The Competition and Consumer Authority wants retroactive relief for expensive consumer loans.
The mediator wants more reasonable terms for loans that are not covered by new rules aimed at capping prohibitive interest rates on consumer credit. If the lawsuit goes to court, it will be the first time the authority has taken such action against fast loan companies.
The Competition and Consumer Authority, KKV, is currently preparing legal action against two payday loan companies. The lawsuit is asking Lahti-based JW-Yhtiöt and Turku-based Euro24 Finance to cancel agreements with customers or, alternatively, to halve the annual interest charges generated by 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 initially seeks an amicable settlement. However, if the lenders do not agree to his claims, it will become the first class action lawsuit to go to trial in Finland.
The consumer ombudsman can take the case to court on behalf of customers if enough of them indicate that they are unhappy with the terms of their contracts and wish to change them. Class action law does not define the number of plaintiffs required for a class action.
A month to gather the complainants
The authority said it is taking the matter to court because of the number of people who have come forward within a month to say they are unhappy with their current payday loans. The lawsuit could focus on either company and any collectors to whom bad debts were sold could also find themselves embroiled in the case.
If towing companies comply with the ombudsman’s first request, consumers will only have to repay the capital they borrowed, without interest or other charges. However, if the parties do not reach an amicable settlement and the Ombudsman and the other plaintiffs win the lawsuit, consumers will have to pay the equivalent of a maximum of 50% of the effective annual interest rate on their loans.
The case will reduce the costs plaintiffs pay on their loans by hundreds of euros. Officials don’t know how many people borrowed money from the companies named in the lawsuit. It is also unclear how much Finnish consumers have borrowed overall from tow companies, a situation confirmed by an analysis conducted this fall by the authority.
A spring review by Finnish banks said consumers took out around 660 million euros in quick loans in 2017. However, they only accounted for a small part 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 has identified offering credit at exorbitant interest rates, although there have been variations in their loan 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 tackle exorbitant interest rates by imposing substantial financial penalties on offenders. Authorities hope such penalties would persuade industry to comply with consumer protection laws in a business the Bank of Finland has described as highly profitable.
Legislative reforms to better protect consumers came into force 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, businesses that do not meet the interest rate cap will no longer be allowed to charge interest or other fees.
Before the reforms came into force, interest rates were only regulated on loans worth less than 2,000 euros. As a result, loan companies offer loans worth 2,000 euros and more with real annual interest rates of more than 1,000% per annum.