Credit checks must be improved

Large credits are growing, but the smallest credits are growing faster. More borrowers are having difficulty making their payments soon after the credits are granted, and these payment difficulties are more prevalent among younger borrowers than older borrowers. These are some of the conclusions from Finansinspektionen's report this year on consumer credit. These conclusions indicate that lenders’ credit checks are not working as they should, and FI is therefore now reviewing the guidelines.

Consumer credit is growing rapidly and playing an increasingly important role in households' finances. These types of credit represent only one-fifth of households' total credit but more than one-half of households' debt service payments.

This year's report shows that large unsecured loans of more than SEK 250,000 have increased significantly the past few years. At the same time, small lines of credit, credit card debt and invoices have increased even faster, from around SEK 4 billion to more than SEK 50 billion over the past ten years.

The report also shows that there is a risk of accruing high levels of debt. Many borrowers already have credits, and many use new credits to pay off old credits.

Even though most credits are small, the report shows that many borrowers have difficulty making their payments. Among new borrowers, 4.5 per cent received a collection notice during the early months of the credit, which is an indication that their repayment capacity is weak. This figure is 8 per cent for borrowers under the age of 25.

"The fact that such a large share of borrowers receive a collection notice so close to when they were granted the credit is not acceptable from a consumer protection perspective," says FI's Director General Erik Thedéen. "The credit checks need to be better, and over the coming year we will look closer at companies that have a very large share of borrowers whose loans have been sent for collection."

To rectify the deficiencies, FI has therefore begun efforts to clarify which information lenders need to obtain and take into consideration when assessing a borrower's repayment capacity. The new guidelines will be completed by the summer of 2021.

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