Instant Loans – Unclear Marketing, Unreasonable Terms and Usury?
Abstract
This article gives an insight on instant loans. An instant loan is an unsecured, small-amount debt, usually from 50 to 200 EUR, which one can order via the Internet or text message on one’s mobile phone. If the applicant has a clean credit record, themoney is placed directly in his or her bank account in a couple of minutes. Usually, the loan must be paid back within a month. The interest for the loan is remarkably high, e.g. 20 EUR from a 50 EUR loan. The annual percentage rate is usually in the hundreds or thousands. A typical feature for an instant loan is that it is not integrated with the buying of goods.
The problem is that people who are living under financial stress tend to use these loans as a short-term life-saver. The loan speed and the easiness are tempting especially to young people. There are no particular rules for instant loans. That is why loan-givers can act quite freely in the market.
The Finnish Act on Credit Institutions (9.2.2007/121) does not apply to companies who provide instant loans. This is because of the fact that such loan companies do not accept repayable funds from the public, and therefore their actions are not considered to be credit institution activity (4 §). Therefore, the Finnish supervisory authority, Financial Supervision (FS), does not supervise these companies. Furthermore, the general conditions of instant loan contracts lack FS’s supervision. The competent authority in this context is the Consumer Agency and the Ombudsman.
General legal provisions regulating consumption credits are in the Consumer Protection Act (20.1.1978/38), in chapter 7. Unfortunately, in practice, the chapter does not apply to instant loans because the loan amounts are too small and the loan periods too short to meet the criteria set out in the provisions. To be more accurate, if the consumer credit has to be paid back within a maximum of three months or the credit amount is less than 170 EUR, most of the sections in the chapter do not apply.
