OECD, improved economic education must be complemented by regulation and more solid and widely accepted practices pertaining to marketing. As one of the first measures under the strategic response, the organisation plans to prepare a report on matters which consumer authorities should consider in developing ways to improve consumer awareness and knowledge of financial affairs and loans. Increasing consumer knowledge is seen as one safeguard against future recurrences of the economic events witnessed in the past months. For instance, the perspective of behavioural sciences and the complex nature of financial products should be emphasised in the search for ways to facilitate better decision-making by consumers. ------- QUICK LOANS GIVING RISE TO CURIOUS COSTS Blunders occasionally happen in doing business. The costs incurred from them should be borne by the company in question, but sometimes the customer ends up having to pay for mistakes or problems in interpreting legal provisions. The Consumer Agency has intervened in the actions of two businesses offering quick loans. A consumer's application for quick credit was rejected by Netford Capital due to the fact that the mailing address he provided did not match the register information used by the company. The applicant had, however, reported his address to the population register, which the credit company indicated as their source of information. The blunder was caused by the company using outdated register data. Rejection of the credit application was due to the company's own error, but the customer had to pay for the text message sent to apply for the loan. The company paid the customer appropriate compensation for his costs after being contacted by the Consumer Agency. Double punishment for delayed payment Another consumer had a previous case of late repayment of a quick loan from Tammirahoitus Oy. He was appropriately charged penalty interest and a fee for a payment reminder at the time. The company also closed his client account. Later, when the consumer applied for a new loan from the same company, the company notified him that due to the previous instance of late payment, they would charge him ten euros for opening the client account and four euros for checking his credit history. In the view of the Consumer Agency, checking an applicant's credit history is part of normal financial business operations and, therefore, the costs arising from it must be included in business expenses rather than charged to the customer separately. Business expenses are deducted from earnings. Opening a client account is also a normal business operation, the costs of which should be included in general business expenses. The case involved a one-time credit agreement, which can be characterised as one of the most typical types of agreements. Hence, the consequences of late payment should be linked to the loan agreement which involved the instance of late payment. The client account, on the other hand, is linked to the new loan agreement. If a fee is charged for opening a client account due to neglect in repaying a previous loan, the fee collection is linked to the late payment of the previous loan. A penalty is thereby imposed on the consumer not only in the form of statutory consequences of late payment, but also in the form of a collateral sanction based on delayed payment of a previous loan. The practice was found to be in breach of consumer law as well as the provisions of the Interest Act and the Debt Collection Act. The company agreed not to collect charges for opening a client account. ---------- ”AT THE CONSUMER'S REQUEST” – WHO REQUESTS AND WHAT? Can a telephone salesperson pitching insurance suggest that the consumer request concluding an agreement without seeing the terms of contract? As a rule, contract terms must be supplied before concluding an agreement, but a special provision pertaining to financial services became something of a headache for the Insurance Supervisory Authority. Insurance was sold to consumers over the phone. The consumer was told that, should he so request, the insurance could be put made effective immediately and contract terms would be mailed to his home afterwards. The company felt that they could do this subject to the consumer's approval. The Consumer Agency found this practice to be not in line with the legislation on the distance selling of financial services. The justification for this exceptional practice was not based on the consumer's needs and wants, but rather the company's marketing purposes. The distance selling of financial services such as insurance, credit and securities is governed by a dedicated chapter in the Consumer Protection Act. As the products are often abstract services, the point of departure of the legal provisions is that advance information and contract terms must be supplied to the consumer in good time before concluding an agreement. However, there is a special provision granting an exception to this basic rule, based on which information and contract terms may be supplied afterwards ”if the agreement is concluded at the consumer's request”, for example over the phone or via another medium which does not allow for contract terms to be supplied in advance. The Insurance Supervisory Authority requested the Consumer Agency's view on whether marketing can be based on this special provision by asking the consumer to make such a request. A request is made at the requester's initiative The special provision in the legislation is intended only for special circumstances. Such special circumstances could include, for instance, a customer needing insurance that becomes effective immediately and requesting this service over the phone. In other words, the special provision applies to situations where the consumer has a personal and acute need, based on which he - at his own initiative - requests that the agreement be concluded based on the information provided over the phone. This type of approach may not, however, be standard procedure in offering services to consumers. If the intention were to allow market-based acts subject to the consumer's approval, the special provision would have been worded differently. As the law stands, it specifically grants consumers the opportunity to conclude an agreement under exceptional circumstances, which does not mean that companies are granted the right to deviate from the basic rule. Financial Supervisory Authority and Insurance and Financial Ombudsman Bureau established The Insurance Supervisory Authority and the Financial Supervision Authority were combined on 1 January 2009 as the new Financial Supervisory Authority (Fi-va). The new authority supervises, amongst others, banks, insurance companies, pension companies, other companies in the field of insurance, investment services companies, fund management companies and the stock exchange. At the same time, the Finnish Financial Ombudsman Bureau (FINE) was established, combining the Consumers' Insurance Bureau, the Advisory Office for Bank Customers and the Finnish Securities Complaint Board. The new authority provides advice and guidance to customers in matters related to banks, insurance and securities. -------- Own risk set at 150 euros for improper use of electronic ID? While work continues on the law on identification, the Ministry of Justice is engaged with the implementation of the Payment Services Directive. In the Directive, the consumer's liability for unauthorised use of a means of payment is, in most cases, limited to a maximum of 150 euros. The point of departure is that the consumer's liability for unauthorised use of e.g. a stolen payment card would only exceed that amount if the consumer has acted wilfully or with gross negligence. At present, the consumer's liability for unauthorised use of a payment or credit instrument has no set maximum in cases where the consumer is found to have acted negligently. This new limitation of liability is a significant improvement in consumer protection. Such limitation of liability is not, however, mentioned in the legislative proposal on identification - despite the fact that unauthorised use of means of identification involves an equally significant risk of financial losses. The consumer's own risk in such circumstances could easily be limited to 150 euros by law. Further preparatory work on the matter should take the approach that regulations on the consumer's liability would fully correspond with the principles evident in the Payment Services Directive and the provisions proposed for the Act on Payment Services. Consumer protection should be at the same level regardless of whether the unauthorised use pertains to a payment card, credit card, communications device or a means of electronic identification. ID: 42467 Author(s): ECRC Publication date: 02/03/09     URL(s): Link to Current Issues 1 2009 Current Issues 12009 (pdf)

World Partner       EU-Partner

Created: 02/03/09. Last changed: 02/03/09.
Information concerning property and copy right of the content will be given by the Institut For Financial Services (IFF) on demand. A lack of explicit information on this web site does not imply any right for free usage of any content.