Lectures on Nordic and European Consumer Law

Lectures on Nordic and European ConsumerLaw Klaus Viitanen University of Helsinki October 2016

1. INTRODUCTION The main aims of these lectures 1) to give an overall picture on different legal instruments used in consumer law, especially in EU consumer law and in the Nordic countries 2) a special attention will be given on the problems connected with consumer´s access to justice

1.1. Basic definitions: Consumer law the class of norms which are especially designated to protect the consumer in his or her dealings with a trader (direct protection) Competition Law and Unfair Competition rules give only indirect protection to consumers Consumer a natural person who is acquiring goods or services for an other use than business purposes a new trend: from consumer protection to a more wider user or client protection ( e.g. passenger protection in air, railway, sea and road transport contracts) Trader a natural or legal person who is (1) professionally selling goods or providing services to consumers (2) in order to obtain economic benefit

Substantive Consumer Law rules of consumer legislation which define the rights and obligations of consumers and traders Consumers' Access to Justice different methods (often supervisory authorities and dispute settlement bodies) which aim is to ensure that consumers' rights are fulfilled also in practice Access to justice –questions are in close relation to substantive consumer law without effective means for enforcement and consumer redress, the material improvements in consumer protection legislation will have little or no influence at all in a consumer's daily life formal right to take a legal action in a court is not enough

Consumer Law -questions may be roughly divided into two groups: 1)protection of consumers' collective interests • interests where no individual consumer has a right to remedy when an infringement of these interests occurs • examples: • regulation and supervision of marketing • regulation and supervision of product safety 2)protection of individual rights • how consumer's rights are fulfilled in individual cases after a contract has been concluded and a consumer is dissatisfied with his purchase • examples: • contractual remedies when a product or service is defective • product liability

1.2. EU Consumer Law The legal basis and the main aims of EU Consumer Law in The Treaty on the Functioning of The European Union(former EC Treaty, originally Treaty of Rome): 1)Internal Market -argument • EU is entitled to adopt measures which have as their object the establishment and functioning of the internal market (art. 114) • aim is to abolish obstacles of free movement of goods and services 2)Consumer Protection -argument • in order to ensure a high level of consumer protection (art. 169) Is there are a conflict between these two aims? • in theory no, but how about in practice!

The Consumer Images behind Consumer Law The EU Consumer Law: • a consumer is an active and critical information-seeker, who is able to make rational choices on the basis of collected information (a rational consumer) • the main stress in the legal regulation is in the regulation of information: to ensure the accessibility and quality of information The Nordic Consumer Law: • a passive consumer, who is neither able to collect information available nor to use it in order to make a rational choice (an irrational consumer) • regulation of information is not enough to ensure rational choices • there is also a need for effective protection of consumers´ individual rights, e.g. by means of contract law

Legal Instruments in EU Consumer Law 1)directives • a traditional instrument in EU consumer law • have to be implemented to the national legislation • minimumdirectives • set only the minimumlevel of protection • MSsarefree to providebetterprotection in theirownlegislation • maximum directives • sets also the maximum level of protection • MSs are not entitled to provide better or weaker protection 2)regulations • are directly applicable in all MSs • there is no need to implement them to the national legislation • are becoming more popular in EU consumer law

The EU Consumer Lawdirectives and regulations Regulation of Marketing • Misleading and Comparative Advertising Directive (1984, amended 1997, a codified version 2006/114/EC, OJ L 376, 27.12.2006) • in consumerissuesrelevantonly in comparativeadvertising • Unfair Commercial Practices Directive (2005/29/EC, OJ L 149, 11.6.2005) Consumer Information and Contract Law • Package Travel Directive (EU/2015/2302, OJ L 326, 11.12.2015) • Distance Marketing of Financial Services Directive (2002/65/EC, OJ L 271, 9.10.2002) • Consumer Credit Directive (2008/48/EC, OJ L 133, 22.5.2008) • Timeshare Directive (2008/122/EC, OJ L 33, 3.2.2009) • Consumer Rights Directive (2011/83/EU, OJ L 306, 22.11.2011) • replacedformerdirectives on doorstep selling (85/577/EEC, OJ L 372, 31.12.1985) and distance selling (97/7/EC, OJ L 144, 4.6.1997)

