Unfair Commercial Practices and Self Regulation

1. Unfair Commercial Practices and Self Regulation SarmiteKapeika Chieflawyer of Commercial practice, advertisement and e-commerce surveillance division Consumer RightsProtectionCentre of Latvia

2. Unfair Commercial Practices (1) • A commercial practiceshall be unfair if (UCP Directives Article 5): (a) it is contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behavior with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers.

3. Unfair Commercial Practices (2) • In particular, commercial practices shall be unfair which: • are misleading as set out in UCP DirectivesArticles 6 and 7, or (b) are aggressive as set out in UCP DirectivesArticles 8 and 9. !UCP DirectivesAnnex I contains the list of those commercial practices which shall in all circumstances be regarded as unfair.

4. Misleadingcommercialpractice (1) • A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the elementsgiven in UCP Directive, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.

5. Misleadingcommercialpractice (2) • A commercial practice shall also be regarded as misleading if, in its factual context, taking account of all its features and circumstances, it causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise, and it involves: (a)any marketing of a product, including comparative advertising, which creates confusion with any products, trade marks, trade names or other distinguishing marks of a competitor; (b) non-compliance by the trader with commitments contained in codes of conduct by which the trader has undertaken to be bound.

6. Example I like to receive cheaper bills! [...] The first bill from Bite already was 75% cheaper than they were at the last operator. [...]

7. Example • We asked to trader to provide proof that information in the ad is truthful. • The trader couldn’t provide such proof – in fact, the trader answered that concrete information comes from Kristine Locmele and she is responsible for that. • We did a calculation – could it be possible to get 75% moreexpensive bills from other mobile communication operators at similar conditions. • Our suspicious confirmed – no possibility.

8. Example • Our decision: Considering that trader received concrete information and rightsto use it in his marketing campaigns, the trader, taking into account good market practice and principle of good faith of the relevant field of economic or professional activity, as a professional in mobile communication field was obligated to make sure that information providedbyKristine Locmele is truthful. Only after that the trader could give an ad with particular information.

9. Example • Additionally we find out that the contract between trader and Kristine Locmele (when Kristine Locmele gave the permission to use her name, her picture and information she gives in traders ads) was concluded on 26.03.2009., but thefirst bill from the trader Kristine Locmele received not sooner than on 01.04.2009. (for the period from 01.03.2009. till 31.03.2009.). • So the trader knew that information about 75% cheaper bills was false, because Kristine Locmele had no bill from the trader at the moment.

10. Misleadingcommercialpractice (3) • A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.

11. Misleadingcommercialpractice (4) • It shall also be regarded as a misleading omission whena trader hides or provides in an unclear, unintelligible, ambiguous or untimely manner thematerial information that the average consumer needs, according to the context, to take an informed transactional decision, or fails to identify the commercial intent of the commercial practice if not already apparent from the context, and where, in either case, this causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.

12. Example „New from Lattelecom: internet without a phone! From 6,90 LVL per month. Order www.lattelecom.lv, calling 177 or in Lattelecom shops.”

13. Example • During the investigation, we found out: • this offer is possible only in case if you conclude an agreement for 18 month; • the price 6,90 LVL per month is only first 6 month. After the 6 month period, the rest of the time (12 month) the price is 11,90 LVL per month. • We took a decision, recognizing this commercial practise as unfair (misleading omission) under UCP Directivesarticle 7. We put a penalty LVL 2000,00 (about 2850,00 EUR).

14. Aggressivecommercialpractice (1) • A commercial practice shall be regarded as aggressive if, in its factual context, taking account of all its features and circumstances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer's freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise.

15. Aggressivecommercialpractice (2) • In determining whether a commercial practice uses harassment, coercion, including the use of physical force, or undue influence, account shall be taken of: (a) its timing, location, nature or persistence; (b) the use of threatening or abusive language or behaviour; (c) the exploitation by the trader of any specific misfortune or circumstance of such gravity as to impair the consumer's judgement, of which the trader is aware, to influence the consumer's decision with regard to the product; (d) any onerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise rights under the contract, including rights to terminate a contract or to switch to another product or another trader; (e) any threat to take any action that cannot legally be taken.

16. Example • The bank „Aizkraukles banka” sent to her clients who had mortgage credit a letter in which the bank: • asked the consumers to provide certain documents that confirm their and their family members incomes; • gave an information: “we would like to inform you, that documents (their originals) mentioned above have to be submit till [...]. We inform that if you won’t fulfil established duty, the bank is empowered to apply a penalty defined in the contracts”; • additionally bank informed consumers that bank is raising cost for current account from 0 LVL to 5 LVL (~ 8 EUR), but consumers have an opportunity to conclude an addition to their mortgage credit contract and open a specific credit repayment account which will be for free.

17. Example • We found out that in the additions to mortgage credit contract about specific credit repayment accounts opening were not only change of terms concerning credit repayment account, but also change of essential terms (like interest rate, repayment term (from ~ 25 years to 2 years with possibility to prolong the term if bank accept it), etc). Annexes contained unfair contract terms.

18. Example • Our decision: • aggressive commercial practice; • misleading commercial practice(misleading omission); • commercial practice which doesn’t conform with professional diligence and negatively affects or may negatively affect the economic behaviour ofaverage consumer. • First we took a decision of provisional regulation obligating the bank to fulfil the duty to suspend the unfair commercial practice.

19. Example • After evaluating the case we took a final (binding) decision obligating the bank to fulfil the duty to terminate the unfair commercial practice, forbidding the bank to offer to consumers (who wanted to conclude an addition to mortgage credit contract) an additions to mortgage credit contract in which not only change of terms concerning credit repayment account, but also change of essential terms were made. • Administrative fine 8000 LVL (~ 14 000 EUR) from maximum 10 000 LVL finewascharged. • The bank appealed decision in the court, but it doesn’t stop the implementation of the decision.

20. Black List • UCP Directiveidentifiescommercial practices which are in all circumstances unfair to provide greater legal certainty. • UCP DirectivesAnnex I contains the full list of all such practices – Black Listwith 31 commercial practices. • These are the only commercial practices which can be deemed to be unfair without a case-by-case assessment against the provisions of UCP DirectivesArticles 5 to 9.

21. SelfRegulation (1) • In UCP Directive is provided a role for codes of conduct, which enable traders to apply the principles of this Directive effectively in specific economic fields. • In sectors where there are specific mandatory requirements regulating the behaviour of traders, it is appropriate that these codeswill also provide evidence as to the requirements of professional diligence in that sector.

22. SelfRegulation (2) • The positive aspect is that the control exercised by code owners at national or Community level to eliminate unfair commercial practices may avoid the need for recourse to administrative or judicial actionandthatisway it shouldbeencouraged. • The issue is that there are no administrative sanctionsfor the codes owners, for example in case if some trader has breached the code of conduct, butthecodesownerdoesn’ttake any controlmeasure.

23. Thank you foryour attention! Sarmite Kapeika Chief lawyer of Commercial practice, advertising and e-commmerce surveillance division Consumer Rights Protection Centre of Latvia Sarmite.Kapeika@ptac.gov.lv