Current Issues in Consumer Law 5/2012                25/09/2012

PDF versions of this and past issues in English

EDITORIAL
Looking at money matters

The contacts made to the nationwide consumer advisory services and the Consumer Ombudsman provide us with valuable information about the problems faced by Finnish consumers on the markets. In financial services, they often concern payments, debt collection and instant loans. We are discussing these matters in the issue of our online newsletter on the theme of financial services

The Finnish Consumer Agency has devoted most of its financial services resources to the supervision of instant loans. Our focus has been on the elimination of marketing irregularities and practices that are in violation of the Finnish Debt Collection Act. Supervision has concerned such issues as the automatic introduction of minor postponements of due dates and charging the borrower for the rescheduling, and the increasing of the debt collection charges to the maximum allowed under the act at a short notice. Some of these cases have also ended up in the Market Court.

We have also been closely involved in the updating of the instant loan legislation and the Debt Collection Act and have been represented in the working groups discussing the topics. Both legislative projects are already in their final stages. The government proposals are already under consideration in the Finnish parliament.

Availability of payment services and access to different payment methods in different situations are essential for a properly functioning consumer society. During 2012, the Finnish Consumer Agency has drawn attention to the impacts that different payment methods have on consumers (including special groups) on many arenas.

Next year will see the start of the introduction of a new system of direct payments, which is part of the SEPA process (Single Euro Payments Area). The Finnish system of direct debiting will be abolished at the end of 2013, which means that next year billers can start charging their direct debiting customers using e-invoices and the new system of direct payment. We will be following how smoothly the transition proceeds during 2013.

The system of direct payment is similar to direct debiting and is also suited to infrequent users of online banking services. In this issue, you can also read more about our opinion that before transferring customer communications online, a bank should keep in mind that not all consumers are regular users of online banking services.

There has again been discussion about a positive credit file in Finland. Those in support of the idea view it as a solution to over-indebtedness. A system where all lenders observe the principles of responsible lending would be a much less costly solution and would provide a much higher degree of data security. However, it is a good thing that the consumer policy programme of the Finnish government mentions the register as an option worth examining.

Päivi Hentunen
Director General of the Finnish Consumer Agency and the Finnish Consumer Ombudsman

Controlled switch to e-billing (Current Issues in Consumer Law 6/2011)
Information on SEPA on the website of the Federation of Finnish Financial Services 

Instant loans marketed to the young as a way to good life

Instant loan advertising directed at young people totally ignored the economic impacts of concluding a credit agreement and the repayment. Radio advertisements gave a distorted picture of the consequences of borrowing and attracted young people by giving an impression that the money would lead to carefree life and that the items purchased would be a source of admiration among their friends.

The Finnish Consumer Ombudsman was of the view that the instant loan advertising in question had an inappropriate impact on consumers’ decisions and encouraged over-indebtedness. Such advertising of instant loans is in violation of good lending practices and the Finnish Consumer Protection Act.

When the inappropriateness of a marketing practice is considered, the consumer group serving as the target group is also taken into account. Particular consideration is given to vulnerable consumer groups, such as children, the young and the elderly.

Too carefree borrowing

OK Money Finance Oy marketed its instant loan website www.okmoney.fi on the NRJ radio channel between June and September in 2011 on four different radio advertisements in which two young persons are engaged in a conversation. One of the youngsters had taken out an instant loan to meet his consumption needs and now suggested that the other one should also do the same so that he can solve his financial problems.

The basic message in all radio advertisements run during the campaign was that an instant loan is an easy way to meet different entertainment, beauty and clothing requirements of the young people and that an instant loan can make your life happier.

Because of its content and the channel used, it was clear that the campaign was directed at young people. Young people are more susceptible to different attractions than more experienced consumers and their ability to assess the consequences of borrowing can be considered to be weaker than among average consumers. The advertising campaign was all the more inappropriate because in it young people were the main target group for expensive consumer credits and the advertisements exploited the susceptibility of this consumer group as borrowers.

What about the repayment?

