The Law on Consumer Protection No. 6502 ("New LCP"), which has been published in the Official Gazette on November 28, 2013, introduces significant regulations and amendments aiming to protect consumers against stronger sellers/suppliers especially in terms of consumer transactions executed by and between banks and consumers. New LCP, which shall enter into force on May 28, 2014 i.e. by the end of six month-period as of its publication date, resembles European Union Directives to a great extent and foresees advanced precautions for the protection of consumer rights.
Scope of the New LCP, Definitions and Fundamental Principles
Scope of the New LCP
As per Article 2 of the New LCP titled 'Scope of the Law', any consumer transaction and implementation is included within the scope of the law. In this regard, not only agreements executed with consumers but also implementations that took place prior to, at the time of and following the execution of those agreements shall be considered within the scope of the New LCP in addition to the consumer implementations which are not based on a legal or contractual relationship. Therefore, considering the extended scope of the law, it can be concluded that the provisions of the New LCP shall also be applied for the informatory forms provided to consumers before execution of an agreement as well as to post-sale services provided upon the sale of a good.
According to Article 3 of the New LCP titled 'Definitions', a consumer is the real person or legal entity acting with purposes other than commercial or occupational ones. It can be inferred from this definition that once the New LCP enters into force, transactions such as purchasing a motor vehicle shall not be considered as a consumer transaction and companies will not be able to benefit from the protections granted under the current Consumer Protection Law No. 4077 ("Law No. 4077"). Under the same article, the definition of a consumer transaction is extended substantially in a way to cover any agreement and legal transaction including but not limited to agreements regarding independent contracting, transportation, agency, insurance, proxy and banking. Given the broad scope of the New LCP, it may be stated that the lawmaker appears to aim eliminating the implementations narrowing the scope of consumer transactions.
Among the articles introduced by the New LCP, Article 4/I sets out the fundamental principles to be applied in consumer agreements. The mentioned article extended the legal form requirements
as to be applicable for all agreements which were set forth only for certain agreements under the Law No. 4077 and determined the fundamental principles by introducing additional regulations. In this respect, agreements to be executed within the scope of consumer law must be at least 12-point typed with comprehensible wording; in a clear, plain and legible manner and agreements and briefings must be provided to consumers either in paper or through a continuous data carrier. Besides those legal form requirements, the provision further regulates that consumers may not be subjected to unfavorable amendments to be made within the period of an agreement.
Third paragraph of Article 4 of the New LCP stands out as another amendment to the fundamental principles. Indeed, the said paragraph speaks of that consumers cannot be imposed additional fees for the deeds which are reasonably expected to be performed within the scope of the offered good or service and considered within the legal requirements of the person preparing the agreement as well as for the expenses made to the benefit of the person preparing the agreement. Especially in the banking sector, it is of great importance to determine which transactions are expected to be realized by the seller/supplier within the scope of the offered good or service. In the banking sector, transactions used and benefitted by everyone should not be charged with additional fees. Such transactions may be exemplified as withdrawals from the bank accounts, credit card operation fees and additional expense items for money transfers. In light of these practices, the second sentence of the mentioned article stipulates that, apart from the interest rate, Banking Regulation and Supervisory Agency shall determine any fee, commission and expense type to be charged on consumers for the products and services offered by banks, financial institutions, that grant consumer credits and card-issuer institutions by way of asking the opinion of the Ministry of Customs and Trade ("Ministry").
Another crucial amendment under the New LCP regarding the fundamental principles is laid out in the field of law of guarantees. Pursuant to the sixth paragraph of Article 4 of the New LCP, personal guarantees obtained in return for the deeds of consumers shall be deemed as ordinary suretyships regardless of the name or category they appear under. Since the said provision is of a mandatory nature, the suretyship shall be considered as ordinary suretyship despite the contrary agreement of the parties stating that the type of the suretyship shall be joint and several. In addition, the second sentence of the same paragraph states that personal guarantees provided by the counter party in return for receivables of a consumer shall be considered as joint and several suretyship unless otherwise is determined under other laws.
Article 5 of the New LCP stipulates that unfair terms set forth under the agreements prepared by the persons and institutions conducting activities through permissions granted by law or authorized agencies, shall be governed by such article for consumer agreements regardless of theagreement type. Distinguishing from the Law No. 4077, the New LCP explicitly regulates the conditions where unfair terms exist in adhesion contracts which are prepared by the persons or entities conducting activities through permissions granted by law or authorized agencies in several sectors inter alia water, communication, natural gas, electricity, insurance and banking. Accordingly, in case the contracts executed with the mentioned persons and institutions contain unfair terms, Article 5 of the New LCP shall be applied and the unfair terms in such agreements shall be deemed as invalid. The mentioned article drew clearer boundaries for the implementation of the unfair terms and the Ministry is granted with the authority to take necessary precautions in order to remove unfair terms from the generic agreements or prevent their usage.
