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ESTONIAN CONSUMER PROTECTION BOARD`S

YEARBOOK

2011

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The Consumer Protection Board would like to thank all those who contributed to the preparation of this annual report. Special thanks should go to Rein Iida, Kersti Kont, Marika Merilai, Sirja Mäekivi, Andres Piirsalu, and Katrin Talihärm.

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Dear reader, In your hands is the Consumer Protection Board’s yearbook, which provides a summary of the events of 2011. In addition to an analysis of the activity and the statistics of the Consumer Protection Board, the annual report also contains comments by the representative organisations of undertakings operating in this market. The view of market participants should provide the reader with a broader picture of the state of the consumer environment in 2011, and future trends. In a broader context, 2011 was a period of recovery for Estonia from the economic recession, the brightest part of which was at the beginning of the year. The newly-adopted euro and economic indicators and a return to growth increased the optimism of traders and consumers. However, the second half of the year began to be overshadowed by the European debt crisis, the effects of which on the Estonian economy and consumer environment should definitely not be underestimated. At the same time, the reduction in unemployment levels and the slowing of the decrease in incomes in Estonia were elements that allowed the move towards growth in domestic consumption to be preserved. Regarding the Consumer Protection Board’s activities in 2011, topics related to the changeover to the euro were the ones that were noticed the most by the general public. The public’s attention was also merited by the resolution of the continuing problems on the tourism market, and broader communication regarding the dangers accompanying mobile content provision. From the Board’s own point of view, the previous year’s most important step was the development of a new strategy. During the process of this development, a thorough self-analysis was conducted and new targets were designated. The main target is achieving a balanced consumer environment, one in which market participants are

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aware of their rights and obligations and view each other as worthy partners. Insofar as the key factor in achieving a balanced consumer environment is increasing the awareness and power of consumers, and increasing the knowledge and sense of responsibility of undertakings, the notification training of consumers and undertakings rose to assume a position of importance alongside supervision when it came to the Board’s work. On the basis of this, in cooperation with the Estonian Chamber of Commerce and Industry, the training series “Suunanäitaja” for undertakings began. Worth mentioning among the consumer education activities is the distribution of educational materials to 1,300 child care institutions and the already mentioned broader notification campaign on the topic of mobile content provision. In 2011, the judicial area regulating the consumer environment was supplemented in several ways, the most notable being the entry into force of the European Union’s Consumer Credit Directive and the resulting obligation of financial service providers to abide by the principles of responsible lending. However, consumers did suffer a setback in the spring of 2011, with the entry into force of the elimination of the 50 per cent limit on advance payments. With this change, the existing position of equilibrium involving the acquisition of many goods was unreasonably shifted towards the undertaking. What will the future bring? It can be expected that economic growth in Estonia in 2012 will remain modest and prices will continue to move upwards. This is why the keywords for the year are continued thriftiness and conservativeness. These are also challenges for the Consumer Protection Board, since in times of financial difficulty the conformity of products and services to the conditions promised by traders and required by legislators becomes increasingly important for consumers. This trend will most likely result in an increase in the number of disputes between consumers and traders, and will increase the number of people contacting the Board. Conservative consumer environment may also affect the behaviour of companies in the

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resolution of consumer complaints, the training of employees, and the performance of obligations arising from legislation. However, I am confident that the communication and cooperation that has taken place so far with various market participants has borne fruit and will continue to do so in the future, and will not permit a radical change in the positive direction of development of the consumer environment.

Andres Sooniste, Director General of the Consumer Protection Board

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About the Consumer Protection Board

On 23 May 2011, the Consumer Protection Board celebrated its seventeenth anniversary, which brought with it reorganisations both internally and formally. In developing the new strategy for the period 2012-20161, new targets were set and changes were made to the Board’s structure. When preparing the strategy, the Board also formulated its own vision of the future for Estonia’s entire consumer environment. In the long term perspective, market-based consumer protection or self-regulation by the market’s various participants could take place in Estonia, based on tenets of responsibility and awareness. A characteristic of this type of consumer environment is knowledgeable and active consumers, the important role of voluntary consumer organisations, and the responsible behaviour of undertakings. The long term goal of the Board, as an organisation, is to rise to the position of a recognised and initiative-taking designer for the development, quality and rules of behaviour of the consumer environment, and to be a wanted partner in such initiatives. The Board should be helped to reach such a position, as well as with the development of market-based consumer protection, by relying in its everyday work on the values prescribed in the strategy. These values are:

• an eagerness to act, • credibility, • efficiency (Drawing 1).

1 Consumer Protection Board strategy 2012-2016: http://www.tka.riik.ee/doc.php?15714.

Drawing 1. Consumer Protection Board’s values, mission and vision

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In addition, the objectives for the main areas of supervision were specified for the coming years.

• In the field of financial and publicly available electronic communications services, the Board is faced with both a significant task and a challenge in the coming years in order that it might achieve an environment that is significantly more consumer friendly and credible in the most complicated and fastest developing services sector. Achieving this requires active and systematic supervision, cooperation with market participants, and raising the Department’s performance and competence.

• In the tourism and advertising field, the Board’s responsibility includes, in addition to consumer protection tasks, the obligation for supervising the whole of the Tourism and Advertising Act, which also means significantly more diverse duties. The priority, however, during this strategy period, is raising the credibility of the tourism sector by expanding the law-abiding behaviour of undertakings and reducing a market wide problem – the widespread use of unfair commercial practices. The principal means of reaching these goals are effective and preventive supervision, systematic inspection and, once again, efficient cooperation with market participants.

• In commerce, the main task is raising the credibility of trading. In the opinion of the Board, the most important keywords for achieving this are ensuring product safety; the required labelling of goods and supervision of the provision of consumer information; and cooperation with professional associations and training undertakings.

The Board’s structure changed in connection with the creation of field-based divisions or competency centres beneath the existing Market Surveillance Department. There are four divisions:

1) Trade Division 2) Tourism and Advertising Division 3) Finance & Communications Division 4) Consumer Service Division.

