30 June 2010
According to financial and debt counsellors replying to the Consumer Agency’s inquiry, loans are marketed too aggressively and granted too easily. The Consumer Agency insists that creditors must take part in preventing over-indebtedness and recognise their responsibilities better.
The Consumer Agency has investigated the views of financial and debt counsellors on the underlying factors behind their customers’ indebtedness. A total of 84 financial and debt counsellors replied, which is slightly more than half of all counsellors. A similar inquiry was also conducted in 2007, 2008 and 2009.90 per cent of the respondents considered over-indebtedness to be caused especially by factors connected to the offering of loans. Loans are granted to consumers too easily without asking basic information about their economic situation and ability to pay back. In addition, aggressive marketing tactics are used to encourage consumers take out instant loans.
According to the counsellors’ experiences, over-indebted people often suffer from different types of addictions and are unable to control their lives. In addition, about a half of the counsellors felt that over-indebtedness more often results from sudden changes, such as unemployment or divorce.
The Consumer Agency has requested creditors to recognise their responsibility for years. Consumers must not be encouraged to take out a loan without giving them a chance to first consider the matter thoroughly. Creditors must also investigate the customer’s solvency before granting them a loan. Possible risks, such as the rise of interest rates and living costs, must be discussed, especially with customers taking out large loans. The principles of good lending are also included in new legislation concerning consumption credits. The Consumer Agency expects that creditors will adopt these principles at the very latest in the autumn when the new Act comes into force.
It is especially alarming that the customers of financial and debt counselling have become more passive to bring up their situation with counsellors. In 2009, 72 per cent of the respondents were of the opinion that consumers contact counsellors to extend the loan repayment time, whereas now only 64 per cent thought so.
The Consumer Agency points out that the consumers facing financial difficulties should always discuss a new repayment plan with their creditors. It is better to try to agree on a new repayment schedule than to let penalty interests and collection charges grow. According to the respondents, creditors are still as willing as in the previous years to extend the loan repayment time.
The Consumer Agency also asked financial and debt counsellors to assess how long consumers have to wait for their first meeting with the counsellor. ’tTT The usual waiting period was between one to three months.
Social loans granted by municipalities are seen as one way of preventing debt problems. They are intended to consumers with smaller means who cannot obtain a reasonably termed loan from elsewhere but who are able to repay. However, only few municipalities grant such loans: more than a half of the counsellors who replied to the inquiry reported that social loans were not available in their area.