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

Katri Kummoinen, Ministry of Justice, Finland Background n 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. n The first instant loan companies were established in Finland in In the beginning of 2013 there were about 80 registered companies. n The number of granted instant loans has constantly increased – 1,2 million in 2010 – 1,4 million in 2011 – 1,5 million in n 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 Problems related to instant loans n 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 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 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 Reforms in three stages n 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. n The first reforms entered into force in February 2010.

Katri Kummoinen, Ministry of Justice, Finland Reforms in three stages n 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. n The reforms included in the second package entered into force in December 2010.

Katri Kummoinen, Ministry of Justice, Finland Reforms in three stages n 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 n The reforms included in the third package entered into force in June 2013.

Katri Kummoinen, Ministry of Justice, Finland The cap on the APR of small consumer credits n 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 n The APR may not exceed 50 % + the reference rate referred to in Interest Act. Currently the maximum APR is 51%. n The definition of the APR is the same as in the CCD.

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