At last it came – the inquiry into power cuts against the expensive fast loans. “The highway into the debt trap”, as they were called. Today, the proposals were submitted to Consumer Minister Per Bolund. It remains to be seen whether there will also be a highway for tougher legislation. It is the government and parliament that now have to show that they really stand on the exposed consumer side.
A full battery of measures is proposed
Interest rate ceilings, cost ceilings, stops for extension, stricter credit testing requirements and marketing. All very welcome. We have been demanding it for a long time and I myself have worked for it as an expert in the investigation.
Unfortunately, the road ahead here has been anything but a highway. In 2006, the fast loans came to Sweden and since then it has been choppy about the customers, shameless offers and a commercial cruelty that strikes the most vulnerable. Even the authorities got sharper weapons at the end, yet effective rates of 100s, sometimes 1000s percent, are still flourishing, as well as high-end mortgage companies whose business model is to squeeze vulnerable customers who can’t pay as much as they ever can – year after year.
The interest rate ceiling is now proposed to be 40 per cent above the reference rate (just below Finland’s level). The cost ceiling is set at 100 percent – which means that if I borrowed USD 2000, I will never owe more than USD 4000 including interest, fees and debt collection. Makes sense. And will hardly get people to borrow more from laziness, 100 per cent on a loan is very much. In addition, the requirements for review are tightened before the loans are granted. Both cost and interest rate ceilings are needed, otherwise pathways for the companies will arise.
Just the graph from the enforcement authority next door should suffice as an argument for doing something drastic. People corresponded to a smaller Swedish city ending up with the dollar because of the quick loans. Every year. In 2015, it was also about as bad as the years before.
The argument against taking power has followed the usual template – “this is a small problem relatively speaking” (in relation to credit purchases, mortgages etc), “these are just a few rogue companies”. And “we don’t know for sure if the sharpening will have the intended effect”. And that more information to consumers and more education is the only and correct way. The industry organization SKEF (which organizes about 10 out of about 30 fast loan companies) thinks we should wait and see if it doesn’t get better…
We have lost ten years
Now, the status quo is no alternative, just as little as menless marsh steps. Not doing anything very soon will hurt consumers and society. There will be more lost years. Incidentally, interest rate ceilings are not unique, there are in a number of European countries.
The question I usually get when arguing for a harder time is: But aren’t the consumers responsible? So let me just conclude (with a sigh): Absolutely, they have a great responsibility, but so do those who provide the loans. And they have been able to act far too freely so far, and also have the whole collection apparatus of society at their disposal. This is in many ways a sick industry – which only understands cold steel. Now the dice is thrown. Time for action.