Changed rules of the game for fast loans – new law change takes effect

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Soon, new rules will apply in the market for SMS loans and fast loans. On September 1, 2018, the new law for high-cost credits will come into force. The law, which was passed on May 2, 2018, is an addition to the Consumer Credit Act and will have major repercussions on the fast-loan market. One of the main effects is that high-cost credits, including sms loans, quick loans and similar consumer loans, receive an interest rate cap. High-cost credit refers to all loans that have an effective interest rate of 30 percent or more.

According to a press release published on the LendIn’s website in connection with the adoption of the legislative amendment, the purpose of the new amendment to the Consumer Credit Act is that few people should end up in severe over-indebtedness.


Lower interest rates

Lower interest rates

After the change in the law, the interest on a high-cost credit may no longer be higher than 40 percent plus the applicable reference rate. At the time of writing, the reference rate is -0.5 percent. This means that the lender may charge a maximum annual interest rate of 39.5%. The restriction also means that the total cost of a high-cost loan must not exceed the original loan amount. Therefore, anyone who takes out a loan of USD 5,000 should not have to repay more than a maximum of USD 10,000.


Moderate marketing

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In conjunction with the change in the law, a special provision is also introduced that all marketing of consumer credits should be moderate. According to the legal text, marketing must be designed in such a way that it does not attract consumers to unthinkable decisions. This means that the content of the marketing must provide a “factual, balanced and valid presentation of the marketed credit”. Furthermore, all loans with higher interest rates must be clearly marked as high cost credits and the cost of the loan must be clearly stated.

How the law will then be interpreted in practice remains to be seen. Presumably, a marketing text that specifically highlights a monthly cost is not considered moderate if the loan runs over a longer period and the overall cost of the loan becomes relatively high, even though it is actually true that the monthly cost is relatively low.


Interest on interest and maturity

Interest rates

The law also limits the fees charged on late payment. In case of late payment, it is now only allowed to charge interest on late payment and no additional fees in addition to reminder fees and costs for debt collection services are allowed. However, costs that may arise if a loan case goes to the Corona Prosecutor or becomes the subject of a trial are not covered by the rules.

It will also not be allowed to extend the loan by extending the maturity more than once. One likely effect of this is that more lenders choose to invest in so-called account loans such as Risicum’s credit loan. It may also mean that some lenders will be more likely to send forwarding delays to debt collection rather than extending the loan or offering some form of installment plan.

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