The last of these, the Consumer Service Division, began in March 2011 as a pilot project with a designated duration of two months. The reason behind the creation of the division was the year-on-year growth in the number of consumer enquiries, which had reached up to 38,000 (Drawing 2), and the resulting need to deal with them more efficiently. The task of the Consumer Service Division became the initial handling of written enquiries: familiarisation with the content of the letter, directing it to the

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competent division, and responding to any enquiries that do not require further processing.

The trial period proved to be successful, and by the end of the year the Consumer Service Division had, since its moment of inception, shouldered the burden of dealing with nearly one third of the written enquiries that reached the Board during the period. As a result, it may be stated that the creation of the Consumer Service Division more than justified itself, and helps other field-based divisions to operate more efficiently. In addition to the Market Surveillance Department, which consists of four divisions, the Consumer Protection Board also has an Administrative Department and a Consumer Policy & Public Relations Department, which includes the Consumer Environment Development Service, which deals with the training of consumers and undertakings. Also operating at the Board are the Consumer Complaints Committee which, as an extrajudicial institution, resolves disputes between consumers and undertakings, and the European Consumer Centre of Estonia, which is partially funded by the European Commission and which deals with cross-border disputes.

20445 20888 21903

25388

3557937925

2000022000240002600028000300003200034000360003800040000

2006 2007 2008 2009 2010 2011

Drawing 2. Increase in the total number of enquiries 2006-2011

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Table 1. Consumer Protection Board Budget 2001-2011

Table 2. Monitoring work general data 2001-2011

Year Number of inspections Precepts Number

of fines

Fine Amounts

(in thousands of euros)

2001 3,476 56 867 44,500 2002 4,155 113 926 57,400 2003 3,794 173 916 8,300 2004 3,930 112 822 76,500 2005 3,839 206 751 39,900 2006 3,798 144 698 31,200 2007 3,837 89 518 19,100 2008 5,018 108 862 35,100 2009 5,030 67 981 48,800 2010 7,373 44 772 30,800 2011 5,221 66 409 36,860

Table 3. General enquiry data 2001-2011

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Budget (in

thousands of euros)

479,3 575,2 600,76 632,72 734,98 798,9 907,55 1118,45 1041,76 1201,54 1314,6

Year Calls to the information

line

Written enquiries

Complaints Receptions Total

enquiries

2001 7,873 * 1,570 2,458 11,901 2002 87,88 * 1,763 2,508 13,059 2003 10,610 * 2,022 1,915 14,547 2004 13,110 * 2,063 2,248 17,421 2005 13,594 * 1,891 3,016 18,501 2006 13,882 1,274 1,904 3,385 20,445 2007 13,726 2,308 1,633 3,221 20,888 2008 12,808 3,809 2,164 3,122 21,903 2009 14,038 5,940 2,037 3,373 25,388 2010 23,551 5,987 2,870 3,171 35,579 2011 26,096 7,051 1,785 2,993 37,925

* data unavailable

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Table 4. Topic of enquiries: top three complaints 2011

Table 5. Topic of enquiries: top three enquiries 2011

Table 6. Topic of enquiries: top three in telephone counselling 2011

Topic Number of calls 2011

Number of calls 2010

Claim, guarantee 1,945 798 Footwear 1,491 1,589 Tourism 1,245 1,486

Table 7. Topic of enquiries: top three receptions 2011

Topic Receptions in 2011

Receptions in 2010

Footwear 407 414 Tourism 211 198

Communications equipment 162 123

Drawing 3. Topic of enquiries: share of TOP topics out of all enquiries in 2011

Topic Number of complaints

2011

Number of complaints

2010 Tourism 562 1,198

Footwear 299 227 E-commerce 127 111

Topic Enquiries 2011

Enquiries 2010

E-commerce 652 354 Tourism service 419 174

Telephone service 267 288

The more frequently encountered topics when it came to enquiries in 2011 were definitely footwear, tourism and e-commerce. Even so, their share out of the total number of enquiries remains below 10%. This shows the great diversity in the topics of enquiries received by the Board.

Tourism

Footwear

E-commerce

Other

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Financial services The most important financial services topics in 2011 were the amendments to the Law of Obligations Act which involved granting of and intermediation for consumer credit, which entered into force in July. Also worth highlighting is the consumer complaint conciliation body that was established by the Estonian Insurance Association, which significantly reduced the number of insurance-related enquiries received by the Board.

Consumer credit On 1 July 2011, the amendment to the Law of Obligations Act entered into force in Estonia, by which the national transposition of the European Union’s Consumer Credit Directive took place.2 Since the tendency to take out credit in the European Union’s Member States has increased significantly over the last decade and, in many Member States, a notable number of households are saddled with a large debt load, it was decided that stricter measures would be implemented in Member States for issuing credit to consumers.

With the Consumer Credit Directive, detailed requirements were established within the European Union for pre-contractual and contractual information and the calculation of the annual percentage rate for charges, along with the supplementation and specification of the regulation regarding the consumer’s right of withdrawal and the consumer’s right to repay the credit before the prescribed time. The most significant change was the application of the principles of responsible lending, pursuant to which the creditor must, prior to entering into a contract, carry out the following:

• provide the consumer with a detailed information sheet; • asses the consumer’s credit worthiness; and • provide the consumer with sufficient explanation regarding the

obligations and risks accompanying credit loans.

These changes must be followed by all undertakings that provide consumers with loans, leasing or instalment payment options. The Board mainly informed consumers about the changes through the media; undertakings were sent memoranda explaining the content of the changes,

2 Directive 2008/48/EC of the European Parliament and the Council http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:133:0066:0092:ET:PDF

Activity licences have been issued to seven credit agencies in Estonia, and there are ten foreign credit agency branches here.

There are 285 unlicensed financial services providers: 139 lenders, 30 leasing providers, and 116 pawn shops.

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with 600 sent prior to 1 July. In addition, the Board began developing advisory guidelines for undertakings issuing and brokering consumer credit loans. The guideline project was also sent to undertakings that operate in the area to be covered by the guidelines.

In the second half of the year, due to irregularities in responsible lending principles, the Board initiated two administrative proceedings against the companies Hüpoteeklaen OÜ and Kaupmehejärelmaks OÜ. The undertakings offered loans without the obligation to confirm income, which was clearly contrary to the obligation arising from the principles of responsible lending to assess the credit worthiness of the consumer prior to issuing a loan.

