The Finnish Consumer Protection Act was amended in June 2013. One of the key changes to the Act concerns a special interest ceiling on instant credit loans provided to consumers. Previously, changes were made in the Act on Collection of Receivables that entered into force in Finland in March 2013. It also introduced new regulations for operators providing financial services and, among other things, lowered the maximum fees that could be imposed for the collection of consumer debts. It also introduced a minimum compensation for recovery costs in debt collection between two companies or companies and public authorities.

Previous changes made concerning debt collection

The legislative reform concerning debt collection was undertaken in connection with the implementation of the EU Late Payment Directive (2011/7/EU). Several changes were made to the Finnish legislation in connection with the implementation process. One of the changes concerned the maximum amounts of collection charges on consumer debts. Under the amended Act, the maximum amount of fees that could be imposed on these debts was lowered, especially in the case of small debts. For debts of 100 euros or less, the debtor's total fee liability may be no higher than 60 euros. Fees on debts of 1.000 or less euros may be no higher than 120 euros. The maximum fee of 210 euros applies if the amount of debt is over 1.000 euros. Only if the procedures relating to the collection have been exceptionally difficult may higher fees be applied.

Also a new 40 euro charge was introduced. In a case where the debt collection is made between two companies or a company and a public authority, the creditor is always entitled to obtain from the debtor a fixed sum of 40 euros as standard compensation for the recovery costs for late payments. If the actual costs are higher, then the creditor can also claim compensation for all remaining reasonable recovery costs.

Also the statutory interest rate for late payments was increased by one percentage point being now 8 percentage points above the reference rate. This amendment did not change the penalty interest rate that applies to consumers, and thus the rate for consumers is now one per cent less than that for enterprises and public authorities.

It is still a bit too early to tell how significant these changes have been—especially from the point of view of the companies.

Instant loans and a new interest ceiling

The more recent legal reform relating to financial regulation concerns the so called instant loans. The Finnish Consumer Protection Act was amended in June 2013, and by implementing these changes the primary goal was to reduce the problems caused by the instant credit loans. One of the most significant changes was the decision to introduce the special interest ceiling on small loans. Also the standards concerning the lender's obligation to determine the consumer's capacity to repay the loan were increased. The objective is to prevent consumers from becoming overburdened with debts.

The term "instant loan" refers to a loan offered to consumers that is usually a small, short-term loan without any requirement for collateral and that is usually granted on the basis of an application made on internet or by sending a SMS message. The market for instant loans in Finland has grown rapidly since loan providers began offering the loans in 2005. In 2007, there were around 50 companies offering instant loans. By last year that number had already grown to 80.

As the number of companies offering instant loans has grown, so has the amount of money in the business. According to the Central Statistical Office of Finland, almost 1,4 million instant loans were granted in 2011. The total value for these loans was 322 million euros and the costs paid for the loans ran to almost 79 million euros. Average amount for a typical instant loan was around 228 euros. On the basis of the statistics it can be seen that the expenses constituted almost 25 % of the total loan capital.

In the new Act, the interest ceiling for all small loans less than 2.000 euros is capped at 50 % points over the existing reference rate. The new regulation does not apply to loans that are used only for purchasing certain products, for example cars or furniture, provided that the loan contract does not include an account with a credit facility.

Due to the new interest ceiling, the annual percentage rates cannot exceed 50,5 % at this moment. The new amendment most significantly affects companies specialized in offering instant credit loans. Before the new legislation, the average annual percentage rate applied in instant loans was around 920 %. Thus, the change to a maximum of 50,5 % is rather significant.

One of the main reasons for the new legislation was to prevent the growth of the debt cases in courts which had become somewhat a burden on the justice system. It has been estimated that before these changes around 50 % of all cases being dealt in summary procedures in the Finnish courts (i.e. uncontested claims) concerned the non-payments of instant loans.

It remains to be seen whether the new legislation can prevent the negative aspects of instant loans and what sort of new products the instant loan providers come up with in order to fulfill the requirements of the new legislation.

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