Contract Law Unfair Contract Terms Directive (93/13/EEC, OJ L 95, 21.4.1993) Sale of Consumer Goods Directive(99/44/EC,OJ L 171, 7.7.1999) Regulations on passenger´s rights in transport contracts: Regulation on Air Passengers´ Rights on Denied Boarding and on Cancelled or Delayed Flights (EC N:o 261/2004, OJ L 46, 17.2.2004) Regulation on Rail Passengers` Rights and Obligations (EC N:o 1371/2007, OJ L 315, 3.12.2007) Regulation on Passengers` Rights on Bus Transport (EU N:o 181/2011, OJ L 55, 28.2.2011) Regulation on Passengers` Rights on Maritime Transport (EU N:o 1177/2010, OJ L 334, 17.12.2010) Safety of Products Product Liability Directive (85/374/EEC, OJ L 210, 7.8.1985) Product Safety Directive (01/95/EC, OJ L 11, 15.1.2002) proposal for regulations concerning consumer product safety (COM (2013) 78 final) and market surveillance (COM (2013) 75 final)

Access to Justice Protection of consumers´ collective interests Injunctions Directive (98/27/EC, OJ L 166, 11.6.1998) Cooperation Regulation (EC N:o 2006/2004, OJ L 364, 9.12.2004) Protection of consumers` individual rights Alternative Dispute Resolution (ADR) Directive (2013/11/EU, OJ L 165, 18.6.2013) Consumer Online Dispute Resolution (ODR) Regulation (EU N:o 524/2013, OJ L 165, 18.6.2013) EU Commission websites for further information http://ec.europa.eu/consumers/dyna/az/az_index_consumers.cfm

New Trend: Towards full harmonisation The starting point: minimum directives • most consumer law directives between years 1985-2002 were minimum directives • there were only few exception, e.g., the product liability directive from 1985 The new trend from year 2005: maximum directives • Unfair Commercial Practices Directive 2005/29/EC • Timeshare Directive 2008/122/EC • Consumer Credit Directive 2008/48/EC • Consumer Rights Directive 2011/83/EU • Package Travel Directive EU/2015/2302 The key questions: 1)whose interests does full harmonisation promote? 2)is full harmonisation in practice possible?

Who needs full harmonisation? Official explanations: 1) full harmonisation promotes consumers´ confidence on internal market • assessment of this argument: do consumers really need exactly same rules in all MSs? 1)most sale of consumer goods takes still place inside MSs, cross-border shopping forms still only a small minority of the total sale 2)when cross-border shopping takes place, a certain minimum level of protection (e.g. at least two weeks cooling off -period in distance selling) is usually totally enough for consumers 3)instead more emphasis should be focus on the settlement of cross-border consumer disputes, where there are many problems • in practice many consumers avoid cross-border shopping due to the difficulties in potential disputes with traders domiciled in other countries

2)full harmonisation promotes traders´ willingness to cross-border marketing and sale • assessment of this argument: • are the differences in consumer law rules, e.g., concerning marketing or consumer contracts, in practice so relevant in cross-border marketing and sale compared to, e.g., rules on product design, content, package, or labelling? • if there are markets for a product, and a company has capacity for cross-border marketing, are the differences in marketing and contract rules really in practice any relevant obstacles to make business? • compare to the situation in United States!

2. REGULATION OF MARKETING 2.1. General Domestic Marketing (ch. 2 of these lectures) • marketing in which traders and consumers are domiciled in a same country Cross-border Marketing (ch. 3 of these lectures) • marketing in which traders and consumers are domiciled in different countries The regulation of marketing has usually two main aims 1)prohibition of unfair marketing practices • to prohibit unfair marketing practices, especially false and misleading advertising 2)disclosure of consumer information • to ensure that traders provide to consumers certain basic information during the marketing

Prohibition of unfair marketing practices Different techniques to regulate: 1)general clauses • prohibits the use of all kinds of unfair marketing practices without defining what marketing practices are unfair • whether a marketing practice is unfair or not, is decided by courts • it is question of delegation of legislative power from the Parliament to courts • a general clause is a flexible way to regulate, especially when new unfair marketing practices have been developed (e.g. marketing in internet) • whether the system is predictable, depends on the amount of case law and its accessibility in practice