The European Commission’s control action Sweep Day 2011 was also related to consumer credit and the fulfilment of the principles of responsible lending. During the course of the action, the Consumer Protection Board checked the websites, advertising and contract terms and conditions of fifteen credit and financial institutions. The results indicated that the contracts of eleven undertakings contained unreasonable standard conditions and were in contravention of the principles of responsible lending.

Even the results of the planned monitoring that were based on the Board’s own work schedule showed that the contracts and activity of several financial service providers failed to conform to the established regulations. Regardless of the strict requirements, several service providers have established, for example, higher fees for the premature termination of contracts than is permitted by law. In addition, problems are being caused by several undefined legal concepts which allow financial services providers to circumvent the actual spirit of the law.

The largest bottleneck in the given sector may be considered to be the lack of corresponding professional associations – although the Banking Association and the Estonian Leasing Association are active, pawn shops and quick lenders have not formed a corresponding association. It is therefore difficult to reach agreements with all market participants and to establish good practice regulations that can serve as the basis for self-regulation by undertakings.

Table 8. Enquiries related to financial services 2010-2011

Year Telephone consultations

Written enquiries Receptions Complaints Total

2010 428 186 50 28 692 2011 328 181 45 18 572

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Commentary by the Estonian Banking Association Of note in 2011 was the rendering as significant of the principles of responsible lending, for both the lender as well as the borrower.

The general principles of the responsible lending obligation that arose from the EU Consumer Credit Directive were established at the legislative level, while more specific codes of practice were established for market participants with the corresponding guideline of the Financial Inspectorate. From 1 July, banks adopted the use of information sheets, which provide the client with a good overview of the bank's various offers. A good overview of the various banking services fees that are directed at consumers is provided by the comparison table of banking services fees, which was borne as a result of joint work between the Banking Association and the Financial Inspectorate. Additional opportunities for receiving pre-contractual information and the general promotion of financial education should together raise the awareness of consumers when it comes to making sensible financial decisions.

In 2011, the Banking Association also adopted the changes to the principles of sound banking management. In the updated principles of sound banking management, emphasis is placed on such general principles as the sustainable and socially responsible behaviour of banks, helping with the development of financial literacy skills and education, and responsible lending, and the management of clients’ assets in a professional and prudent manner. Special emphasis is placed on banks not concluding price agreements with each other, or other agreements that might be detrimental to competition, and that banks establish ethical rules and principles for avoiding conflicts so that the personal interests of bank employees do not affect their work-related decisions.

Good practices now also prescribes that the client be informed about the risks related to using specific bank services and, in the case of loan relationships, that the bank acts in a responsible manner and provides assistance so that the client is able to assess the suitability of the loan that they are taking out against their own requirements and options.

Katrin Talihärm, Banking Association Managing Director

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Insurance The other financial services field in which notable changes took place was that of insurance. In 2011 the Estonian Insurance Association established the Insurance Dispute Committee to resolve consumer complaints. This also reduced the number of complaints received by the Board. During the course of the entire year, the Board received only eighteen complaints involving insurance. A year earlier the number was twice as high. The main problems found in the declarations that were submitted by consumers concerned their dissatisfaction with the quality of expert analysis following loss events, the bases for assessing the amount of damage, and the stretching out of the loss adjustment process. Consumers also contacted the Board with requests for help in interpreting the terms and conditions of insurance contracts. According to the Board, the main problem encountered by the consumer in the insurance sector, as in the financial sector, tends to be the use of complicated contracts and terminology. Frequently, the reason for complaints is that consumers have failed to thoroughly read the terms and conditions of the contract or familiarise themselves with the exclusions. There are also deficiencies on the part of service providers: risks covered by the contract are not explained and the client’s actual insurance interest is not determined.

A major advantage is the presence of a strong and functioning professional association, as a result of the activity of which strong levels of cooperation have been established in the insurance sector. An initiative also worthy of the utmost praise is the Insurance Dispute Committee, which was formed by the professional association through which disputes between consumers and undertakings arising from insurance contracts are resolved.

Table 9. Enquiries involving insurance 2010-2011

Year Telephone consultations

Written enquiries Receptions Complaints Total

2010 157 49 22 45 273 2011 146 60 31 18 255

Four activity licences have been issued in Estonia for life insurance undertakings, and one foreign life insurance branch is operating in the country. There are nine domestic non-life insurance undertakings, plus four branches.

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Commentary by the Estonian Insurance Association 2011 was a complicated year for the insurance sector. Despite the generally positive developments in Estonia’s economy, the insurance sector’s turnover in comparison with the year before continued to exhibit a downward trend (life insurance at -16.3%, non-life insurance at -0.5%). At the same time, 2011 may be considered as being very successful in terms of the improvement in customer service, since in cooperation with the Consumer Protection Board and other partners we started up the Insurance Dispute Committee at the Association. It is a pleasure to admit that out of all of the proceedings that terminated in the Insurance Dispute Committee, 71% ended with an agreement between the insurer and the policy holder. This gives both clients as well as insurance providers a reason to be satisfied, since the majority of disputes were resolved quickly, in a convenient and affordable manner for the client. We are also happy to see that the total number of disputes (48 in the first nine months of 2011) is minor in comparison with the total number of claims per year (an average of more than 90,000). At the moment, we are dealing with the continued development of good practice, expanding it in greater detail to the most common services. This is one of the main directions of development for the Estonian insurance sector in the near future. Andres Piirsalu, Member of the Management Board of the Estonian Insurance Association

