The 20-per cent interest rate cap for consumer credits will enter into force on 1 September 2019. The purpose of regulations limiting the price of credits is to prevent debt problems, promote transparency in credit pricing and facilitate the enforcement of compliance with law. Consumers who have taken out an expensive loan should try to replace it with a cheaper one, and new withdrawals should not be made from old expensive credits.
As from the beginning of September, it will not be permitted to agree on an interest rate in excess of 20 per cent for a consumer credit. In addition to interest charges, other credit expenses will also be limited. Furthermore, the law defines the amount of fees that can be charged for extending the repayment period.
If a creditor or a loan mediator violates the interest rate cap or the maximum amounts of other credit expenses, the debtor will not need to pay any interest or other credit expenses on the loan.
The interest rate caps and credit expense caps apply to all consumer credits agreed as from 1 September 2019 with the exception of hire purchase loans of vehicles and such housing loans for which a house, an apartment or some other property has been deposited.
”We have been calling for measures for the prevention of over-indebtedness for a long time and therefore welcome a new, clearly stricter and more comprehensive interest rate cap. However, the new regulations on the interest rate cap are just one part of the necessary measures to mitigate debt problems,” says Consumer Ombudsman Katri Väänänen.
Consumers should try to refinance expensive credits
The old interest rate cap applies to credits agreed before 1 September 2019. According to it, the actual annual interest on a credit of less than EUR 2,000 may exceed the reference rate referred to in the Interest Act by 50 percentage points at the most.
During the old interest rate cap regulations, unreasonably expensive lines of credit of more than EUR 2,000 have been offered to consumers. Efforts should be made to replace expensive credit agreements with a more affordable credit in the scope of the new price regulations. If it is not possible to change an expensive loan for a cheaper one, it is not advisable to make new withdrawals from the old one. Those withdrawals continue to be equally expensive and will worsen the debt burden.
”Unfortunately, thousands of consumers will have so-called overdraft facility agreements with unreasonable annual interest rates for a long time to come. Sometimes the interest rate may be well over 100 per cent. In such cases, consumers should demand that the interest rate should be made more reasonable,” says Väänänen.
Where can consumers get help in financial and debt problems?
If you cannot pay your credit repayment by the due date, contact the creditor to negotiate a new payment schedule.
If the credit expenses charged to you are very high and you cannot reach an agreement on the credit repayment with the creditor, contact the Consumer Advisory Services. The Consumer Advisory Services provides you with guidance in the matter and mediates a settlement to the dispute with the creditor as necessary. It is possible to have unreasonable credit expenses made more reasonable by the Finnish Consumer Disputes Board and courts of justice.
If you have debt problems, contact the financial and debt counselling service at the legal aid office of your region. Financial and debt counsellors will help you to assess your financial situation and assist in the negotiations with your creditors.