2)specific detail rules only marketing practices which are regarded as illegal are defined by specific rules in legislation benefit: detail rules make it for an advertiser easier to predict what kind of marketing practices may be regarded as illegal defect: in case there is a need to interfere with a totally new kind of marketing practice, legislative changes have to be done first

3)combination of general clause and specific rules by using this model, benefits of general clause and specific rules may be achieved at the same time in the Nordic countries the combination of general clauses and more detail rules have traditionally been used in the regulation of unfair marketing practices however, in the Nordic countries the main focus has traditionally been in the use of general clauses due to this, most principles on unfair marketing practices in the Nordic countries may be found in the case law instead of the written law

Duty to Disclose Consumer Information Detail regulation • has shown to be much more effective than general clauses • defines quite precisely what information a trader is obliged to give to consumers during the marketing • is used in several EU consumer law directives: they oblige MSs to adopt rules which set to traders duties to give certain, specific information to consumers concerning: 1) cooling-off period • consumers are not able to use this right, if they are not aware of its existence • see, e.g., Timeshare Directive, art. 5.4.

2)other essential information, for example a) Package Travel Directive, art. 5 the main features of the product or service marketed all relevant information connected to the price of the product or service (including taxes, extra expenses, etc.) b) Consumer Credit Directive, art. 4 the annual percentage rate (the total cost of credit to a consumer per an year)

2.2.Unfair Commercial Practices Directive replaced Misleading and Comparative Advertising Directive 84/450/EEC in consumer matters, but not in unfair competition matters (a codified version in year 2006) but how is comparative advertising regulated at this moment? on the contrary to the most earlier consumer law directives, UCPD is a full harmonisation directive taste and decency –questions e.g. discriminatory (sex, ethnic background, religion) advertising has been left outside of the scope of the directive (recital 7) is based on a combination model general clause (art. 5) more specific rules (art. 6-9) black list of always forbidden marketing practices (Annex I)

General clause (art.5)on unfair commercial practices commercial practice, which a)is contrary to the requirements of professional diligence (fairness test, e.g. false or misleading advertising) and b)it essentially distorts or is likely to distort the economic behaviour of the average consumer (effect test), is regarded as unfair (art. 5.2) protection of vulnerable consumers commercial practices which are directed to a clearly identifiable group of particular consumers (e.g. children, sick or elderly people) are assessed from the perspective of the average member of that group (art. 5.3.)

Supplementary specific rules: Misleading commercial practices (art.6-7): A commercial practice shall be regarded misleading if a) it contains false information and is therefore untruthful or b) it misleads or is likely to mislead the average consumer even if the information is factually correct or c) it omits certain relevant information that the average consumer needs and in all three alternatives this practice causes or is likely to cause a consumer to take an economic decision that he would not have taken otherwise

Aggressive commercial practices (art.8-9): A commercial practice shall be regarded as aggressive if a) it by harassment, coercion, including the use of physical force, or undue influence b) significantly impairs or is likely to significantly impair the average consumer´s freedom of choice and thereby c) causes or is likely to cause him to take economic decision that he would not have taken otherwise

The flexible nature of the general clause the specific rules in art. 6-9 on misleading or aggressive commercial practices clarify, what practices may especially be regarded as unfair the general clause may be used in cases 1)which fall under the scope of the specific rules, but also in cases 2)which do not fall under the scope of art. 6-9 The black list annex I of the directive contains a list of commercial practices which are in all circumstances unfair, so called typically unfair practices (fairness or effect test is not needed) Supervision of marketing should be organised in the MSs as during the former Misleading and Comparative Advertising Directive: state authorities or consumer organisations are entitled to start court or administrative procedure (art.11)

Problematic questions in the UCPD 1)what is the expected level of knowledge of average consumers? • the case law of the ECJ: average consumer is a reasonable well-informed and reasonable observant and circumspect • a clear conflict between the common meaning of word average and this definition: an average consumer is certainly not reasonable well-informed and observant • implementation in the Nordic countries: • the main stress has been given to the common meaning of word “average” and the word average itself has been left away from the law text • remember the different consumer images in EU and Nordic consumer law (an active information-seeker v. a passive , irrational consumer) • this implementation may cause different interpretations in MSs, as many MSs adopted also the word average to their law text

