Fast loans come to Sweden
As the UK banks began to tighten their own lending criteria, the fast loan market took even greater strides in its development. When ordinary residents got rejected from the banks, they took a quick loan instead.
Soon companies were investing big money on TV advertising. In the UK, the average British watched a total of 152 commercials on fast loans in 2012. At the same time, the market had spread to Australia, Canada, Finland and in 2006 to Sweden.
The purpose of this type of loan is the same today as when the loan form saw the light of day in the US. If you have unexpected expenses or you end up on a temporary minus at checkout, sms loans can make your everyday life go around financially. You borrow a smaller amount and get access to the money remotely.
From store to mobile
In Sweden, sms loans have never been offered in stores, but in the USA. To implement their application, one can now take advantage of how the Internet has grown explosively. The payment process is also done digitally, rather than before when the American borrower received either a check or cash.
Mobile, and especially smartphones, has become a natural part of people’s everyday lives and therefore the application process does not happen eye to eye. It includes application, control and credit testing, and is often carried out over the phone.
However, the company’s way of communicating via the customer is via sms – and thus the concept of sms loan has been coined. Today, sms loans also go under several names, such as micro loans, mini loans and quick loans.
The role of the Consumer Agency
If we take a closer look at the Swedish fast loan market, it is under the supervision of mainly two authorities: the Swedish Consumer Agency (KO) and Finansinspektionen (FI). KO is a state administrative authority for consumer issues and sorts under the Ministry of Finance.
Since the rise of sms loans in Sweden, KO has been critical of the market. Above all, it is believed that customers have been able to take loans too easily without even knowing exactly how much the costs are.
In 2007, KO won a legal case against a high-speed mortgage company, which had not been specific when formulating loan costs. This resulted in a fine of SEK 750,000 and this was also the starting point for a more tight regulatory framework for SMS loans.
The purpose? Customers would feel safer, get a better look and not be led by the light of both serious and rogue lenders. As the fast-loan market grew in Sweden, a new law on the right of withdrawal was introduced.
The role of the Financial Supervisory Authority
All financial companies in Sweden are under the supervision of Finansinspektionen. This authority is responsible for supervision that both banks and credit institutions must relate to, which has become increasingly important the more terrain this market has gained in Sweden.
In the past, FI had nothing to do with the fast mortgage companies except that they were registered with them. Admittedly, the companies were not required to do so, which meant that anyone could start a business and issue sms loans to private individuals, but beyond that, the companies did not need to make credit information.
The banks, like Kronofogden, thought that quick payments generated in wrong decisions, but on the part of the counterparty it was called that the banks’ frustration was due to the opportunities of the fast loan market. SMS’s loan was a loan form whose speed the banks could never match, it was called.
The interest rate for sms loans misunderstood
In 2006, an article was written in Metro, in which both the Crown Prosecutor’s Office and a fast-loan company were contacted to give their views on a certain form of loan, a loan that will be repaid within a month and has an effective annual interest rate of 1355 percent.
However, here we come to one of the biggest misconceptions regarding SMS loans. The effective interest rate is required by the fast loan companies to print, clearly and concisely, so that the customer can access this information.
The advantage of an effective interest rate is that the customer can compare the total cost of different types of loans, but since it is always calculated on an annual basis, it gives an unfair picture of the cost of an SMS loan. This is hardly something the media mentions in their writings.
Interest rates can be several hundred, in the Metro case a thousand, percent higher if you use the effective interest rate. More fair is to take into account the actual repayment cost. We return to this in the section on five myths about sms loans.