The Consumer Ombudsman plans to put an end to the prohibitive costs associated with payday loans by gathering names for a possible class action lawsuit against two quick loan companies.
The mediator wants more reasonable conditions for loans that are not covered by new rules aimed at capping prohibitive interest rates on consumer loans. If the lawsuit goes to court, it will be the first time that the authority has pursued such an action against fast lending companies.
The Competition and Consumer Authority, KKV, is currently preparing legal action against two payday loan companies. The lawsuit calls on Turku-based Lahti and Euro24 Finance-based JW-Yhtiöt to either rescind agreements with clients or halve annual interest charges on their loans.
Euro24 Finance and JW Yhtiöt, the company behind payday loan provider Suomilimiitti, have been in the market for about three years. The authority first seeks an amicable settlement. However, if the lenders do not accept his claims, it will become the first class action lawsuit to go to trial in Finland.
The Consumer Ombudsman can take the matter to court on behalf of customers if there are enough of them to indicate that they are not satisfied with the terms of their agreements and wish to change them. The law on class actions does not define the number of plaintiffs required for a class action.
A month to bring together the complainants
The authority said it was taking the case to court based on the number of people who came forward within a month to say they were dissatisfied with their current payday loans. The lawsuit could focus on either company and any collectors to whom bad debts have been sold could also find themselves embroiled in the case.
If the payday companies comply with the ombudsman’s first request, consumers will only have to pay back the principal they borrowed, without interest or other charges. However, if the parties fail to reach an amicable settlement and the ombudsman and other plaintiffs win the case, consumers will have to pay the equivalent of up to 50% of the actual annual interest rate on their loans.
The case will reduce the costs plaintiffs pay on their loans by hundreds of euros. Officials do not know how many people have borrowed money from the companies named in the lawsuit. It is also unclear how much Finnish consumers borrowed from convenience companies overall, a situation confirmed by an analysis conducted by the authority this fall.
A spring review of Finnish banks indicated that consumers took out around € 660 million in quick loans in 2017. However, they represented only a small portion of the rapidly growing stock of consumer debt.
Legal reforms aim to protect consumers
The authority pointed out that there have been dozens of operators similar to the two companies it identified offering loans at exorbitant interest rates, although there have been variations in their lending terms. .
Finland first introduced the option of collective redress about 10 years ago. Last week, the government tabled a proposal to allow consumer protection officials to fight sky-high interest rates by imposing substantial financial penalties on violators. Authorities hope such sanctions would persuade the industry to comply with consumer protection laws in a business that the Bank of Finland has described as highly profitable.
Legislative reforms to better protect consumers came into effect this fall. The changes mean that new consumer loans – including payday loans – cannot charge more than 20% interest, and loan administration fees have also been capped. In addition, companies that do not meet the interest rate cap will no longer be allowed to charge interest or other fees.
Before the reforms came into effect, interest rates were only regulated on loans with a value of less than 2,000 euros. As a result, credit companies have offered loans valued at 2,000 euros and above with actual annual interest rates of over 1,000 percent per annum.