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E-commerce E-commerce is a field that demonstrated rapid growth in 2011. This is confirmed by the large change in the number of market participants: according to the register of economic activities, in March 2012 there were more than 1,500 undertakings that were involved in e-commerce. During the same period in 2011, there were less than a thousand registered undertakings involved in e-commerce. This means that over the period of one year, hundreds of new undertakings entered the market. It should also be kept in mind that e-commerce is a field which does not recognise national borders, and an increasing number of people are ordering goods from other European Union Member States and elsewhere. All of these factors also affect the job of supervision, which is why two departments are involved with e-commerce in the Consumer Protection Board: the Finance & Communications Division and the European Consumer Centre of Estonia, which is focused on the resolution of cross-border disputes. In connection with e-shops, the Consumer Protection Board focused its surveillance on checking contract terms and conditions, sales tactics, and the information displayed on shop websites. The main problem indicated in those complaints that were received by the Board was that the consumer failed to receive the goods they had ordered from the e-shop. Problems have also occurred when the consumer has decided to withdraw from the contract and the trader is required to refund the prepayment or purchase price. The complaints received by the European Consumer Centre of Estonia were of the same nature. In 2011, the Board received a total of 652 enquiries and 127 complaints (Table 10) related to e-commerce. A year earlier these figures were noticeably smaller. The number of internet commerce-related calls to the councelling telephone line grew during the year, from 389 to 588. These are large figures, and indicate that consumers are increasingly using e-channels to make purchases. Unfortunately, this type of trading presents a greater opportunity to deceive consumers.

According to Statistics Estonia, the number of companies whose main area of activity is e-commerce has increased ten-fold over the last ten years, reaching 340 in 2011. The number of undertakings whose main area of activity is not e-commerce, but who also deal with internet commerce, are exponentially greater, with the register of economic activities containing more than a thousand entries.

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In order to reduce consumer risks domestically, the Board has set up a blacklist on its website, on which it publishes the names of those traders who fail to follow requirements arising from the law or repeatedly fail to deliver ordered goods to consumers. The goal of the list was, on the one hand, to direct the attention of undertakings to their obligations and, on the other hand, to give consumers the opportunity to examine a trader’s background prior to making the decision to purchase. The list and the undertakings entered therein have appeared in the media. A positive response has also been received from undertakings as well as consumers. E-commerce, as a quickly developing field, is characterised by the fact that the new technologies and methods of trading have outpaced both the regulations for the corresponding field and the know-how of officials. Every year a new undertaking comes along, presenting challenges which may not fit within the already existing legal framework. If in 2009 problems were caused by penny auctions, then in 2010 and 2011 there was a great deal of trouble with mobile content provision. In the first six months of 2011, they were also the focus of the Board’s information campaign: “Read the Terms and Conditions!". In addition, the Board, along with telecommunications undertakings, developed guidelines for content providers and intermediaries, in which an agreement was reached on how content provision may be advertised and what required information the offer must contain. The guidelines entered into force on 1 May 2011. The sale of vouchers or coupons, however, may be considered entirely new in Estonian e-commerce. In connection with these, the Consumer Protection Board received 176 enquiries in 2011, and six complaints. In particular, misunderstandings have arisen involving the voucher portal and the roles of the actual provider of the

Outdoor banner for the mobile content services campaign “Read the Conditions!”

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service/goods. People do not distinguish between the intermediary and the actual provider of the service or goods, and who they have to contact in order to withdraw from the contract. In addition, problems were caused by the short lifespan of the coupon portals, which also included the portal kommike.eu, against whom a complaint was filed for the commencement of criminal proceedings, since the portal dealt with coupons without holding any agreements with the corresponding undertakings. The Consumer Protection Board also analysed the contract terms of voucher portals and directed the attention of the undertakings to the omissions that had been discovered in relation to them. The Board has also discussed the problems around a joint round table with the undertakings that operate in the field. In summary, it must be admitted that the increase in momentum of e-purchasing and the appearance of new methods and forms of trading have made e-commerce a field in which the number of enquiries received by the Board is clearly on the rise. The resolution of problems in this field is complicated by the fact that even though there is a professional association active in the sector, its membership is marginal in comparison with the entire market. On the other hand, the association cannot be rebuked, since the current membership is active and interested in improving the reputation of the sector and in creating honest competition. Table 10. Number of e-commerce-related enquiries 2010-2011

Table 11. Inspections and violations in e-commerce in 2010-2011

Year Inspections Violations Percentage of violations

2010 573 77 13% 2011 264 199 75%

Commentary by the Estonian Association of E-commerce In general, 2011 brought with it positive changes in e-commerce. These changes are characterised by the significant increase in the number of e-shops, the diversification of IT solutions and providers, improved logistics services, and the increased turnover of e-traders. The latter is characterised by the more active purchasing behaviour of people and an increase in reliability involving internet purchases. According to the Association, there

Year Telephone consultations

Written enquiries Receptions Complaints Total

2010 389 354 21 111 875 2011 588 652 38 127 1,405

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has been a significant decrease in the number of cases of e-commerce-related fraud in comparison with 2010. The resulting intensification in competition makes e-traders compete for better customer service, products and services. The biggest challenges in 2012 involve dealing with unfair competition practices (the illegal trade in large e-purchasing environments). Another challenge is the greater consolidation of e-traders, along with being able to set out common issues and uncovering solutions. Sirja Mäekivi, Managing Director of the Estonian Association of E-commerce Publicly available electronic communications services The problem areas in publicly available electronic communications services in 2011 included unreasonable standard terms in contracts that were being concluded with consumers, including sanctions related to the premature termination of fixed-term contracts, and grumblings over mobile internet quality. The number of enquiries related to publicly available electronic communications services did not undergo any major changes during the year; although there was somewhat of a decrease in the number of calls to the Board’s consultation line regarding telephone services. When totalling all the complaints, written enquiries, calls to the information line and receptions, the total number of enquiries related to publicly available electronic communications services in 2011 was 1,849. In 2010, there were more than 2,000 (Table 12). Unreasonable standard terms and sanctions accompanying the early termination of fixed-term contracts were a point of concern for users of internet communication, telephone services, and complex services containing TV packages. According to the Board, in several similar incidents the contractual penalties demanded from consumers have been unreasonably large. Based on these observations, monitoring the standard terms of publicly available electronic communications services contracts

As at the end of 2011, there were 230 electronic communications undertakings registered in Estonia, of which 185 mainly offer data transmission services. There are 28 mobile telephony service providers, of which three (EMT, Elisa, and Tele2) hold 99% of the market. There are 29 cable television service providers, with the three largest being Elion, STV and Starman.

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became one of the areas of focus in 2012 for the Board’s Finance & Communications Division.