The advertisements focused on the carefree use of the borrowed money and there was no mention of the obligations resulting from the credit or the economic impacts of the decision to take out a loan. The advertisements also encouraged the borrower to use the credit for ordinary purchases and failed to mention the other side of the coin: the credit and all other expenses must also be repaid. The advertisements presented inappropriate arguments as a basis for consumers’ decisions.

Highly visible marketing of instant loans has lowered the threshold for applying for such credit. This in turn has led to ill-considered borrowing decisions and payment problems among consumers. In many cases, young people in particular have defaulted on their debts, which has seriously affected their lives. The over-indebtedness problems among young people resulting from a rapid growth in the provision and marketing of instant loans are evident in the court statistics on indebtedness decisions.

Long-term consequences for a consumer's finances

Credit is different from other products and services offered to consumers in the sense that it will also affect their economic situation in the future. For this reason, when credits are marketed, special consideration should be given to ensuring that no attempts are made to influence consumers’ decisions in an inappropriate manner.

In order to prevent debt problems from arising in the future and to guarantee responsible lending, companies offering credit must for their part ensure that credits are not marketed in a manner that contributes to over-indebtedness among consumers.

The company has pledged to market its credits to consumers in accordance with good lending practices in the future.

Marketing credits with inadequate information

According to Finnish legislation on consumer credits, lenders must act responsibly and take into account what is in the consumers’ best interest. Acting responsibly includes making sure that advertising does not promote ill-judged accumulation of debt and that information that can be used to assess whether the credit is suitable for an individual’s needs is not withheld from consumers.

Under the Finnish Consumer Protection Act, the effective interest rate must be stated when consumer credit is advertised if the interest on the loan, other costs charged as part of the loan or other information concerning the terms and conditions of the credit agreement appear on the advertisement. Other information specified in the act must also be given on the advertisement.

The Market Court found two instant loan companies guilty of marketing violations

In June 2012, the Finnish Market Court imposed marketing bans on J.W.-Yhtiöt and OPR-Vakuus, two companies offering instant loans, and enforced its decision with a conditional fine of 50,000 euros. OPR-Vakuus was also ordered to pay a conditional fine of 50,000 euros imposed in connection with an earlier marketing ban. Both companies have marketed instant loans unlawfully. The required information was either not given on the advertisements or it was in such a small print that it was practically illegible.

Both cases concerning instant loans that ended up in the Market Court involved basic issues of credit marketing. The fact that the cases ended up in the Market Court shows that sometimes instant loan companies do not even respect these elementary rules laid down in the Finnish Consumer Protection Act.

Credit advertising campaign of the S-Pankki not in compliance with the law

The Finnish Consumer Ombudsman has examined the advertising campaign of a bank (S-Pankki Oy) in which the amount of the credit was given (a requirement for a credit agreement under the Finnish Consumer Protection Act) but which failed to provide such details as the effective interest rate and other credit costs and their combined total.

According to the bank, the message of the advertising campaign that the bank provides loans between 200 and 20,000 euros does not concern any single product but is simply a general expression of the credits offered and their size.

This is not relevant to the application of the Consumer Protection Act. When a company offers consumer credits with different terms, the information required under law must be given as an example of the use of the credit terms and conditions normally applied by the company. The practice was in clear violation of the Finnish Consumer Protection Act and the company has pledged to change its advertising practices in this respect.

Infrequent users of online banking services must be contacted by letter

According to a decision by the Finnish Consumer Ombudsman, banks must take into account the frequency with which its customers use online banking services when selecting the channel for submitting notifications under their service agreements. It is important that the customers receive the notifications on a channel that they actually use.

The Finnish Consumer Ombudsman has examined the customer communications practices of OP-Pohjola (financial services group) concerning the date on which the bank starts charging its customers service fees and the manner in which it notifies its customers of the start. All customers of OP-Pohjola who are over 26 are charged fees for the use of the bank’s services. More detailed provisions concerning the start date are contained in an online service agreement between the bank and the customer.

