Payday Loans around the World – Chapter Two
Cashfloat went to compare the instant payday loans industry in the UK to payday loans in Finland. Payday loans are very popular among the Finns. One of the most preferred loans in Finland is the payday loan. They also refer to these loans as quick loans. Quick loans seem to be the most appropriate answer to an instant financial crisis.
|Payday loans Finland||Payday loans UK|
|Average Short term loan taken||€229||£260|
|Average loan period||32 days||22 days|
|Average charge||€25 for €100||£24 for £100|
Payday loans in Finland are legal. Euroloan Group refers to payday loans as a loan with credit capital of less than €250 and a repayment period of less than one month. Research in 2012 by Statistics Finland showed that the average short term loan is €229 and the average repayment period is 32 days. The majority of the people that take payday loans in Finland are ordinary working people over 35 years of age.
In 2012 a report from Euroloan Group was released, showing result from research that was done on payday lending in Finland. The report shows that according to the Statistics Finland, the average charge for €100 is €25. Euroloan takes another source, the Finnish Consumer Protection Act that says that the APR (annual percentage rate) for a €100 loan, with a repayment period of 30 days is no less than 1411%. According to statistics made by Suomen Asiakastieto, only 5% of new payment default entries were a direct result of taking short term loans. Only 1% of people who have payment default entries on their credit history have entries solely caused by taking short term loans. Payday loans are the cause for big debt problems. The increase in the total number of payday loans causes some congestion in courts. Reports from Statistics Finland shows that in the third quarter of 2011 alone, over 350,000 short term loans were granted; that means an annual increase of 35%. Some loans cannot be recovered without court proceedings.
Regarding the question “will limiting the availability of payday loans shorten their usage?” Euroloan Group says the answer is no – limiting the availability of payday loans does not eliminate the demand for these types of loans. On the contrary, it directs people towards larger and longer loans and encourages looking for other loans from the grey market or from Foreign Service providers that don’t follow domestic regulations. As Euroloan Group states, rather than removing the problem, this would just make it worse. Lenders must always do their best to ascertain the creditworthiness of their customers. It is neither in the lender’s nor the borrower’s interest if the customer is struggling to pay the loan back.
Euroloan Group suggests some solutions for this problem. The first is a general credit register. As an example, in Sweden, the use of more extensive credit information has significantly reduced the number of consumers running into debt. It has also lowered credit losses for lenders and incised price competition. Another solution is increasing regulation, self-regulation and centralized market supervision under the Finnish Financial Supervisory Authority. A third solution would be to increase competition i.e. ensuring a sufficient number of reliable operators. The last possible solution that Euroloan Group suggests, is ensuring a stable regulatory and operating environment with clear norms. In an unpredictable environment, prices may stay high. So reducing lenders’ risk will lower consumer prices through increased competition.
According to Statistics Finland, nearly €300 million are granted in short term loans during the previous four quarters. A full ban on short term loans would lead customers toward the grey market or foreign services providers that aren’t under even the nominal control of local Finnish authorities.
We did some research comparing quick loans in different companies that provide payday loans in Finland. We found that a majority of the companies offer loans similar to quick loans. Companies offer consumer credit, flexible loans and credit accounts, business loans, loan brokerage services, etc. Our first source was Luottokeidas.net. There we found various companies that service customers with quick loans.
|Name||Loan amount||Loan Duration||Age limit|
|Ferratum||Min €50 Max €300||7-30 days||21 years|
|Vivus||Min €10 Max €2010||3-30 days||20 years|
|Luttoraha||Min €50 Max €2000||45 days||22 years|
|Ekstraluotto||Min €10 Max €2100||1-26 months||21 years|
|Ainalaina||Min €50 Max €2000||45 days||21 years|
|Euroloan Group||Up to €500||3 months-3 years||20 years|
|Everyday.fi||Min €20 Max €2000||3 months-1 year||21 years|
|Compare to payday loans in the UK|
|Cashfloat||Min £200 Max £1100||1-4 months||18 years|
Our second source was Lainaa which revealed various other companies offering quick loan services.
Because we couldn’t find more sources about competition for payday loans in Finland, we have expanded the research on higher amount of credits over periods of several months. According to our other source, Parasvippi, there are 9 companies offering different amount of loans which are listed and explored below.
According to a Uutiset article, in June 2013 the Parliament in Finland introduced a new legislation the instant loans. The legislation stated that it will cap interest rates on payday loans, making the enterprises unprofitable for businesses in the sector. In some cases, quick loan companies have quit the business and in other new regulations-compliant loan products were on offer. In that time, quick loans were double-edged swords in the Finnish financial landscape. On one hand, these loans helped many people to solve some financial problems. On the other hand, extortionate interest rates had many borrowers facing the bad prospect of debt collectors and further financial problems. At that time the Finnish Small Loans Association were speculating that loan providers may bring new regulation-compliant products to the market. That year 350,000 short term, high-interest loans, worth €96 million were taken out in Finland. In 2014 just 69,000 loans worth €44 million were made over the same period. The amount borrowed continued to grow from €275 on average to €638. While before payday loan rates could be well over 100%, now companies can charge a maximum annual rate of 50% on top of the reference rate.As these politics were introduced in 2013, payday loans in Finland were in effect banned by introducing maximum interest rates, banning text messages for requesting payday loans and mandating more thorough background checks on borrowers. The Helsinki University’s Institute of Criminology and Legal Policy studied nearly 2000 debt judgments from 2012 to 2014. With their research, they came to a conclusion that the reforms in 2013 brought a reduction in the number of debt cases among young people aged 18-34.