Another frequently occurring problem from 2011 is the dissatisfaction of consumers with the quality of mobile internet services. Complaints related to this topic comprised the majority of internet communications-related complaints. The problems arose mainly because of two circumstances:

• the communications undertaking was unable to provide the maximum possible data communication speed indicated in advertisements or the contract;

• due to coverage problems, the use of the service at a specific point of consumption, for example, the consumer’s home, was not possible.

Disputes involving mobile internet services were also caused by the use of data transmission limit-based services for smartphones, which usually remains unnoticed by less savvy consumers until they receive a substantially larger invoice.

Another example from 2011 is the administrative proceedings that were initiated against AS Starman in connection with the submission of fee-based paper invoices to consumers. The Board found that the submission of a paper invoice is not an additional service and a separate fee cannot be charged. The cost of sending the invoice must be included in the final price of the service. In summary, it may be said about the field of publicly available electronic communications services that even though there is a great deal of competition in the sector and the services that are being offered to consumers are rapidly evolving, the resolution of customer complaints has not received sufficient attention from undertakings. It was frequently apparent from the consumer enquiries received by the Board that the service provider had not dealt with their customer’s concern at the appropriate time. Hopefully, in the next year the Board will be able to achieve a situation in which undertakings will resolve the majority of customer claims in the initial enquiry phase, and the consumer will not always require the help of the Board in order to be able to achieve a solution.

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Table 12. Publicly available electronic communications services-related enquiries 2010

Table 13. Publicly available electronic communications services-related enquiries 2011

Service Telephone consultation

Written enquiries Receptions Complaints Total

Cable, digital and SAT-TV 275 125 58 17 475

Internet services 130 151 23 16 320

Postal services 73 30 9 10 122 Telephone

services 508 267 108 50 933

Total 986 572 198 93 1,850 Table 14. Results of monitoring in the area of publicly available electronic communications services

Service Telephone consultation

Written enquiries Receptions Complaints Total

Cable, digital and SAT-TV 255 124 50 31 460

Internet services 120 110 33 18 281

Postal services 57 25 7 9 98 Telephone

services 735 288 137 58 1,218

Total 1,167 548 227 116 2,059

Year Violations 2010 In connection with violations nine memoranda were prepared

2011 A total of eight memoranda were prepared and three criminal proceedings were carried out.

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Tourism The most important keywords for the Consumer Protection Board in the field of tourism in 2011 were Estour and Fiji Travel becoming insolvent, travel agencies who were in dereliction of their obligation to provide security for payments, and questions related to the rights of air travellers. The fact that the area is one of concern is also confirmed by the number of related enquiries received by the Board: 1,245 calls to the counselling telephone line, 562 complaints, 419 written enquiries, and 211 receptions (Table 15). The unpleasantness in the area of tourism began in 2011 with the unrest in Egypt and it continued with the insolvency of two companies. On 17 June, Estour informed the Consumer Protection Board that it was unable to fulfil its obligations to its clients. Claims that were subject to payment from securities numbered nearly 400 and the total sum of claims was more than EUR 290,000. People whose trips were cancelled were able to recover a little over 68 per cent of their prepaid travel fees. The news about Fiji Travel came on 4 October. A total of 58 claims for the payment of compensation were received, with the total amount reaching EUR 86,000. In the case of the latter incident, it should be noted here that clients whose trips were cancelled were able to recover 100 per cent of their prepaid travel fees. The repayment of the entire travel fee from the insolvent travel agent’s security deposit was the first of its kind, and was a great step forwards in the estimation of the Consumer Protection Board. Remember that in the case of Top Tours in 2010, there was only enough security left over following the payment of expenses incurred by returning travellers home that less than 13 per cent remained for distribution in the form of compensation (Drawing 4). In 2011, the Board took the decision to impose fines due to inadequate security on sixteen occasions, totalling EUR 13,300 (Table 16). In addition, a blacklist of travel agencies was set up on the Board's website at the beginning of the second quarter of the year for those travel agencies who fail to submit to the Consumer Protection Board the necessary sales reports so that their security protection levels can be properly assessed. The blacklist clearly had a positive impact on the behaviour of undertakings: in

As at the end of 2011, there were 367 travel agencies, of which 269 had a security obligation in addition to the area of activity that was entered into the register of economic activities.

Travel agents are prevalent on the market, amounting to 63 per cent of the total, in comparison with tour operators at 37 per cent.

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the first quarter, a total of 210 undertakings failed to submit the report on time, in the second quarter this had fallen sharply to 94, and by the end of the year the number had shrunk to 69. In addition to disciplining undertakings, another objective of publishing the blacklist online was to provide consumers with the opportunity to check on the reliability of a company. The statistics for both the Board’s website and from media coverage refer to the fact that consumers are aware of the list, and checking the list prior to purchasing a trip has become a habit for them. Drawing 4. Percentage of the initial travel fee paid to consumers from the travel agency’s security deposits

In the previous year flight delays and cancellations, as well as baggage-related problems caused disputes over air passenger rights. At the same time, it should be mentioned that the reason for many problems was the lack of awareness by passengers of their rights, along with superficial, poor communication by air carriers with clients who found themselves in critical situations. Topics involving passenger rights frequently involve cross-border questions and therefore the matters are heard by the European Consumer Centre of Estonia which operates within the Board, for whom the given area is one of the most labour-intensive. Complaints involving air traveller’s rights accounted for nearly one third of the complaints received by the centre. A pan-European information campaign took place in 2011, on the topic of passenger rights. Within the framework of the campaign, an information day was organised in Tallinn Airport on 7 July. Its objective was to raise passenger awareness and to encourage passengers, when

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necessary, to stand up for their rights. In addition, explanatory work on the topic of passenger rights took place at the tourism fair, Tourest 2011.

