In July, the maximum interest rate for certain consumer credits will be temporarily limited to at most 10 per cent, even when the agreed upon normal interest rate for the credit in question is higher than this. The 10% interest ceiling is valid until the end of the year. At the same time, the direct marketing of consumer credits will also be temporarily prohibited.
Due to the exceptional circumstances caused by the coronavirus, the maximum interest rate on certain consumer loans will be temporarily limited to 10% from the beginning of July. The purpose of the temporary interest ceiling is to ensure that the interest rate on credit is moderate in order to reduce debt problems. The temporary price regulation of consumer credits will be valid from 1 July 2020 to 31 December 2020. The fees agreed on for a credit in addition to its interest rate may not be increased during its period of validity.
The temporary interest ceiling will apply to both contracts concluded after the entry into force of the Act and to continuous loans that preceded the Act when the consumer makes new withdrawals during the temporary regulation. The interest ceiling does not apply to commodity-related loans, such as hire purchase loans or credit card loans.
Temporary interest ceiling will expire at the beginning of 2021
The interest charged on the credit after 31 December 2020 will be determined in accordance with the valid credit agreement and legislation. If the credit agreement has been concluded after 1 September 2019, the interest rate may not exceed 20 per cent, but the interest rate of credits for which an agreement was concluded prior to this may be significantly higher. The expiry of the interest ceiling also applies to a situation in which the loan has been withdrawn during the term of the temporary Act, but the loan remains unpaid after the end of 2020.
“Consumers should consider the likely increase in interest rates after the turn of the year. For this reason, you should consider your own solvency when taking out credit,” says Director Outi Haunio-Rudanko.
A temporary interest ceiling may help in the short-term financing in situations where the consumer is able to repay the credit they have withdrawn during the term of temporary regulation. However, if the consumer is unable to repay the credit by the end of the year, they may have to repay the withdrawals at a higher interest rate than the maximum 10 per cent during the temporary interest ceiling.
In particular, new withdrawals in loans granted before September 2019 may become very expensive because the price regulation that entered into force on 1 September 2019 did not limit the costs of these credit agreements. In these existing credit agreements interest rates can be significantly higher than 20%. Therefore, an unreasonable interest rate of up to 200% may be collected for these loans when temporary price regulation ends. It would be worthwhile to make an effort to replace expensive credits with a more affordable alternative.
Interest may not be advertised in a misleading manner
Advertising may not provide misleading information on the interest rate of credit. The normal interest on the credit according to the credit agreement must be stated at least as prominently as the temporary lower interest rate. Advertising must also give a warning if the interest rate is to increase after the temporary interest ceiling expires.
From the beginning of July, the direct marketing of consumer credit and services offered by credit intermediaries will also be temporarily prohibited. From the point of view of the prohibition, it is irrelevant whether the loans are marketed by a lender, a credit intermediary or another party. Direct marketing refers to marketing targeted at a specific consumer or household, for example by post, telephone or electronic means. The prohibition applies to all loans under chapter 7 of the Consumer Protection Act. The direct marketing of credits will be prohibited for both new and existing customers.
“The Finnish Parliament is requiring that the Government prepare permanent legislation to curb the advertising and direct marketing of consumer credit. This would be a highly desirable reform,” states Haunio-Rudanko.