Liability from Defective Goods
Varying from the Law No. 4077, Article 10 of the New LCP suggests that the defects of the goods emerging within six months as of the delivery date shall be deemed to have existed as at the time of delivery. It is further regulated that the seller has the burden of proving the non-existence of such defect as at the time of delivery. That being said, on the other hand, such presumption shall not be applicable if the nature of the good or defect is irrelevant as the case may be with perishable or impaired goods. As another regulation differentiating from the Law No. 4077; Article 11 of the New LCP regulates that in case of defective goods, consumers may use only two of their optional rights under the Law of Obligations No. 6098 towards the producer or manufacturer which are (i) the right to ask for free repair; or (ii) the right to ask for the replacement of the good with a defect-free one. Additionally, as per Article 56 of the New LCP, producers and importers shall be obliged to issue a guarantee certificate for the consumers regarding the produced or imported goods.
Financial Leasing Agreements and Consumer Loans
It is set forth under Article 17 of the New LCP that the provisions regarding the installment sales shall also be applied for the financial leasing agreements which enable the consumers to benefit from the provisions of installment agreements on a greater scale. To this should be added that although the cooling-off period under installment agreements differs to that of the Law No. 4077, it is determined that such right cannot be performed for the financial leasing agreements.
Article 22 of the New LCP paved the way for complying with the European Union regulations in terms of the broad definition and application area of consumer loans therein. According to the said article, consumer loan agreement is the one under which the loan provider guarantees the consumer to postpone the payment, grants loans or undertakes to grant loans through borrowing or similar financing methods in return for interest and similar benefits. In addition, it is stipulated under the second paragraph of such article that a credit card agreement shall be considered as a consumer loan agreement if the payment is postponed for a period of more than three months or asimilar installment payment option is provided to the consumer. Hereinafter, credit cards and credited debit cards (enabling the consumer to use the money in his/her account) shall be considered within the scope of credit card agreements provided that they meet the requirements given under the article. The lawmaker intends to explicitly regulate cases in which a consumer postpones a due payment and the credit institution benefits from such circumstance. Additionally, the cooling-off period under consumer loan agreements is determined as 14 days pursuant to Article 24 of the New LCP.
In contrast to the Law 4077, Article 25 of the New LCP states that interest rates shall be fixed for consumer agreements having definite periods, whereas it may be changed in consumer agreements with indefinite periods. However, in order to change the interest rate under consumer agreements with indefinite periods, the consumer party to such agreement should be informed beforehand. According to the second paragraph of the article, in case the contractual interest rate, effective interest rate or total cost of the credit is not determined under the consumer loan agreement, the loan shall be offered to usage without interest until the end of the agreement term. That being said, if the effective interest rate is indicated lower than actual, the contractual interest rate as the basis of calculating the total cost of the loan shall be adjusted in accordance with such effective interest rate. In a pro-consumer approach, Article 28/II of the New LCP stipulates that the due and payable installments shall be calculated without considering the interest rate, commission and relevant expenses.
In addition to the foregoing, Article 29 introduces significant regulations regarding the insurance liabilities imposed on consumers by the banks which give rise to additional fees in practice. Accordingly, in order to provide a consumer with a loan-related insurance, such consumer must make an explicit request in this regard through a written or permanent data carrier. Also, if a consumer intends to have an insurance policy, the loan provider must accept such insurance request and provide it from any company preferred by the consumer in question.
The underlying motive of Article 31 is to prevent banks from requiring additional fees and expenses from consumers. Within the framework of the Law No. 4077, loan provider banks open separate accounts in practice for the deposit of the loan-related debts of consumers and receive transaction fees from these accounts under various names. According to the regulation introduced by the New LCP, in case such accounts are used only for loan-related purposes, banks cannot request additional fees or expenses regarding such account under any name and the account shall be closed upon the payment of the loan by the consumer unless the consumer demands otherwise.
The mentioned article is also parallel to Article 4 of the New LCP relating to the expenses required from consumers. To this should be added that a loan deposit agreement related to the loan agreement with definite term cannot be executed without an explicit directive of the consumer in this regard which aims at preventing the payment of the loan through another loan. Pursuant to the third paragraph of this article, card-issuing institutions are obliged to offer credit cards to consumers via which they do not collect annual subscription fees and other costs under different names.
