SMS lenders face court setback
Companies which lend money via SMS have been told by Sweden's consumer ombudsman to review the fees they charge borrowers. The ombudsman's order follows a ruling by the Swedish Market Court in which lender Mobillån Sverige was banned from charging fees that exceeded the cost of a loan.
The Swedish Consumer Credit Act forbids companies from charging borrowers more than the cost of providing the credit. The Market Court told Mobillån Sverige that it must stop charging fees of 300 kronor on a loan of 1,000 kronor unless there was a particular cost for providing that particular loan to a borrower. If the company ignores the court ruling it will face a fine of 700,000 kronor.
The court said that the 15 million kronor charged in fees by the company could not be classed as covering the cost of supplying the credit. It also said that the cost of maintaining a board and a managing director were not legitimate grounds for the fees. It said it was also debatable whether salaries of other employees could be considered legitimate costs of supplying credit.
Over 20,000 reports of unpaid mobile phone loans have been received by the Swedish Enforcement Authority, a state-run debt collecting agency.
"Not even I thought that there would be this many. The increase has been like an avalanche," said Janne Åkerlund of the Swedish Enforcement Authority.
Many of the borrowers reported were young. Of last year's applications to the authority from lenders, 36 percent concerned loans taken by people aged 18-25, despite this age group only containing 10 percent of Sweden's population. The next age group up, 26-35-year-olds, accounted for 33 percent of loans for which lenders applied for help in recovering.
Some 44 percent of unpaid SMS loans had been taken by women. Overall, women only account for 35 percent of debts chased up by the enforcement agency.
Wednesday's ruling is likely to have a major effect on the consumer credit market.
"I expect that a process of self-cleansing will now occur and that all players on the market will review their fees. To ensure that this happens, the Swedish Consumer Agency will actively check that the ruling in the Market Court is followed," Consumer Ombudsman Gunnar Larsson said in a statement released on Wednesday.
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The Swedish Consumer Credit Act forbids companies from charging borrowers more than the cost of providing the credit. The Market Court told Mobillån Sverige that it must stop charging fees of 300 kronor on a loan of 1,000 kronor unless there was a particular cost for providing that particular loan to a borrower. If the company ignores the court ruling it will face a fine of 700,000 kronor.
The court said that the 15 million kronor charged in fees by the company could not be classed as covering the cost of supplying the credit. It also said that the cost of maintaining a board and a managing director were not legitimate grounds for the fees. It said it was also debatable whether salaries of other employees could be considered legitimate costs of supplying credit.
Over 20,000 reports of unpaid mobile phone loans have been received by the Swedish Enforcement Authority, a state-run debt collecting agency.
"Not even I thought that there would be this many. The increase has been like an avalanche," said Janne Åkerlund of the Swedish Enforcement Authority.
Many of the borrowers reported were young. Of last year's applications to the authority from lenders, 36 percent concerned loans taken by people aged 18-25, despite this age group only containing 10 percent of Sweden's population. The next age group up, 26-35-year-olds, accounted for 33 percent of loans for which lenders applied for help in recovering.
Some 44 percent of unpaid SMS loans had been taken by women. Overall, women only account for 35 percent of debts chased up by the enforcement agency.
Wednesday's ruling is likely to have a major effect on the consumer credit market.
"I expect that a process of self-cleansing will now occur and that all players on the market will review their fees. To ensure that this happens, the Swedish Consumer Agency will actively check that the ruling in the Market Court is followed," Consumer Ombudsman Gunnar Larsson said in a statement released on Wednesday.
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