In the general discussion concerning consumer debt problems several debaters have blamed short-term, small consumer loans, so-called payday loans, for the increasing number of consumers with debt problems. Misdirected and ill-informed opinions fail to recognize the true reasons for debt problems and constructive solutions and instead resort to bashing the smallest debt providers with accusations of unfair practices and vague insinuations and comparisons to drug trade or other, in this case completely irrelevant but very negative social problems. The aim of the debaters seems to be the complete ban of small consumer loans.
According to CEO Pauli Hentunen of Euroloan Consumer Finance PLC, the debt problem is real, and something should be done to remedy the problem. The solution should, however, be based on real facts and addressed toward a sustainable solution that does not add to the problem.
Completely banning the current consumer loan business or introducing a low fixed limit on interest rates is not a responsible solution, as this would mean that loans would be provided illegally by criminals instead of legal, registered and regulated loan providers. Already in 2005, Minister of Justice Leena Luhtanen addressed the issue, stating the fact that illegal collection and loan sharking would certainly be far worse than an open market with regulatory oversight.
The debt problem
A major part of consumer debt problems arise from a few reasons – the current, extremely high real estate prices compared to annual household income and large consumer loans (including car financing) are the major contributors to the overall consumer debt burden. Uncertain or irregular income, bad expenditure planning (excessive spending) and unforeseen events also contribute to the problem, while small consumer loans contribute minimally to the overall debt problem.
Small consumer loans are a means of improving short-term cash availability, not a means of addressing a mounting debt problem. The fact that small instant loans are sometimes used as a last resort to pay the cost of old debt with new debt is only a symptom of a much bigger underlying problem, which in reality consists of mortgage, car loans, large consumer loans used for furniture and consumer electronics, credit card debts etc.
The REAL problem is that loans can be taken from banks, consumer loan providers, credit card companies and other credit providers without and means for the loan provider to check if the customer has 0 or 100 other loans from other lenders. Responsible lenders ask for this information, but unfortunately people often give false information and there is currently no way of immediately verifying the situation.
According to Statistics Finland (Tilastokeskus), the overall household debt average for all households 31.12.2010 was:
- Mortgage 31.500 EUR
- Large consumer loans 5.300 EUR
- Credit card debt 830 EUR
- Small consumer loans 26 EUR
When including only households with debt, the figures are the following (Statistics Finland):
- Mortgage 105.000 EUR
- Large consumer loans 19.100 EUR
- Credit card debt 1.120 EUR
- Student loans 580 EUR
- Other loans 2.910 EUR
- Small consumer loans 217 EUR
What is evident from the above figures is that people are indebted from an increasing number of debt sources, and that the debt issue concerns normal families and single households. It should also be noted that many consumers who have never used short-term consumer loans may have much worse debt problems due to their other loans.
There are some specific problems regarding small, short-term consumer loans, such as a small number of people who take loans from every available source without ever intending to pay them back. This small group of miscreants cause a disproportionate share of problems by clogging the courts of justice and by increasing the loan costs for other, law-abiding customers.
The solution
CEO Pauli Hentunen of Euroloan Consumer Finance PLC suggests a simple, consumer-friendly solution for the debt problem – a general credit register where all lenders would have to report all loans they have provided. As with the current credit default information register, the information provided by a general credit register would be undeniable when applying for a new loan. Some banks already partially have access to this information by checking the account information of their customers. This is currently limited to the credit history of their own clients and does not work between banks or other lenders.
Mr. Hentunen invites the consumer and data protection agencies, service providers and political decision-makers to a discussion to create a solution for consumer debt problems.
By creating a common credit register the consumer debt problem could be reduced to a fraction of the current level. The current environment where a credit provider is unable to check the number and volume of the customers’ other loans is unsustainable in the long run and contributes to the debt problem. No rational lender will voluntarily incur credit losses by contributing to a mounting debt problem.
Euroloan Consumer Finance PLC is one of the leading providers of small consumer loans in Finland. The company emphasizes transparency and accountability in its operations. A general credit register would be a major step toward a more open and consumer-oriented finance industry.
Contact information:
Euroloan Consumer Finance Oyj
Pauli Hentunen
Chief Executive Officer
P.O.Box 211, (Hiilikatu 3 Technopolis Ruoholahti)
00181 Helsinki
+358 10 2171 001
pauli.hentunen@euroloan.com
www.euroloan.com
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