Inappropriate practice in a customer relationship

In the case examined by the Finnish Consumer Ombudsman, OP-Pohjola had sent a notification of the start of the charging of service fees via its online banking service after the customer in question had reached the age of 26. The bank later sent the customer a letter containing a payment reminder on account of an overdraft. The overdraft was the result of service fees debited from the account. The customer in question had not used the account for daily banking business and no service fees had been debited from the account until the customer had reached the age of 26.

The account had been established many years before but the customer in question had used it only infrequently. Quite a few years had also passed from the conclusion of the online service agreement. When choosing the channel for communicating with the customer, the bank had not paid any attention to the frequency with which the customer uses online banking services (such as the number of online banking sessions).

The online service agreement entitled the bank to use online communications without considering the actual use of online banking services by the customer. The Finnish Consumer Ombudsman was of the view that the practice was inappropriate under the Finnish Consumer Protection Act.

The practice was also in violation of the generally acceptable appropriate commercial practices as no consideration had been given to the customer’s interest when the means of communications was selected. As the customer had not received any relevant or necessary information, the practice observed by the bank was also likely to lead to a situation in which the customer makes a decision that he otherwise would not make.

Do online banking customers use online banking services regularly?

The Finnish Consumer Ombudsman is of the view that the possession of the online banking codes does not necessarily mean that the customer makes regular use of online banking services. The customer may have several bank accounts that are not used for daily payments but that allow the customer to use online banking services.
Online banking codes are also needed for accounts that are not used for ordinary payments because banks have made it very difficult to use their accounts in any other way. Branches have been closed, cash dispensers removed and the opening hours of cash desk services reduced. Because of increasingly limited service offerings, those customers that do not need to use online banking services on a regular basis also conclude online service agreements.

Consideration to the frequency of online bank visits

Communications restricted to Internet put the financial security of infrequent users of online banking services at risk. This is because the customers in question must take special measures in order to notice the messages. In such cases, a notification by letter is in accordance with the customer’s expectations concerning the communications with the bank.

The Finnish Consumer Ombudsman urged the bank to take into account the actual frequency with which its customers use online banking services so that in the future, the messages will also reach them. A copy of the letter was also sent to the Federation of Finnish Financial Services as the decision concerned Finland’s entire banking sector.

Unreasonable contractual penalty for a failure to pay a debt

A consumer failing to service a debt is guilty of a contractual violation. However, the mandatory legislation introduced to protect consumers contains restrictions concerning the demands that can be presented to consumers in such cases. If a contractual violation arises from payment arrears, the creditor may only charge the interest on late payment laid down in the Finnish Interest Act and the debt collection expenses laid down in the Finnish Debt Collection Act.

Under the contractual terms and conditions of Aasa Oy, a company offering instant loans, debtors with payment arrears had to pay the debt collection costs and, if the outstanding payments resulted in the cancellation of the agreement, a contractual penalty of 150 euros. According to the Finnish Consumer Ombudsman, there are no legal grounds for a clause under which a consumer is required to pay a contractual penalty of 150 euros if the agreement is cancelled as a result of outstanding payments.

A contractual clause weakening the legal position of the debtor is null

Under the Finnish Consumer Protection Act, business operators may not apply unreasonable contractual clauses when offering consumer items. The reasonable nature of the contractual clause is estimated on the basis of the price of the consumer item in question and other relevant factors. Under the Finnish Consumer Protection Act, the lender must observe good lending practices when offering credit.

The Finnish Debt Collection Act contains provisions on the collection of outstanding claims and other matters concerning debt collection. The act is mandatory concerning consumer debtors, which means that no deviations can be made from its provisions ever if the debtor agreed to them. Such a contractual clause weakening the legal position of the debtor is null and void.

Under the Debt Collection Act, collection of debts may not result in unreasonable or unnecessary costs or unnecessary inconvenience for the debtor. The act also contains provisions on the maximum amounts that can be claimed with such instruments as payment reminders, demands for payment and debt rescheduling schemes. 