In summarising the previous year from the point of view of tourism monitoring, it is important to note that consumer awareness of their rights is insufficient and that reaching the point at which undertakings operate in a law-abiding manner continues to require work. Unfortunately, the common opinion among Estonian travel agencies seems to be that the obligations arising from law are unpleasant and recommendatory in nature. This makes achieving a situation in which all travel agencies understand the need to fulfil the obligations arising from legislation the biggest challenge faced by the Consumer Protection Board in the area of tourism, especially as it also includes achieving a situation in which they follow all of the good practice agreements that are valid for the market and earn the trust of consumers by conducting a fit and proper business. Table 15. Number of enquiries related to tourism services 2010-2011

Table 16. Results of monitoring activities in the area of tourism 2011

Topic

Memoranda and

directing attention

Precepts Misdemeanour rulings

Fine amounts

(EUR)

Deficiencies in the registration of an

undertaking 49 0 0 0

Expiration of security deposits and a failure to submit a report in

good time

218 30 3 0

Insufficient security 91 14 9 13,300.58

Deficiencies in offering tourism services for

sale 53 0 3 0

Other 146 0 0 0 Total 557 44 15 13,300.58

Year Telephone consultations

Written enquiries Complaints Receptions

in the office Total

2010 1,486 174 1198 198 3,056 2011 1,254 419 562 211 2,446

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Commentary by Estonian Travel and Tourism Association 2011 proved to be a difficult year for Estonian travel agents, with several undertakings disappearing from the scene. Thanks to the new security requirement, package trips in 2011 were much better insured by travel agents and travel agencies than in previous years, and in the case of travel agent insolvency, consumers were able to retrieve a significantly larger share of the money paid for trips that did not take place. This in turn improved the shaken trust in Estonian travel agencies and travel agents. As a result, the events of previous years have resulted in a situation in which an increasing number of strong and sustainable undertakings are operating on the travel market, capable of keeping their promises to consumers. Kersti Kont, Managing Director of the Estonian Travel and Tourism Association

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Advertising Marketing is a area into which undertakings direct a significant portion of their monetary resources. Advertising campaigns are expensive and are of short duration, but have a long-term impact on consumer behaviour. As a result, the Board has set preventive action as its priority in the advertising field. Also of great importance are systematic monitoring and the speed of proceedings. In 2011, the focus of the Consumer Protection Board in the area of advertising was on four relatively extensive areas:

• alcohol advertising; • gambling advertising; • financial services advertising; • telecommunications sector advertising.

The first three areas are of a type for which the legislator has prescribed several restrictions, as a result of which they account for a rather significant share of monitoring. In addition, financial services, alcohol and telecommunications services are among the ten most advertised product branches in Estonia.3 The intention with the advertising of alcohol is to carry out intensive marketing campaigns, although pursuant to the Advertising Act, an alcohol advertisement may not contain information that states that by purchasing alcohol, other goods or services may be obtained for free or at a lower cost. The advertising of alcohol may also not contain a direct incitement to buy or consume alcohol. These restrictions were quite frequently a stumbling block for undertakings. Many disputes also arose from the compulsory addition of the warning text ("Attention! This is an alcoholic beverage. Alcohol may cause damage to your health“). According to the Act, the warning shall, given ordinary attention, be noticeable, understandable and clearly distinguishable. Problems occurred primarily from what is meant in the Act by “given ordinary attention, be noticeable, understandable and

3 TNS EMOR. The Estonian media advertising market grew by nearly 9%. Referenced 26.03.2012. http://www.emor.ee/eesti-meediareklaamiturg-kasvas-ligi-9/

The Estonian media advertising market's turnover in 2011 reached EUR 72.24 million. In the year’s summary, the types of media that experienced the largest growth were internet and outdoor advertising. The three most advertised product branches were the retail business, cars, and mobile communications.3

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clearly distinguishable from other information”. The Consumer Protection Board’s assessment of the discernible nature of the text frequently differed from that of the undertaking. In 2011, the court action involving the Consumer Protection Board and Altia Eesti AS reached a conclusion over the precept issued in 2009. With the precept, the Board banned Altia from publishing advertisements in the media, since it contained a direct call to consume alcohol (using the phrase “Vötame mönuga” (“Take with pleasure”), along with references to drinking alcohol). Since the Supreme Court did not grant leave to appeal, the precept remained in force with the decision of the Tallinn Circuit Court. In 2011, the main problem with the restrictions established for gambling turned out to be the activity of remote gambling organisers. For example, undertakings that were organising gambling via the internet published banner advertisements bearing their trademarks, which took users via a hyperlink to the gambling environment. In addition, they sent out email in the form of mass mailings which contained the gambling organiser’s trademark and the enticement to win. A third example from 2011 is that of advertisements placed on the jerseys and website of the football club Nõmme Kalju, for the gambling environment unibet.com. Due to proceedings by the Consumer Protection Board in the given matter, the football club ordered new shirts for its members and also made corrections to its website. The main problem with the fulfilment of the requirements established for the advertising of financial services was the lack of knowledge by undertakings regarding how and where the compulsory invitation for consumers to examine the terms and conditions prior to entering into a contract and, if necessary, to consult an expert, must be presented in an advertisement. In July 2011, the amendment to the Advertising Act entered into force, in which any advertisement in which consumer credit is offered or the arrangement of consumer credit contracts is offered shall indicate the annual percentage rate of charge by means of a representative example. Based on the results of monitoring for 2011, the main problems with fulfilling these requirements were:

• the point size and contrast of the text that contained an invitation to examine either the terms and conditions or an average example of the annual percentage rate of charge for the financial services on offer blends in with the background or seems to be independent of the advertisement;

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• the invitation to examine either the terms and conditions or the annual percentage rate of charge for the financial services is placed on the edge of the advertisement in such a manner that it is not possible to notice it.

• the time allotted in television advertisements for the invitation to examine either the terms and conditions or the annual percentage rate of charge for the financial services is too short and it is not possible to read the text;

• errors in the calculation for the typical example of the annual percentage rate of charge.