2)when the condition ”is likely to essentially distort the economic behaviour of consumers” is met? • different wording is used in articles 6-9: “is likely to cause him to take an economic decision that he would not have taken otherwise” • different wording – different meaning? • the latter definition seems to require more stronger effect to the behaviour of consumers • should we assess the effect of, e.g., false information • separately, when it is hardly never decisive from the viewpoint of consumer´s decision-making procedure (separate effect) • together with all other marketing information which effects on consumers (common effect) • the choice between these two alternatives might have serious consequences • example: claims on environmental friendliness of marketed products

3)the effect of the taste and decency -restriction • matters related to taste and decency were left outside of the scope of the directive (recital 7) • these differ greatly among European countries, e.g., concerning discriminatory (sex, ethnic background, religion) advertising • sometimes these values are overlapping with the protection the economic interests of consumers (which is the main target of the directive) • example: marketing to minors in schools • protection of economic interests: minors do not expect to face marketing at schools, especially marketing in which teachers are involved • social values: schools should be marketing-free zonesin a world which is coming more and more commercial

2.3. Regulation of Marketing in Finland I. Former regulation • relevant act: Consumer Protection Act 1978, ch. 2 • the former general clause in the Finnish Consumer Protection Act, ch. 2, art. 1: “Conduct that is contrary to good practice or that is otherwise unfair from the viewpoint of consumers is not allowed in marketing” • specific articles, e.g., ch. 2, art. 2: ”False or misleading information shall not be conveyed in marketing” • whether marketing had impact on the economic behaviour of consumers in the target group, was not relevant from the viewpoint of law text • but was it an implied term which fulfillment was necessary before these rules could be applied?

II. Implementation of the UCPD in Finland • amendments to chapter 2 of the CPA (561/2008) entered into force on 1 October 2008 • a new general clause (ch.2, art. 1) ”Marketing which (a)is contrary to good practice or (b)is unfair from the viewpoint of consumers, is not allowed in marketing” • new separate general clauses on 1) marketing contrary to good practice (ch.2, art. 2) • based on the taste and decency –restriction 2) unfair marketing practices (ch.2, art. 3) • based on the idea to prevent the distortion of consumers´ economic behaviour • in addition, (3) the CPA contains new and old specific rules on unfair marketing practices

1) Marketing contrary to good practice • a new general clause (ch.2, art 2): ”..is in clear conflict with generally accepted social values, especially if a)it infringes human rights or religious or political persuasions b)it contains discrimination on the basis of sex, age, ethical or geographical origin, etc. c)it shows in a positive light activities where health, general safety or environment are put in danger” • former Finnish case law on the protection of social values in marketing was based only on the interpretation of the general clause on the consequence that the competence of Consumer Ombudsman and Market Court was sometimes questioned • the implementation of UCPD solved this problem and there is now a clear legal basis: CPA ch. 2, art. 2

Some examples from the former case law a) violence in marketing Market Court decision 1998:18 The Raisio Group was forbidden from showing a TV commercial called Gone with the Winchester, where a soldier was shot in the back. According to the Court, violence is not an acceptable way of attracting attention in advertising, especially when violence has no connection with the product being advertised (in this case food stuff). b)discrimination based on sex Market Court decision 2001:6 (Lola –case) MaskunKalustetaloOy was marketing sofas by using ex-Miss Finland who was lying in one of sofas dressed with her bikinis only. The advertisement contained, e.g. following text: ”Lola is not included in the price!”The court stated, that the use of half-naked woman in an advertisement may, as such, not be regarded as unfair. However, the ad may be considered as insulting due to a way how woman is treated in it. In this case the campaign was regarded as discriminative and unfair.

2) Unfair marketing practices • a new general clause (ch. 2, art. 3), which scope of application covers also the specific rules (ch. 2, art. 4-14) • the general clause is rather identical to art. 5 of the UCPD: according to ch.2 art 3: unfair marketing is marketing, which is • contrary to the requirements of professional diligence and • is likely to distort the economic behaviour of consumers who belong to its target group • one relevant difference: average consumer is not mentioned at all! • according to Government´s Proposal (HE 32/2008), the concept of average consumer is equivalent to the concept of ordinary consumer on the consequence that there is no need to mention it in the law text • similar choice has been made also in the other Nordic countries • effects from the viewpoint of full harmonisation?

