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Legislative amendments in Finland due to instant loans

Legislative amendments in Finland due to instant loans. - in particular about the price regulation of small credits. Background. What is meant by instant loans? no definition in the legislation

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Legislative amendments in Finland due to instant loans

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  1. Legislative amendments in Finland due to instant loans - in particular about the price regulation of small credits Katri Kummoinen, Ministry of Justice, Finland

  2. Background • What is meant by instant loans? • no definition in the legislation • typically small consumer credits (a few hundred Euros) with a repayment time of a couple of weeks that are offered via mobile phones or online with no sureties required. • The first instant loan companies were established in Finland in 2005. In the beginning of 2013 there were about 80 registered companies. • The number of granted instant loans has constantly increased • 1,2 million in 2010 • 1,4 million in 2011 • 1,5 million in 2012. • The average credit amount has increased gradually from little above € 200 to nearly € 300 and the average credit time from 30 days to nearly 40 days. Katri Kummoinen, Ministry of Justice, Finland

  3. Problems related to instant loans • Difficult to get precise information of the scale of the problems, because instant loans are not treated in statistics as a group of their own. It was necessary to draw conclusions on the bases of information gathered from different sources: - number of judgements in debt collection cases relating to small loans has exploded since 2005: 3000 judgements relating to debts below € 300 in 2005, when the corresponding number in 2011 was 80 000 judgements. - on the bases of information received from execution authorities, it was possible to conclude that instant loans have caused the biggest problems to young people aged under 25. - furthermore, it became clear that problems are worsened by debt collection costs and legal expenses which together can easily amount to a sum triple to the amount of the capital owed. Katri Kummoinen, Ministry of Justice, Finland

  4. Reforms in three stages • The first reform package included the following measures: • the obligation to disclose the APR in the advertising of credits below € 200 (falling outside the scope of the CCD) • the obligation to verify carefully the identity of the person applying for a loan • the ban to pay out the funds immediately in cases when a loan is applied for and granted between 11 pm and 7 am • usury provisions in the Penal Code were updated. • The first reforms entered into force in February 2010. Katri Kummoinen, Ministry of Justice, Finland

  5. Reforms in three stages • The second reform package included the following measures: • Registration (=licence) is required from persons offering consumer credits. In order to be registered, conditions relating to professional competence and reliability of the management must be fulfilled. • When CCD was implemented, Finland did not exclude small loans below € 200 from the scope of application of the national provisions. • The reforms included in the second package entered into force in December 2010. Katri Kummoinen, Ministry of Justice, Finland

  6. Reforms in three stages • The third reform package included the following measures: • cap on the APR of small consumer credits • tightening the requirements to assess the credit worthiness of the loan applicant • ban to use text messages or other corresponding communication services that are subject to surcharge in the communication relating to credit relationships • The reforms included in the third package entered into force in June 2013. Katri Kummoinen, Ministry of Justice, Finland

  7. The cap on the APR of small consumer credits • Scope of the regulation: • consumer credits below € 2000 • exemption: goods-or-services-related credits, unless the credit agreements includes an option to directly withdraw funds • The APR may not exceed 50 % + the reference rate referred to in Interest Act. Currently the maximum APR is 51%. • The definition of the APR is the same as in the CCD. Katri Kummoinen, Ministry of Justice, Finland

  8. Other related reforms • lowering the maximum amounts of debt collection costs which may be charged from the debtor (March 2013) • lowering the maximum amounts of legal costs which may charged from the debtor (September 2012) • default interest rates and fees have been regulated by Interest Act already since 1980’s Katri Kummoinen, Ministry of Justice, Finland

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