Many consumer credit assessments need to improve to fulfil the requirements of the Consumer Credit Act. Finansinspektionen (FI) is therefore now clarifying what information lenders should gather for a credit assessment and how this information should be used. The new general guidelines will go into effect on 1 November 2021.
Consumer credit is growing rapidly and playing an increasingly important role in households' finances. At the same time, many consumers experience difficulty paying back their loans. Thorough credit assessments reduce the risk that a consumer will experience payment problems, and FI therefore will issue new guidelines about what information borrowers should obtain before conducting a credit assessment and how this information should be used.
This information includes the borrower's employment, income, expenses and debt. The guidelines also specify how the lender should gather the information and verify it.
FI's analysis shows that many consumers are receiving loans even though the cost of the loan means that they will not have enough money left to pay for their housing and subsistence costs. FI therefore clarifies that lenders should require consumers to have a reasonable standard of living even after they have been granted a loan. This applies in particular to young borrowers who often have lower income and are more exposed financially.
"Thorough credit assessments are the most important tool for preventing consumers from experiencing payment problems. Therefore, we are now highlighting which information is reasonable to gather and use as a basis to determine whether a person can pay back the loan or not," says FI's Deputy Director General Susanna Grufman.
Sometimes lenders should advise consumers not to take a loan following a thorough credit assessment, for example if a loan has an unreasonably long repayment period or if it is rescheduled several times since this means that the loan ultimately will become very expensive.
"FI has noted that consumers are often offered loans with long repayment periods or encouraged to reschedule their loans several times under the argument that this will result in a lower monthly cost. This also means that the total cost will be unnecessarily high, which is seldom in the interest of the consumer," says Grufman.