On September 1, new rules were introduced in the Consumer Credit Act, which regulates the most expensive loans and these have meant a lot of worries and changes for lenders dealing with SMS loans and fast loans. Many lenders now seem to have either changed their focus or completely stopped their business. Here we go through the rules and how they affect.
The rules mean that there is now a concept in the law called high-cost credit. These are all credits with an interest rate between 29.5 and 39.5 percent. SMS loans have traditionally often had higher interest rates than this, but now an interest ceiling is introduced so that no loan can have a higher annual interest rate than 39.5 percent. That is the first change.
The second amendment also introduces a cost cap
Which means that no credit / loan may have a higher total cost, including interest and fees, which exceeds the amount borrowed. In practice, this means that if you have borrowed SEK 5,000 you should never have to pay more than SEK 5,000 in interest and fees for that loan. What you repay in total should then never be able to exceed SEK 10,000 including the loan itself.
A further change in the law states that one must be better at carrying out credit information on customers, even when it comes to small credits. It does not matter that the loan is small and the fees small. However, a credit check is needed to ensure that the borrower actually has the funds to repay the loan.
You also want to focus on lenders marketing their loans
It is important to be moderate and not try to attract the borrower too much. Marketing should not be intrusive and it should mainly be informative and factual.
In the past, many people have been able to see or hear advertisements that try to paint a scenario where it is natural to take an SMS loan to buy a pair of shoes or a jacket just because you are hungry, even though it is really an irresponsible way to handle its economy and that it can lead to financial problems. Now we may not have to see this kind of misleading advertising.
How do the rules affect the market for SMS loans and fast loans etc?
These two rules mean that it is a little difficult for lenders who deal with fast loans as these loans usually have a high interest rate and for the small loans the cost can sometimes exceed the loan amount. If you still want to offer these smaller and more expensive loans, you have to adapt to follow the rules, which is not easy.
This has led to many lenders recently choosing to saddle and invest in a different type of loan than SMS and fast loans. The most common is that they have turned to the market for smaller private loans (up to around SEK 30,000) or account credits. These types of loans and credits can often be quite expensive, but have a structure that makes it easier to stay within the limits of the Consumer Credit Act.
I, who work with loans and credits and keep an eye on what is happening in the industry on a daily basis, have been able to clearly see that many lenders have chosen to change their orientation or even close down. This shows that the rules for the new high-cost credits have really had an impact in the industry and that many lenders seem to consider that they do not work according to the old method.
SMS loans have been a niche type of loan and it is a more expensive loan
Of course, but it is also a special concept that involves borrowing money in a shorter time than usual. A private loan always has a maturity of at least one year and then also an annual interest rate, which shows how much you have to pay to borrow during this time.
For SMS loans, it will be different as you have only lent out for one to three months. Sure, an SMS loan is usually a more expensive loan, but there has nevertheless been a place for this type of loan, since many have actually been interested in borrowing money in such a short time.
The cost of borrowing money for only one or two months is not very high, but if you convert this into an annual interest rate, it is usually clearly more than for a regular private loan. Therefore, it will be difficult to adapt the loan to the rules of the Consumer Credit Act and the interest rate ceiling of 39.5 percent.
Some lenders have chosen to run and adapt, but others have given up instead to focus on another type of loan. When rules have an impact of this magnitude, it is not just a few small rules that we are talking about, but a big change. The question is what will be left of fast loans and SMS loans in the future and whether it will actually be better for us consumers or if we just simply lose one type of loan.