Housing Finance and Residence Sales Contract through Prepayment
Provisions of the New LCP on housing finance agreements draw parallels to that of the consumer loans. Indeed, housing finance agreements are explicitly defined as agreements leasing houses to consumers through financial leasing, letting consumers use loans under the guarantees of houses owned by them or not and in order to refinance these credits. It is worth to highlight that similar regulations to that of the consumer loan agreements (i.e. opening accounts exempt from fees and expenses, pro-consumer insurance regulations) are also accepted for the housing finance agreements.
Under Article 40 of the New LCP, residence sales contract through prepayment is defined as the agreement via which the consumer accepts to pay the sales amount of a real estate for residential purposes in advance either at once or with installments. In return, the seller agrees to transfer and deliver the real estate to the consumer upon the entire or partial payment of the sales amount. As the current practice, executing agreements with consumers despite the lack of an existing house and collecting money on the basis of this agreement does not serve consumer protection purposes. As a means of protecting consumers against such circumstance, it is set forth under the third paragraph of the article that residence sale contracts through prepayment cannot be executed without obtaining the construction license in the first place. Furthermore, these agreements are subject to legal form requirements and must be registered before the land registry whereas the preliminary sales contracts must be issued by the notary public.
Since the parties to the residence sales contract through prepayment execute hundreds of agreements with the consumers, the consumers are faced with significant risks in case of sellers' bankruptcy. Thus, certain precautions are foreseen by the lawmaker as distinct from the Law No. 4077. As the first regulation, sellers are obliged to have building consummation insurance before initiating the sales of residence through prepayment. However, such obligation shall only be valid for projects above a certain size and such projects shall be determined by the Ministry. As another amendment, according to Article 42/II of the New LCP, compensation, guarantee and similar warranties within the scope of the building consummation insurance can neither be included to the estate of bankruptcy/liquidation nor seized. Those warranties are also immune from the procedures of interim injunction or interim seizure which enables the New LCP to eliminate the potential obstacles against completion of the building from the beginning.
In addition to the above, the cooling-off period for residence sales agreements through prepayment is determined as 14 days. In the meantime, the period for transfer and delivery of the residence sales agreements through prepayment is determined as maximum 36 months as of its effective date in order to prevent consumers from making payments for several years without receiving a concrete outcome. Consumers are also granted with a right to terminate the contract until the transfer and delivery date without presenting any reason.
It is Article 50 of the New LCP that covers long-term holiday service agreements within the scope of the law and it is determined that long-term holiday service agreements cannot be executed without a construction permit. The scope of a long-term holiday service agreement is extended so as to include other agreements to be executed for a period of minimum one year which grant consumers with discount and other benefits in circumstances where accommodation or additional services besides accommodation (i.e. travel) are provided.
According to Article 52 of the New LCP, subscription agreements with definite periods cannot include provisions stating that such agreements may be extended as to the period set forth therein; yet, such agreements can be extended upon the request or approval of the relevant consumer until the end of the agreement period. As per Article 52/IV, a consumer may terminate subscription agreement with indefinite periods or definite periods for one or more years any time, without presenting any reason and paying any penalty. The primary objective of this article appears to be preventing the current implementations of unfair competition by the seller/supplier companies executing subscription agreements for considerably long terms.
Consumer Arbitration Boards
Article 66 of the New LCP sets forth certain amendments in the application terms for arbitration boards which are established in order to settle the disputes arising from the consumer law. As per the mentioned article, the Ministry shall form at least one consumer arbitration board in the city centers and boroughs, the competency criteria of which shall be determined in a separate regulation. According to Article 68 of the New LCP, consumer arbitration boards in boroughs shall have the competency over the disputes under TRY 2,000 whereas such limits are determined as TRY 3,000 for arbitration boards in city centers and TRY 2,000-3,000 for arbitration boards in metropolis. Having said that, disputes with higher values cannot be brought before the consumer arbitration boards.
Parallel to the European Union Directives to a major extent, the New LCP appears to be a major step towards the harmonization of Turkish Law with the European Union Law which places significant emphasis on consumer protection. Leveling up the developing consumer rights under Turkish Law, the New LCP outweighs the Law No. 4077 in responding to requirements of the market. Secondary legislation is expected to be enforced within the upcoming days in order to specify the details on the implementation of the New LCP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.