The Finnish Consumer Ombudsman urged the company to drop the clause concerning the contractual penalty. The company has announced that it is no longer imposing such contractual penalties on its customers.

Unnecessary debt collection costs resulted in a court case

A company collected outstanding debts claimed by instant loan companies by sending debtors up to seven demands for payment even though there were no justifiable grounds for doing so. As a result, the costs incurred by debtors quickly reached the maximum amount allowed under the Finnish Debt Collection Act.

In spring 2012, the Finnish Consumer Ombudsman took WestStar Oy to the Market Court for violating the good debt collection practices. According to good debt collection practices defined in the Finnish Debt Collection Act, collection of debts may not result in unreasonable or unnecessary costs or unnecessary inconvenience for the debtor. For this reason, the number of demands for payment for which a fee is charged must be reasonable.

Two demands for payment are usually enough

The Finnish Consumer Ombudsman is of the view that sending debtors more than two demands for payment that the debtor is separately charged for is in most cases against good debt collection practices. Sending additional demands for payment no longer acts as an incentive for voluntary payment of the debt. It merely serves to increase the debt collection company's business income by maximising the debt collection costs before legal proceedings are initiated to collect the debt.

WestStar Oy refused to change its practices. The Consumer Ombudsman has thus requested the Market Court to prohibit the company's practice, which results in unnecessary costs for the debtor, because the company sends more than two written demands for payment for a single outstanding payment for no specific reason. The Consumer Ombudsman has also requested that, to enforce the ban, a conditional fine of 50,000 euros be imposed on the company.

As WestStar Oy’s practice has become widespread in the debt collection business, especially in the collection of instant loans, the Consumer Ombudsman considers it important that the matter is resolved in the Market Court. The matter is still pending in the Market Court. The Finnish government proposal for amending the Debt Collection Act also contains a provision specifying the maximum number of demands for payment.

Excessive charges for postponing debt settlement date abolished ( Current Issues in Consumer Law 2/2012)

A creditor has no right to charge professional debt collection fees

The Finnish Consumer Ombudsman wants to point out that the demand for payment referred to in the Debt Collection Act must be a document prepared by a debt collection agency or another party engaged in professional debt collection that meets the statutory requirements concerning its layout and content. If the creditor collects the debts, it is no longer a case of a demand for payment referred to in the Finnish Debt Collection Act and the debtor may not be charged the maximum amount of debt collection expenses.

The Finnish Consumer Ombudsman has examined the marketing of an accounts ledger and debt collection system on the website of Digna Oy and the manner in which the system is used in debt collection. The system has been marketed as a system allowing a company to collect its debts and secure the resulting debt collection revenue instead of handing it over to an outside debt collection company.

As the marketing has been directed at companies and other organisations and not at consumers, the Consumer Ombudsman is not competent to assess whether the marketing is in accordance with the law. To the extent that companies and other parties use the debt collection system marketed by Digna Oy in the collection of outstanding consumer debts, they should, however, consider certain principles regarding the status of consumer debtors laid down in the Finnish Debt Collection Act.

Who has the right to make profits out of debt collection?

Under the Finnish Debt Collection Act, the debtor must compensate the creditor for the reasonable expenses arising from the debt collection. Thus, it is the question of the creditor’s right to receive a compensation for the debt collection costs it incurs. However, there is no mention of the creditor’s right to make a profit out of debt collection. In this respect, there are differences between the status of the creditor and that of a professional debt collection agency.

Because of the nature of the debt collection business, debt collection agencies may also charge fees for carrying out their operations (debt collection). For this reason, the Debt Collection Act states that the debtor may be charged higher expenses when professional debt collectors are used than when the creditor acts independently.

If the debt collection is carried out by the creditor, it is not a question of a demand for payment referred to in the Debt Collection Act. Debt collection by the creditor comes under the provision on the creditor’s right to receive a reasonable compensation for the debt collection expenses and the provision stating that the debtor may not be charged more than five euros for a written payment reminder.

