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Consumer loan market regulation: Norwegian practice

Due to the rapid growth of the consumer lending market and, as a result, the increase in household debt, the Norwegian Ministry of Finance has tightened requirements for consumer loans. Temporary amendments to the current law were introduced on February 12, 2019, and their final entry into force will take place at the end of 2020. The changes concern loans and credit cards provided both directly by Norwegian and foreign companies.

Features of consumer loans

A consumer loan (Norwegian Forbrukslån) is a loan that is issued without collateral, that is, without collateral or guarantors.

Due to the simplicity of registration, such loans are especially popular, but it also sometimes leads to their thoughtless receipt. Insufficient transparency of conditions in individual banks is also a problem.

Accordingly, it is for such loans that the largest number of delinquencies and defaults is noted – and the growth of the population’s indebtedness worsens the general economic climate. In 2019, about 30 thousand Norwegians had debt in excess of 1 million kroons (hereinafter referred to as Norwegian kroner). The increase in total debt in 2017 amounted to 13.8%, in 2018 – 10%.

Note that irresponsible lending is a problem not only for individuals but also for countries, especially developing ones: many of them have fallen into real debt traps. In 2012, Norway funded a UN project to introduce the principles of subordinated lending (that is, loans that are issued for a period of at least 5 years), including for international lending. The same principles were used in the debt audit of Norway itself.

Changes in legislation

The amendments developed in 2019 related to the domestic rules for the provision of loans. For example, advertisements: for example, references to the ease of obtaining a loan and low requirements for customers were banned. As a result, companies offering microloans or so-called “Quick loans” have almost completely disappeared from the Norwegian financial market.

Quick loan (Norwegian låne penger på dagen – “one day loan”, also Låne penger raskt and Låne penger fort – Norwegian “borrow money quickly”) is a short-term loan for a small amount, which is issued under a simplified procedure, often remotely, and requires a minimum of time and documents for registration.

As a rule, such loans are obtained for immediate needs, for example, for household expenses before paycheck. Accordingly, the main emphasis in advertising was on the simplicity and speed of their registration – and this, according to the authorities, provoked citizens to receive money for impulsive purchases, and not really urgent expenses.

The requirements for the honesty of advertising have also been tightened: for example, instead of the daily rate, which at first glance may seem low, companies must immediately indicate the real annual rate. This allows the client to more accurately estimate the scale of the overpayment: for example, 1% per day = 365% per year.

The changes also affected the rules for checking clients: from now on, companies cannot provide loans to people for whom a theoretical increase in the rate of 5% (of the total debt) will lead to a reduction in ordinary living expenses, and also if the total amount of the client’s debt is 5 times exceeds his annual income. Actually, in 2019, the Debt Registry was created (an analogue of the Bureau of Credit Histories), which allows you to track the total amount of debt of a particular client. He gave the citizens the opportunity to check for debts, including forgotten ones.

Unsecured loans must be granted for no more than 5 years (excluding grace periods due to credit vacations). Only loans offered for refinancing can have a longer-term.

Amendment results

Note that the introduced rules are actually observed. So, not a single Norwegian site, even indirectly related to lending, left references to “ease and speed of borrowing”, “low-interest rates” or similar advertising slogans. It is noteworthy that most of the major market players such as Arcadia Finans, Axo Finans Norge, or Folkia not only follow the guidelines described above but also actively implement the broader principles of responsible lending.

As for the consumer loans market, it continues to grow: in June 2020 its volume amounted to 3,715.772 billion kroons, in July it was already 3,725.147 billion. On the other hand, in recent years, Norwegian banks have significantly expanded abroad – up to 30% of the market growth in The year 2020 may be related to loans issued outside Norway.

According to the global macromodels of Trading Economics and analysts of the popular Norwegian resource smalan-norge.com, the following trend is ahead:

  • by the end of 2020, consumer credit in Norway will amount to 3,524.515 billion kroons;
  • in 2021 it will reach 3,572.215 billion kroons;
  • in 2022 – 3 643.659 billion kroons.

Under the current Prime Minister Erna Solberg, who has headed the government since 2013, the consumer credit market grew by 13.82%, while under the previous one, Jens Stoltenberg (2005-2013), its growth reached a record 84.12%.