Legal Update: New Restrictions on Interest Rates and Credit-Related Costs on Consumer Credit

Authors: Henrik Mattson, Senni Mäki-Hallila and Pauliina Sutinen

The Government Bill (HE 230/2018) on amending acts related to consumer credit agreements proposes several changes to the Finnish consumer credit legislative framework, in particular to the interest rate-cap and credit-related costs.

On 27 February 2019, the Commerce Committee of the Finnish Parliament proposed more stringent regulation compared to the Government, including decreasing the interest rate-cap to 20%.

These changes to the legislative framework are proposed to take effect on 1 September 2019.

Lower Cap on Interest Rates

The Finnish Consumer Protection Act (38/1978, as amended) sets out an interest rate-cap, i.e. a maximum interest rate that can be charged on a consumer credit. This is currently set at 50 % plus the reference rate set out in the Finnish Interest Act (currently, 7%). The Government has proposed to set the rate-cap at 30% inclusive of the reference rate.

However, the Commerce Committee of the Finnish Parliament has proposed to decrease the interest rate-cap to 20%.  If passed, the 20% interest rate-cap would be a significant restriction to the amount of interest consumer credit providers are currently permitted to charge to consumers.

Interest Rate-Cap to Apply to All Types of Consumer Credit

The interest rate-cap is proposed to be expanded to all types of consumer credit under the scope of Chapter 7 of the Consumer Protection Act.

The interest rate-cap currently applies to consumer credits and credit limits of less than EUR 2,000, where the consumer credit is drawn down as cash. If the Bill is passed, the interest rate-cap will be extended to apply also to consumer credits relating to the purchase of goods or services, where the consumer does not have the right to receive cash.

In addition to the level of the interest rate-cap, the Bill also proposes changes to the way the amount of interest is calculated.  Pursuant to the Bill, the amount of interest would be calculated based on the actual amount of credit drawn down by the consumer instead of the credit amount granted to the consumer (as it is currently).

Restrictions on Credit-Related Costs

The amount of credit-related costs payable by the consumer as well as the right to charge costs resulting from extending the time of repayment is proposed to be restricted. The proposed maximum amount of credit-related costs would be 0.01% per day of the amount of credit or credit limit. Furthermore, credit-related costs could not exceed EUR 150 per annum.

Consequences of non-compliance

Pursuant to the Bill, a creditor or intermediary could not charge any interest or credit-related costs to the consumer if it fails to comply with the abovementioned restrictions on the interest rate-cap and the cap on credit-related costs.

Furthermore, the Commerce Committee has proposed that the supervision of consumer credits be centralised to the Finnish Financial Supervisory Authority (the “FIN-FSA”). Currently, the supervision is allocated between the Finnish Consumer Ombudsman, the Finnish Consumer and Competition Authority, the Regional State Administrative Agencies and, in certain cases, the FIN-FSA.

Hannes Snellman Advises on Consumer Credit-Related Matters

The financial services regulation team at Hannes Snellman is available to discuss any questions or issues related to the provision of consumer credits.