The telecommunications sector encompasses the providers of cable distribution, telephones, the internet, mobile communications, and mobile internet services, and the goods required for the use of these services. In monitoring the advertisements of undertakings belonging to the sector, the Board did discover several misleading advertisements and compliance with the requirements provided for comparative advertising. Several incidents were involved in proceedings in connection with the misleading use of the word "free". The Consumer Protection Board also sent telecommunications operators (EMT, Elisa, and Tele2) a memorandum, in which it stressed that the use of the word “free” must be justified, and misleading consumers is prohibited. In addition, at the end of the year a round-table discussion with representatives from the given sector took place at the Consumer Protection Board, where the need to issue advisory guidelines was discussed. It was jointly found that a serious need exists for a set of guidelines, and it was agreed that the preparation of such guidelines would take place at the initiative and under the leadership of the Board. When looking back at the events that took place on the advertising market in 2011, the fact that the advisory role of the Consumer Protection Board is growing in the field of advertising may be noted as a positive change. There has been an increase in the number of enquiries by advertisers, where possible bottlenecks are perceived in advance, and the Consumer Protection Board is consulted regarding these. The intervention of the Board during the stage in which a campaign is in the design phase is the most effective and pleasant method for bringing an advertisement into conformity with the law. If an advertising campaign has already reached the media, changing and halting it becomes more difficult for the Consumer Protection Board, as well as for the placer of the advert and those responsible for producing or making the advert public. The Board hopes that with the aid of advisory guidelines and consultations, there will be a further reduction in the need for after-the-fact intervention, and that

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disagreements regarding the interpretation of the law can be resolved without drawn-out court disputes. A minus factor is that, on the one hand, the positive development of information technology together with the abundance of smartphones and mobile internet services provide more opportunities for advertising goods and services with restrictions and special conditions that would seem not to be in conflict with the Advertising Act of 2008. In this way the Consumer Protection Board is coming into ever more frequent contact with the interpretation of the Advertising Act and the expression of the legislator's actual intent. The Board has an important role to play here in maintaining the uniform interpretation of the law and its equal application regardless of the advertising medium and the advertising channel. Table 17. Results of supervision in advertising 2010-2011

Topic Matters heard

2011

Violations detected

2011

Matters heard 2010

Violations detected

2010 General

requirements 101 12 103 24

Misleading advertisements 115 40 117 51

Comparative advertising 2 1 0 0

Person/property advertisement 0 0 2 1

Advertisements that feature a

banknote 0 0 1 0

Advertisements directed at children 0 0 16 1

Advertising tobacco 14 2 16 4 Advertising alcohol 88 62 91 63

Advertising financial services 54 26 38 17

Advertising gambling 24 12 18 8

Advertising food 2 1 1 1 Advertising

pyrotechnic articles 16 5 14 6

Commercial lottery 19 0 30 7 Other 16 3 6 4 Total 451 164 453 187

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Commentary by the Estonian Association of Advertising Agencies In 2011, in comparison with the previous years in the recession, the advertising market expressed signs of an upward trend. Media volume and the number of publications grew, and the amount of information directed towards consumers increased by approximately 30% in comparison with 2010.

More active advertising activity is also visible in all possible retail stores, where direct price promotion is vigorously brought to the forefront and price tags have become bigger and more colourful than before. Television channel advertising blocks have become longer and once again we see advertisements extolling the virtues of products, during which we are continuously told about the miraculous properties of the products, even though their actual properties are similar to those of many directly competing products. Hopefully, consumers have, over the years, begun to understand more about what to believe in advertisements and what has been added to advertisements for the purpose of adding further enticement.

A strong jump has been made by interactive channels. The advertising solutions used by new media channels spoke to consumers more actively and directly than ever before. Over the last few years, marketing activities were actively directed to social networking sites, which have experienced an explosion in the number of users, and with their help, advertising games with all possible solutions received a strong push. Up to 40,000 Estonians participated in the largest one-time consumer games which took place through social media.

It is expected that marketing will continue moving towards the interactive communications platform.

Rein Iida, President of the Estonian Association of Advertising Agencies

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Retail business

In connection with the changeover to the euro in 2011, one of the priority areas of supervision for the Board in the retail area was in disclosing prices in euros as well as the accuracy of general price information. Another important topic was checking the accuracy of information being provided to consumers during the purchasing process. The third area of focus was, based on EU common market priorities, related to product safety. Until 30 June 2011, it was compulsory to display prices in euros as well as in Estonian kroons. Adherence to this requirement was checked at 2,548 undertakings. In January, violations were discovered in 15% of undertakings; however, by the end of June, the number had decreased to 7%. Over the course of six months, the nature of the violations also changed. At the beginning of the period, the biggest problem was the lack of prices denominated in euros whilst later on, most of the problems involved following the rounding rules. In May and June, there was an increase in the number of incidences in which shops no longer displayed prices in kroons. The other part of the inspection process for prices denominated in euros involved monitoring the fulfilment of the Honest Pricing Agreement. Undertakings (526 in total) that voluntary joined the agreement gave a promise that they would not raise prices without reason in connection with the changeover to the euro. The Board checked adherence to the agreement on twenty occasions, but found no direct violations. Undertakings mostly justified price increases by linking them to increases in producer prices and increased demand on export markets. In 2011, the accuracy of price information or the conformity of prices in the sales areas and at the register was checked in various shops across Estonia on 1,040 occasions (Table 21). Unfortunately, discrepancies in prices that were detrimental to the consumer were discovered in seven per cent of instances. A comparison with information from 2010 indicates that price differences that were detrimental to the consumer occurred less frequently in shops in 2011. One of the reasons for such a trend may be the active monitoring that takes place in shops in connection with revealing

As at the end of 2011, a total of 16,966 places of business were registered with a retail business notation in the register of economic activities. In reality, retail business is the main area of activity for as many as 7,000 undertakings.

