The Finnish Ministry of Justice set up a working group (the
"Working Group") on 2 December 2011 with the task to
prepare amendments to legislation to reduce reported problems
caused by short term/payday loans ("Microloans").
The Working Group delivered its report on the issue on 11 April
2012 drafted in the form a government bill. Subsequently a modified
government bill was submitted to the Finnish Parliament on 6
September 2012 (government bill number 78/2012, the
"Government Bill").
The report and proposal by the Working Group has been subject of a
lively debate and initial proposals to introduce limitations on
Microloans received strong opposition from the relevant business
sector.
The Government Bill is still subject to possible amendments during
the processing of the Government Bill in the Parliament. The
tentative timetable for the processing of the bill will be
published by the Finnish Parliament over the coming weeks (as per 6
September, the Parliament had only noted receipt of the Government
Bill).
The Government Bill refers to a statement from Suomen
Pienlainayhdistys r.y. (in English, the "Finnish Micro Loan
Association") according to which the proposal would in effect
mean that the Microloans business would cease to exist in its
current business model form, as the Microloans business would cease
to be profitable.
The Government Bill suggests amendments to legislation affecting
Microloans, most importantly to Chapter 7 of the Consumer
Protection Act. The main reason given for the proposed changes is
the reported increased amount of judgments relating to consumer
credit debts.
The most drastic change suggested is the implementation of a cap
for charges and costs which can be collected from the consumers,
expressed as an annual percentage rate of the principal of the
loan. This cap would be applicable to onetime credits, ongoing
credits as well as secured and unsecured credits.
However, the proposed limitations would not be applied to pure
commodity linked credits (provided there is no possibility to
withdraw cash money) or credits with a principal loan amount of EUR
2,000 or more. According to the proposal, the maximum annualized
percentage rate of charges would be 50 percentage points above the
reference rate defined in Section 12 of the Interest Act (633/1982,
as amended), which, at the current reference rate being one percent
would mean 51 percent annually.
In order to prevent the circumvention of the limitations for the
charges collected, the Government Bill also proposes amendments to
the Finnish Interest Act whereby agreement stipulations requiring
consumers to pay additional charges instead of, or in addition to,
penalty interest for late payment, e.g. liquidated damages or
contractual penalty, would be void, if such liquidated damages or
contractual penalty, in combination with the penalty interest for
late payment would exceed the legally permitted interest
rate.
Further, the provision regarding responsible credit granting
practice is proposed to be amended to prohibit specific charges for
the use of a text message, and other similar services, when
granting credits and also in other communications between consumers
and creditors relating to the Microloan.
The rationale behind this proposal is, according to the Government
Bill, to improve the consumers' ability to assess the total
costs of the credits.
In relation to Microloans this would likely mean that creditors
would no longer be allowed to charge consumers e.g. for credit
applications made via text messages. Confirmation messages and
other possible measures taken via text messages later during the
loan period, such as postponing the due date, would also be
prohibited if subject to charge.
Moreover, creditor's obligation to assess consumer's
creditworthiness is proposed to be more specified and tightened.
Currently the assessment shall be based on sufficient information
considering the amount of the credit and other circumstances.
According to the Government Bill, this assessment should in future
be based on sufficient and adequate information on the
consumer's income and other financial circumstances.
According to the Government Bill the latest statistical
information published by Statistics Finland, the reported average
cost of Microloans loans was 920 percent of the loan capital on an
annualized basis. Hence, the proposal would significantly limit the
annual cost that may be charged on Microloans loans compared to
current levels.
The Government Bill proposes that the changes to the law would
take effect after a transition period of three months, starting
from the final approval of the proposed legislative changes.
However, the pricing cap, i.e. the regulation imposing restrictions
on charges for Microloans would enter into force after a
"slightly longer" transition period. The Government Bill
does not specify the length of this longer transition period.
The Government Bill notes that the limitations on the charges
permissible for Microloans will be applicable only to credit
agreements concluded after the new legislation has entered into
force, i.e. the new rules do not have any retroactive effect, with
the exception of the prohibition to require extra charges on
SMS/text messaging services, which will also apply to existing
credit agreements.
Changes to debt collection cost regulation
In addition to the now proposed changes to the Consumer
Protection Act, a government bill on reforming the debt collection
legislation was submitted on 7 June 2012. The debt collection costs
for consumer credits would be significantly limited especially in
small credits with a principal loan amount of EUR 100 or
less.
The government bill proposed that the new legislation would enter
into force after a transition period of three months, beginning
when the legislative proposal is finally approved, however no later
than 16 March 2013.
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