Stricter requirements for SMS loans

Sweden's government has proposed placing tighter requirements on SMS-loan companies to carry out credit checks. However, proposals for interest rate caps or prohibitions on overnight loan payments have been rejected.

The number of unpaid bills for quick SMS loans has grown rapidly in recent years, and many young people have fallen deeper into debt. In legislative amendments adopted on Thursday, it was suggested that the same requirements for a credit check as apply to other loans should be applied to SMS loans.

In practice, the rules will force lenders to collect data on income and expenses both from the borrower and from an independent source like a credit information company. SMS loans are currently exempt from the requirements of the law governing credit reviews.

The government would also introduce a right of repayment, meaning that consumers can repay the loan within 14 days and avoid other costs besides the interest for the time he or she had the loan.

The Consumer Ombudsman has argued that the repayment period hardly helps the consumer because those who take out SMS loans usually spend the money as soon as they receive it.

In Finland, borrowers are prohibited from taking out their money before 7am if they applied for and are granted the funds between 11pm and 7am. The reason is that such applications are considered as being based on hasty decisions.

Sweden’s official debt collection agency, Kronofogden, believes that loans taken in the last hours of the day are usually used for games and purchases online. However, the government believes that a ban would place too many restrictions on the freedom to enter into contracts and points out that payments would still be delayed because of the new requirements on credit reviews.

The government has also rejected the idea of an interest rate cap as proposed by a commission at Uppsala University. Such a ceiling would lead to less competitive conditions. Instead, loan company marketing materials will be forced to clearly state current interest rates.

The amendments, which are based on an EU directive, will come into force on January 1st.

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