Protection of vulnerable consumers UCPD: a special attention should be given to the target group in the assessment of legality of a marketing campaign CPA contains now in its general clause a clear provision on the protection of vulnerable consumers (minors, elderly people etc) the protection of vulnerable consumers was in the Nordic countries possible also before the law reform, but it was based on case law only marketing aimed at minors provides here a good example main principle: marketing to minors is in principle allowed, but it must comply with much more stricter rules than marketing to adults Market Court 2000:12: Distribution of advertising magazine in schools and day-care centres Family 2000 -magazine was a publication intended for children and young people which contained marketing mainly in the form of articles. The Market Court banned the distribution of the magazine in schools and day-care centres without parents' permission

3) Specificrules in ch. 2 of the CPA Identification of marketing (ch.2., art.4) • consumers should always be able to make difference between commercial and non-commercial material and to identify the person behind marketing • this rule it is not based on the UCPD, but was initially created in case law already in 1980´s, and was added to CPA in year 2002 • Market Court decision 1997:6: Commercials must be distinct from programming Kiss FM radio station was forbidden from broadcasting com-mercials unless they are distinguished from other prog-ramming by, for example, a distinctive tune used both before and after commercial breaks.

Misleading or false marketing (ch.2., art. 6-7) • prohibition to give a)misleading information or b)false information or b)omit relevant information which is likely to cause a consumer to take a transactional decision that he would not have taken otherwise • rather identical to art. 6-7 of the UCPD • once again, the concept of the average consumer is not at all mentioned in the law text

Duty to disclose information (ch.2, art.8) • corresponds article 7.4. of the UCPD • marketing of individualizedproducts or services should always contain at least the following information: 1) the main features of a product and service in a scale which is appropriate (a)when taking into account the marketed product or service and (b)the used marketing tool • different requirements for TV and newspaper adds! 2) trader´s – or his agent´s - name and geographical address 3) price information: the total price of the product or service including all taxes

the most important information for a consumer is normally the total price of the product or service it does not matter, whether the procedure to count the total price would in practice be rather easy, the price informed to consumers in marketing has to be always the total price Market Court decision 1992:11: Price splitting in advertising of cruise prices Oy Viking Line Ab had marketed its cruise prices without mentioning the passenger tax. The Court stated, that passenger tax is a part of the price which consumers must pay for a cruise. From the viewpoint of the consumer it makes no difference that the business which sells the cruise forwards part of the price to the state in the form of tax. It is important for consumers that ads clearly indicate the total price charged by the business. Marketing, which do not contain the total price of the product or service is regarded as unfair.

Additional benefits (ch.2, art.12) and benefits based on chance (lotteries etc.) (ch.2, art. 13-14) are accepted in marketing only if the following two conditions are fulfilled: 1) benefits should not have a dominant role in the marketing this condition is based on the general clause, not on the specific rules above 2) the means of getting additional benefits should be clearly explained in the marketing 3) a former requirement until year 2011: consumers´ right to take part on lottery or in other kind of competition could not be connected to the fact whether he was purchasing a product or not change in June 2011: purchase may now be put as a condition to participate reform was argued on basis of ECJ recent case (C-304/08) but was the case misunderstood in Finland?

Market Court decision 1995:25: Free gifts and lotteries in the direct marketing of timeshares Helsingin Resort Marketing Oy was direct marketing of timeshares by inviting consumers to a special meeting. The predominant focus of an invitation letter sent out by the company to a presentation and sales meeting was on free gifts and lotteries. Based on this information, consumers had difficulty in assessing the true nature of the meeting in question. Many of the consumers arriving at the meeting did so mainly to collect the free gift promised. The marketing was regarded to be in conflict with the general clause because the promised benefits had a dominant position in the marketing.

