On October 1, 2023, amendments to the Finnish Consumer Protection Act will take effect. These amendments mean significant changes to businesses in online retail, payment service providers and lenders, which should pay careful attention to new requirements brought about by the upcoming changes. The focus of this article is to examine these changes in as well as their impact, especially from the perspective of a lender and a payment service provider.
The Regulatory Amendments Summarized
The upcoming changes to the Consumer Protection Act essentially entail a reduction in the interest rate cap for consumer loans, stricter control of credit marketing, new requirements for presenting payment method alternatives and enhanced demands for verifying the consumer's identity. The changes coming into effect in October can be found in Chapters 6 and 7 of the Consumer Protection Act.
Two new sections have been added to Chapter 6 of the Consumer Protection Act: Section 12 b concerning the presentation of available payment methods in connection to online payments, and Section 12 c, which regulates the verification of the consumer's identity and the retention of verification information in certain cases.
Chapter 6, Section 12 b - Presentation of Payment Methods
The new Section 12 b obliges the payment service provider to present all available payment methods in a specific order when a consumer purchases goods or services online. Available payment methods must be presented in the following order:
- Payment methods that do not include the possibility of obtaining or using credit, or deferring payment, must be presented first. In practice, this refers to payment methods where the consumer's account is debited immediately at the time of the transaction (e.g., online bank transfer, payment with a debit or Visa Electron card, or one-time payment vouchers such as sports and culture vouchers).
- Payment methods that may include the possibility of obtaining or using credit, or deferring payment, should be presented second. These are payment methods where the consumer can choose to pay for the goods either as a credit or debit transaction (e.g., payment methods that allow payment with a debit/credit combination card or a payment app, such as MobilePay).
- Payment methods that involve applying for credit, using credit, or deferring payment must be presented last. This includes methods where the consumer can pay for the goods with an invoice, either in one lump sum or in installments, regardless of whether it falls under the scope of Chapter 7 of the Consumer Protection Act or not.
If a business in charge of an online store, for example, has outsourced the financial transactions in their online store to a payment service provider or another business who may influence the presentation of available payment methods, the payment service provider has an obligation, just like the business, to comply with the provisions of Chapter 6, Section 12 b of the Consumer Protection Act. The new provisions must be complied with under the threat of penalty and invalidation of contracts. In addition, no payment method can be used by default after the amendments come into force. This means that the choice of a payment method made by a consumer in a previous transaction cannot be automatically suggested to the consumer in a new transaction.
Chapter 6, Section 12 c - Verification of Consumer Identity
The new Section 12 c pertains to the verification of a consumer's identity and the retention of verification information in certain cases. If a consumer, when purchasing goods online, selects a payment method that also implies a payment deferral (ie. "buy now, pay later"), the merchant offering that payment method must verify the consumer's identity at the time when the payment method is accepted. The merchant offering the payment method must employ an identification method that meets the requirements for a strong electronic authentication system as specified in Section 8 of the Act on Strong Electronic Authentication and Electronic Trust Services, as well as the requirements for strong electronic authentication as specified in Sections 8 and 85 of the Payment Services Act.
The business must retain the identification information required by law, which was used to verify the consumer's identity, for a period of five years from the date when the claim becomes entirely due and payable.
However, the provisions of Section 12 c do not apply in cases where the consumer's chosen payment method falls under Chapter 7 or Section 7 of the Consumer Protection Act or under the Payment Services Act, if the consumer pays the purchase price upon delivery of the goods, if the service is provided by means other than remote communication and the payment deferral is offered by the service provider itself, or in the case of purchasing goods through telemarketing.
Chapter 7 - Impact of the Changes on Consumer Loans
The amendments made to Chapter 7 of the Consumer Protection Act pertain to consumer loans and the conditions for offering them. In essence, these changes involve tightening the requirements for verifying the identity of loan and consumer credit applicants and ensuring that, before entering into a loan agreement, the lender provides the consumer with sufficient and clear information to assess whether the loan and any additional services offered are suitable for the consumer's needs and financial situation. The consumer must also be informed about their ability to terminate a separate agreement for additional services and the consequences of such termination.
Section 13, which regulates good lending practices, has been further clarified. In the future, lenders are prohibited from, among other things:
- Downplaying the seriousness or significance of taking out a loan.
- Creating the impression that taking out a loan will solve the consumer's financial problems or reduce them, or reduce other negative effects.
- Presenting the loan as more favorable than the consumer's existing loans if this claim is untrue or misleading or cannot be otherwise proven.
- Suggesting that taking out a loan promotes the consumer's social success or acceptance.
- Reminding the consumer of unused credit unless the consumer is applying for a new loan from the lender.
- Associating the use of the loan with gambling services or marketing to consumers who are likely to use the loan for gambling.
- Marketing to consumers with payment default records or those who are otherwise expected to have difficulty meeting their obligations under the credit agreement properly.
- Engaging in any other conduct that is likely to significantly impair the consumer's ability to carefully consider taking out or using the loan.
What is stipulated above also applies to loan intermediaries, in addition to lenders.
Where a consumer credit agreement is entered into and when raising the amount of credit or the credit limit, Section 15 will now require lenders to identify consumers in accordance with the requirements of strong electronic authentication and electronic trust services specified in Section 8 of the Act on Strong Electronic Authentication and Electronic Trust Services, as well as the requirements for strong authentication specified in Sections 8 and 85 c of the Payment Services Act.
Changes regarding the amount of credit costs and the interest rate cap are included in Section 17a. After taking effect, the interest rate on the loan granted to the consumer may not be agreed upon to exceed the reference rate referred to in Section 12 of the Interest Act added with 15 percentage points. Even then, the interest rate on the loan may not exceed 20 percent. The purpose of this change is to reduce consumer debt by limiting lenders' ability to engage in lending at the current credit risk level. Additionally, the aim is to make the pricing of loans more reasonable, particularly with regard to large loan amounts and long loan terms.
Upcoming changes to the Consumer Protection Act will require online retailers, lenders and payment service providers to adapt and modify their current modus operandi with regard to their respective line of business. Businesses should keep in mind that failing to comply with the upcoming changes and provisions may result in penalty sanctions and even the invalidation of agreements used with consumers as unfair.
As tech-savvy legal professionals, we have assisted multiple clients in the payment and online retail sector by ensuring their documentation and practices are in compliance with applicable law. If you need help with reviewing your company's situation or have questions about the upcoming changes to the Finnish Consumer Protection Act, don't hesitate to contact us - we would be happy to assist you.
Our Associate Trainee Charlotta Grandell took part in writing this article.