The corresponding principle on the debt collection charges was also included in the proposal submitted by the working group on payment arrears and the government proposal to amend the Debt Collection Act submitted to the Finnish parliament in June 2012, which is based on the proposal of the working group.

Legislation update on instant loans and debt collection

Issues raised by the Finnish Consumer Agency have been taken into account in the updating of the Finnish legislation on instant loans and debt collection currently in progress. The Finnish Consumer Agency has been represented in the working groups and has in its opinions expressed support for the main points of the proposals.

From the agency’s viewpoint, these legislative projects are important and they are expected to have real impact on the daily life of consumers. The Finnish Consumer Agency considers it important that there are no delays in the legislative processes.

The Finnish government proposal to amend the Debt Collection Act is currently being discussed at a parliamentary committee. The recently introduced Finnish Ministry of Justice decree on legal expenses is closely connected with the issue. The aim of the decree is to reduce the legal costs incurred by the debtor.

The aim of the proposed amendments to the Debt Collection Act and the above-mentioned decree is to reduce the number of cases in which debt collection and legal expenses cause the debtor’s debts to reach amounts that are many times higher than the original debt.

The aim of the proposed amendments to the legislation on instant loans is to reduce the debt problems arising from instant loans. The government proposal was submitted to the parliament in the beginning of September 2012.

Updating of the Debt Collection Act making progress (Current Issues in Consumer Law 4/2012)
The committee report on instant loans supported by the Finnish Consumer Agency ( Current Issues in Consumer Law 3/2012)

More detailed rules on the offering of payment services

The Finnish Consumer Agency has submitted an opinion to the Finnish Financial Supervisory Authority concerning the practices observed in the offering of payment services. In autumn 2011, the parties concerned had the opportunity to give opinions about the proposals and the comments on the clarifications made on basis of the opinions have now been submitted.

The Finnish Consumer Agency is satisfied with the fact that a number of issues important for consumers have been included even though in some areas, more deliberations are needed. For example, in connection with card payments, there have been substantial delays in the removal of covering funds.

As regards to the new practices concerning the approval of the payments made by the customer, the Finnish Consumer Agency drew attention to the fact that in such transactions as payments made using online banking services, consumers may need to submit their approvals in different ways.

A larger role for consumer perspective in financial supervision (Current Issues in Consumer Law 7/2011)

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Changing the securities markets legislation making progress

The government proposal for the overhaul of the Finnish securities markets legislation is currently being considered by the Parliamentary Commerce Committee. In a hearing on the proposal, the representatives of the Finnish Consumer Agency supported the aim of making the supervision and sanctions regime of the Finnish securities markets more effective, providing investors with effective protection and making the legislation clearer and easier to understand.

The legal and financial position of the consumer must also be safeguarded on the securities markets as well as possible.

The Consumer Ombudsman’s powers must be laid down in the law

The Finnish Consumer Ombudsman is responsible for supervising the marketing, contractual terms and distance selling of all investment products offered to investors with consumer status under the general powers laid down in the Consumer Protection Act. The government proposal contains a number of references to the supervisory cooperation and parallel powers of the Financial Supervisory Authority and the Consumer Ombudsman.

The Finnish Consumer Ombudsman and the Financial Supervisory Authority have parallel powers supplementing each other. In this respect, the situation in the investments sector is very similar to many other areas where the Consumer Ombudsman and special supervisory authorities also have parallel powers. In the view of the Finnish Consumer Agency, the powers of the Consumer

Ombudsman in this area should be laid down in the law in the same way as in the Finnish Payment Services Act.

Ensuring the uniformity of case law

In its opinion, the Finnish Consumer Agency draws attention to the uniformity of case law in the long run. Under the government proposal, the matters concerning customer protection coming under the Financial Supervisory Authority would be considered by the Helsinki Administrative Court or the Market Court, depending on the nature of the matter. The Consumer Agency prefers an option in which the Market Court would consider all supervisory matters concerning marketing and contractual terms relevant to consumers.