Otherspecificnorms in ch.2 of the CPA: • comparative or other marketing may not cause confusion between products of different traders (art.5) • the former article concerning comparative advertising was moved to Unfair Competition Act • what is the role of this moved article in consumer protection? • prohibition to use aggressive selling methods (art. 9) • prohibition of inertia selling (art. 10) • it is prohibited to deliver a products or a service without an express order in case a consumer is expected to pay it in case he does not clearly refuse or return the good • the price should not be announced as being reduced more than it actually has been (art. 11) • the promised discount should always be real

2.4. Case Law • many leading principles of the Finnish marketing law have been created by the Market Court since 1978 in cases where the former general clause were applied • during the years, for informative reasons many of these principles have been added as new specific rules into ch. 2 of the CPA • however, there are still many principles which have not been codified, but are still based on the case law only • many of them are closely connected to the prevention of misleading and false marketing

1) The principle of general impression • lawfulness of marketing is evaluated on the basis of what kind of general impression consumers do get after a reasonable short acquaintance of advertisements • relevant information may not be presented by small letters at the end of an advertisement • Market Court 2001:9. In TV commercial subscription costs of mobile phones were shown at the bottom of the screen in very small print, while the call time and trade-in offer was spread across the screen. If a specific subscription is advertised, typical user costs must be indicated clearly. The commercial was regarded as unfair. • the significance of the new effect test to the principle of general impression?

2)The principle of trader´s burden of proof a trader must always be able to prove facts he presents in his marketing however, relevant is the difference between facts and matters of taste “cheapest in the town” is a fact which must be proven “best service in town” is matter of taste which cannot be proven this principle may also be found in art. 12 of the UCPD, which mean that it will remain also in the future

Market Court decision 1997:2: Unproven Price Claims/ Price Guarantee OyPC‑Superstore used in its marketing, e.g., the following texts: a)Finland’s cheapest computer chain store b)Price guarantee: we will pay you back the price difference at time of purchase if you could buy the same product at a lower price from another shop.” The company produced no proof that its products were cheaper than similar products marketed by its competitors. According to the Court, claims concerning a ‘lowest price’ are not proven merely by the fact that the advertiser promises to pay the customer the difference if he can find the same product on sale more cheaply somewhere else. The Court regarded marketing to be in conflict with the CPA.

3) Comparative advertising may not be false or misleading one may compare only products which have a similar purpose of use comparison has to be objective only relevant features may be compared, e.g., price the use of test results is accepted if the following conditions are fulfilled: tests itself have been made by objective third parties only relevant features have been tested and compared Market Court 2003:5 Use of EuroNCAP –test Veho Ltd was marketing: “Mercedes Benz is safer than the most safest Volvo on the basis of a recent EuroNCAP –test.” However, the cars which had been tested by EuroNCAP belonged to different classes. According to EuroNCAP-rules cars from different classes may not be compared with each others due to different technical and other features, e.g., weight. Because this rule had been infringed and the cars were not directly comparable with each others, the advertising was regarded as unfair.

4) Claims on environmental friendliness of marketed product Consumer Ombudsman´s decision in 1999: Marketing of green electricity. Kainuu Electricity had marketed eco‑electricity using slogans “Eco‑electricity is the choice of families who care about the environment”. However, in fact electricity with an eco‑label formed only 43% of the company’s total sales. The danger was that the entire company’s electricity production will be given an eco‑label in consumers’ eyes. Emphasizing the environmental effects of consumers choice of electricity was therefore misleading and was regarded as unfair. the influence of effect test in environmental claims?

5) The use of word “guarantee” in marketing guarantee should always mean that a consumer receives a certain benefit compared to his legal rights which are based on the law Market Court 1994:14 Satisfaction guarantee A mailorder company used in its marketing concept ”satisfac-tion guarantee” which gave to consumers one week cooling off –period. Due to the fact, that consumers already had the same right on the basis of CPA ch. 6, the use of word guarantee in marketing was regarded as unfair.

2.5. Supervision of marketing 1. General Different models to supervise • in principle there are different possibilities to organise supervision of marketing: 1)supervision may be taken care by: a)state authorities or b)consumer organisations or c)self-regulatory bodies 2)supervision may be taken care by only one of these alternatives (single model) or more than one at the same time (combined model) 3)decision whether a marketing practice is unfair or not, may in principle be made (a) in administrative procedure or (b) in court procedure

Lectures on Nordic and European Consumer Law