Experience in regulating the consumer credit market in Sweden

From 1 July 2019, the General Rules of the Swedish Consumer Agency for consumer loans came into force. The reason for the change in legislation was the growing lending market, as well as a large number of delinquencies and non-payments, which the government has been struggling with since 2007. Finally, the introduction of the new rules was influenced by the example of Norway, the first of the Scandinavian countries to tighten requirements for consumer loans.

Reasons for the introduction of the Rules

Earlier, Sweden has already taken measures aimed at reducing the growth rate of consumer loans, in particular, the so-called “quick loans” or “SMS loans”.

Quick loan (Swedish Snabblån, short for. Låna pengar snabbt och enkelt – loan money quickly and easy) is a type of loan that allows you to remotely and relatively quickly borrow small amounts, most often 500-3000 kroons (hereinafter referred to as Swedish kronor). In 2006-2007, money could be received within 15 minutes, from 2008 – the next day. Such loans are issued on average for a month. In this case, the analogue of the signature is the code from the SMS, which the company sends if the request is approved.

The ease of obtaining such loans provoked irresponsible borrowers and from the very beginning led to a huge surge in delinquencies and non-payments: in 2007, the number of problem loans amounted to 25.4 thousand, in 2008 – 35.8 thousand. In 2015, their number reached 65 thousand.

What measures have been taken?

So, in 2019, the Swedish government, following the example of Norway, tightened the rules for issuing consumer loans. The main provisions of the new rules:

  • it is imperative to check the creditworthiness of the client – an organization that ignores this rule will be fined 10 million kroons;
  • you cannot point to the ease of obtaining a loan and generally describe it as attractive – advertising should be a neutral and honest listing of conditions;
  • it is impossible to develop bonus programs and conduct promotions such as sweepstakes, that is, to encourage customers to obtain loans;
  • in individual advertising such as SMS mailings, you cannot use false information that the client’s creditworthiness has already been checked and the loan is approved;
  • information on the rate, sanctions in case of non-payment and other risks associated with the loan should be clearly visible, highlighted in bold and in a contrasting color, usually black on a white background (individual points in red);
  • the client should be offered information about the contacts of the municipality, which can be contacted in case of problems related to the loan;
  • the application form on the site should not be conspicuous;
  • companies offering loans with a grace period without interest must accurately notify the consumer of all costs associated with such a loan and the subsequent rate.

One of the important requirements is that the terms of this or that loan must correspond to its size and nature while being appointed in the interests of the client – for example, loans for a small amount should be issued for a short period to avoid unnecessary overpayments.

Rule introduction results

At this point, the results of the measures taken should be evaluated with caution. The market continues to grow, but it should be borne in mind that the situation was influenced by the destabilization of the economy associated with the coronavirus pandemic.

While analysts of the popular Swedish resource smslansnabb.se note that in June loans to the private sector in Sweden amounted to 1,500.331 billion kroons, in July the market volume increased by another 3315 million kroons

From 1996 to 2020, monthly consumer loans averaged 925.088 billion kroons. The lowest level was recorded in July 1996 (344.995 billion kroons), and the highest in May 2020 (1,533.206 billion kroons).

It should be noted, however, that up to 20% of the growth in consumer loans in 2020 can be attributed to loans issued by major players (such as Advisa or Thorn) outside the country.