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euro-denominated prices, which is a process that took place in the second half of 2010 and which lasted until the middle of 2011. Continuous monitoring activity most likely forced shops to keep closer track of the accuracy of their pricing information than previously. The main concern in terms of consumer complaints that were received by the Board in connection with retail business, of which there were 932 in 2011, was the poor quality of the goods being purchased. A common theme also running through these was the inadequate action of traders in situations in which the consumer had turned to them with a complaint regarding a deficiency in the product. In order to chart the current situation prevailing in this area of the market and the knowledge of retailers/servers regarding the legal right of the consumer to submit a complaint, a control action was carried out in September-October 2011. During the course of the action, 366 control purchases were made from various shops across Estonia. It became clear that in 47 per cent of incidents the buyer was provided with partially or entirely misleading information. As a result, in the second half of the year, the Board began planning a 2012 spring information campaign. The primary objective of the campaign was defined as raising the level of awareness of consumers as well as undertakings regarding the two year period granted to consumers by law to submit a complaint. Product safety-related activities were a priority in 2011 across the entire European Union. Product safety inspections were performed by the Board in 2011 on a total of 1,496 occasions; violations were detected in 21 per cent of incidents (precise data by product groups in Table 21). Problem areas were related to children: nearly one third of toy retailers and children’s clothing retailers did not abide by elementary safety requirements. For example, in the case of toys, the most common deficiency is poor labelling, which frequently arises due to misinformation provided by the manufacturer or errors in translation. In conclusion, it must be conceded that the continuation of the recession and the reduction in people’s purchasing power meant a complicated situation for the retail sector in 2011. This was also reflected in the results of monitoring carried out in the sector. In many areas, where the situation could previously be deemed satisfactory or good, the number of violations once again increased. The reason for this trend is most likely cost cutting by undertakings at the expense of staff costs: after redundancies, tasks were distributed between other employees who, either due to ignorance or a heavy workload, were incapable of correctly performing those tasks.

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Table 18. Testing food products 2011

Product / test Number of tests

Non-conforming products

Alcohol content in drinks 5 0 Volumetric measurement

of drinks 27 4

Synthetic food colourings 10 0 Other food products 5 2

Total 47 6

Table 19. Testing industrial goods 2011

Table 20. Assessing the legibility of labelling on goods 2011

Products Number of tests Non-conformities

Food products 8 8 Industrial

goods 9 9

Total 17 17

Product / test Number of tests

Non-conforming products*

Hazardous products

Personal protective equipment

21 10 10

DMF content** 12 0 0 Cosmetic products 3 2 0

Volumetric measurement of

fuel

29 4 0

Other industrial goods

8 3 2

Toys 19 11 5 Heavy metal

content 10 6 0

Articles of precious metal

30 26 0

Total 132 62 17 *The number of non-conforming products includes the number of hazardous products. **Testing for dimethyl fumarate content banned in the EU

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Table 21. Controls and violations in commerce 2010-2011

Area Inspections 2011

Violations 2011

Inspections 2010

Violations 2010

Sales requirements for alcoholic

beverages 633 10% 819 7%

Requirements for repair shops 163 7% 169 25%

Indication of euro and kroon price

during the parallel turnover period

1,754 11% 3,197 32%

Price indication in shop windows 48 16% 70 7%

Conformity of pricing information in the

sales areas and at the register

1,040 7% 427 30%

Price information, including discount

notifications 378 5% 620 2%

Labelling and safety for personal

protective equipment 354 12% 367 12%

Labelling on footwear 176 9% 158 13% Volumetric

measurement of drinks

27 22% 41 15%

Strong alcohol revenue stamp 487 0,2% 597 1%

Labelling on chemicals 493 23% 533 21%

Labelling home appliances /

supplying information

94 6% 76 13%

Labelling on cosmetic products 341 31% 341 14%

Fuels and lubricants 210 16% 232 20% Labelling on and safety of candles 269 18% 191 8%

Labelling on and safety of childcare

products 71 13% 136 12%

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Safety of children’s clothing 165 30% 153 33%

Labelling organic products 64 6% 95 9%

Measuring equipment

verification in the sale of industrial

goods

166 16% 201 39%

Labelling on and safety of toys 338 34% 364 40%

Returnable packaging 278 6% 413 16%

Problem products* 331 11% 0 0 Labelling on

pyrotechnic products 93 9% 63 6%

Labelling on clothing and textile products 270 14% 175 27%

Labelling on smoke detectors / supplying

information 59 0 100 3%

Weighing food 56 9% 70 9% Labelling on food

colouring 87 21% 0 0

Presentation of information in

catering establishments

297 10% 399 17%

Fulfilling the requirements of the

Tobacco Act in catering

establishments

94 1% 150 7%

Imitation products** 48 10% 59 0 Accuracy of product

names for food products

357 10% 440 12%

Promoting tobacco products 104 4% 29 3%

Tobacco product packaging and price

indicators 420 3% 363 3%

Labelling on and safety of lighters 228 21% 365 15%

Labelling tools / supplying 161 11% 148 26%

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information

Reduced fire risk cigarettes 40 0 0 0

Labelling on precious metal articles 102 19% 75 17%

Total 10,296 12% 11,636 19% * products handled after use as hazardous waste ** products similar in appearance to food

Commentary by Estonian Traders’ Association

2011 will be remembered, first and foremost, for the adoption of the euro. Merchants were well prepared, and the adoption of the euro took place without a hitch. For retail merchants it meant expenditures on new IT solutions and training for employees.

Within the framework of general growth, 2011 was a year of recovery for trade in general, and merchants’ economic indicators showed improvement. After a three year period of decline and operating under conditions of intense competition, the retail sales volume of retail undertakings increased last year by 4% in comparison with the year before, reaching EUR 3.9 billion. The sale of industrial goods recovered the most, including the sale of goods in department stores, as well as clothing, footwear, household goods, domestic appliances, technical goods and others. At the same time, housing-related expenditure also increased, as a result of which consumers continue to be quite price sensitive, spending more time weighing up their decisions. This factor also most likely had an impact on the increase in retail sales of used goods. Retail sales taking place via the post and the internet show continued growth (27%), even though the share is only 1-2%.

In 2012 we forecast growth of 5-6% in the volume of retail trade and the continued expansion of retail chains. At the same time, an emphasis is placed on increasing productivity through cooperation and new opportunities in electronic data exchange. The objective is the offering of a suitable environment and selection for consumers.

Marika Merilai, Managing Director of the Estonian Traders’ Association

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Estonian Consumer Protection Board, 2012

Rahukohtu 2, 10130 TALLINN, ESTONIA

Phone: +372 6201 707

E-mail: info@tarbijakaitseamet.ee

Web page: www.tarbijakaitseamet.ee

Video channel: www.youtube.com/tarbijakaitseamet

Facebook: www.facebook.com/tarbijakaitseamet