In its opinion, the Consumer Agency also states that it should be possible to make use of class action on securities markets. At present, the Finnish Class Action Act does not apply to the disputes concerning the action of the issuer of securities referred to in the Finnish Securities Markets Act or a party making a public purchasing offer.

Notes about consumer customers

The Finnish Consumer Agency deems it problematic that under the government proposal, it would also become possible to ban small investors with the status of consumers from violating good securities markets practices. The specific aims of the government proposal concerning private persons with consumer status remain unclear.

Securities market legislation about to be reformed (Current Issues in Consumer Law 7/2011)

Commission’s attention to basic principles governing payment practices

The Finnish Consumer Agency has submitted its comments to the European Commission on bank accounts and the Green Paper on payment practices.

The Green Paper on European retail payments markets discusses the present state of payment practices and lists some of their shortcomings. The aim of the Commission is to promote and speed up the integration of the internal market in the field of card, online and mobile payments.

The Green Paper examines the fragmented state of the retail payments markets, access to the markets, transparent and cost-effective pricing, standardisation, compatibility and payment security. As a follow-up measure to the Green Paper and on the basis of the replies, the Commission will announce possible proposal for measures in early 2013 at the latest.

Mobile payments a topical issue

In its comments on the Green Paper, the Finnish Consumer Agency draws attention to the basic principles governing payment practices that are relevant to consumer protection. The agency also submitted replies to three specific questions that concerned payment security, surcharges and rebates. In its comments, the Consumer Agency also drew attention to the fact that issues concerning mobile payments should be further examined. Not all areas of mobile payments come under the scope of application of payment services legislation.

For many years, the Finnish Consumer Agency has also been involved in the development of e-commerce guidelines in the OECD. In this work, online and mobile payments have been one of the central areas of discussion.

The aim is to allow customers to keep their account numbers when changing banks

In its comments on bank accounts, the Finnish Consumer Agency drew the Commission’s attention to the comparability of bank accounts. At the moment this is hampered by different service models and fees applied by the banks. Standardisation of bank account terms and the obligation to provide comprehensive details of the payments each year are two of the proposals put forward by the Commission that could improve comparability and transparency.

Changing the bank in connection with housing loan tendering will usually mean that the customer will also have to change the account to which the salary and wages are paid. However, this does not need to be the case. The Finnish Consumer Agency supports the aim that customers should be allowed to keep their existing payment account numbers when changing banks. This would be in line with the practice observed in the telecommunications sector where the change of the operator does not mean the change of the mobile phone number. If the customers could keep their existing payment account numbers when changing banks, their everyday life would become easier and there would be less worry about payments ending up in wrong accounts.

Access to basic banking services a central principle

In its opinion, the Finnish Consumer Agency emphasises that basic banking services must be accessible to everybody. However, if regulation at EU level is considered, national differences between markets and consumer needs should be taken into account. In Finland, the right of consumers to basic banking services is ensured in the Act on Credit Institutions. Basic banking services comprise an ordinary savings account, the required instruments for using the account and the opportunity to pay invoices using the account.

According to the Finnish Consumer Agency, online banking codes should also be a basic banking service. At present, there are problems concerning the availability of online banking codes at the same time when there are efforts to persuade as many consumers as possible to become users of online banking services.

While consideration is given to the availability of online banking codes, the position of those consumers who do not use online banking services (such as the elderly) must also be safeguarded. Legislation should also ensure that these customers can access reasonably priced basic banking services in all regions. At the moment, service fees favour users of online banking services.

Comment to the European Commission on the Green Paper on card, Internet and mobile payments (11 April 2012)
Consultation on the Green Paper on card, Internet and mobile payments on the Commission’s website
Comment to the European Commission on bank accounts (12 June 2012)
Consumer protection not given adequate consideration in mobile commerce (Current Issues in Consumer Law 3/2007)

Key information on investment products must be harmonised

Parallel to the updating of Finland’s own securities markets legislation, EU is also engaged in an extensive process to overhaul its legislation on savings and investment products. As part of this process, the European Commission is proposing a regulation (PRIPS) aiming to harmonise the information on investment products supplied to consumers.