Taking on credit on the basis of ambiguous information or at unreasonable terms often poses a greater risk than the purchase of some other good. As such, the business practices of credit companies should be particularly responsible.
When a consumer buys money for their disposal, they must be informed of the price of their purchase as well as the relevant conditions of sale and repayment. In this regard, consumer credit is no different than other consumer goods.
A basic legal requirement for marketing is that relevant calculations and other information are presented in a realistic, clear and unambiguous manner. If, for instance, credit is marketed only to a specific target group, such conditions must be readily apparent from the advert.
The general requirement of fairness in contract terms also applies to credit terms. The terms related to the price of a good – which in the case of credit is the interest rate – can be assessed in the framework of the Consumer Protection Act. Interest may vary depending on the loan principal, the loan period and the risk taken on by the lender. Processing fees, however, generally do not vary according to the amount of money borrowed.
Why do the costs of a text message loan increase as the loan principal increases?
The Consumer Agency has initiated discussions regarding the considerable costs of text message loans. Such costs have been charged by lenders on top of the interest rate and in relation to the borrowed amount. The Agency has, for instance, received reports of quick loans of 300 euros with processing fees of over 200 euros.
The interest applied to a loan is the price of money. It is the compensation the lender receives for not having the funds in question at their own disposal. The interest rate is determined by the risk of the loan arrangement. The greater the risk, the higher the interest rate. Lenders are quite free to price their credit by setting the interest rate, as long as the rate is not deemed usurious.
The costs of a text message loan, on the other hand, are constituted by the costs of acquiring credit information, the origination fees, the fees charged for opening an account, instalment surcharges, account management and processing fees and invoicing fees. These are standard amounts or standard procedures, which has raised questions regarding, among other things, the basis on which the amounts charged for these costs increase in proportion to the amount of credit granted.
The origination fee of a quick loan must be recognised as such
The Consumer Agency clarified the rules of collecting credit costs to Handelsbanken Finance. Some years ago, the company launched a campaign price for its credit.
The offer gave the consumer the option of paying some tens of euros extra on top of the usual credit costs and interest in exchange for credit at a campaign price.
The Handelsbanken credit agreement is based on an overdraft facility. According to the company, campaign credit for its part is one-off financing paid for by the consumer using the overdraft facility. Campaign financing is marketed to the company's business partners. They get to decide whether the campaign fees are charged to consumers or paid for by the business itself.
The consumer's debt in this type of framework is composed of several different campaign purchases on account as well as basic purchases on account. All credit purchases are invoiced to the consumer on one invoice.
According to the Consumer Protection Act, the cost of credit in a consumer credit relationship consists of the interest rate payable by the consumer and the total amount of other fees directly linked to the credit. Credit costs may not be used to cover the lender's administrative and operating costs. Credit costs must be clearly delineated as costs arising from managing the credit relationships. The price of credit may not be artificially chopped up in several parts in the form of various fees, as this makes comparisons of credit prices more difficult.
The company explained that the campaign fee was actually the origination fee of a one-off credit offer. The company was asked to change the misleading name they had used for the fee. KUV/3615/41/2008
Credit only offered to those who concentrate their purchases
Last year, Osuuspankki changed its policy for granting a flexible credit product. The credit was only offered to consumers who concentrated their financial affairs on the bank. This fact was not, however, disclosed in marketing the credit product in question.
The bank's expression ”As a customer of Osuuspankki you are in a privileged position” would be adequate, if it was used in marketing financing products in a general sense. When a specific product, such as Flexible Credit, is marketed, this expression is no longer adequate. Marketing must clearly indicate the terms under which the offer is valid, which in this case would include the customer concentrating his banking with the company in question. KUV/13979/41/2008
Getting rid of the small print
Luottotalo Fenno advertised a loan product in a news magazine. The information pertaining to the actual annual interest rate was printed at the bottom of the advert in a font size too small to be legible. The company rectified the situation after being contacted by the Consumer Agency. KUV/4928/41/2008 (MS)