Nordic and most particularly Scandinavian nations have so much in common. It is not unusual for countries in this region to take a cue from the activities of other countries in the same region.
The idea of running a cashless economy is one of the ways this has played out. As things are, Norway is undeniably the most cashless economy with very few physical cash transactions happening daily. Other Scandinavian nations (Denmark and Sweden) have followed suit having considered its benefits.
The list is also growing as Nordic countries like Finland are doing so well in this regard. On the whole, Scandinavian countries are conveniently in the world’s top six most cashless-driven economies. You can read this article to see how well Scandinavian and Nordic nations are doing in this regard.
As a result of this, the banking and finance sector in Scandinavian countries has seriously incorporated digital technology. The possibility of getting SMS loans is one of the ways they have done this. However, there have been twists and turns with this type of loan in these nations. We will share more information about this in this article. But to begin with, let us explain the idea behind SMS loans.
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What Is an SMS Loan?
These are loans that are obtained via text messages. Application for these loans is also sent to creditors via text message. They are short-term lines of credit and are made available in a short while. At least, this was the case until legislation mandating lenders to run credit checks on borrowers came into the picture.
This is because many lenders of these loans were found guilty of practicing predatory lending. By and large, some of the things to know about this line of credit include the following:
Simple to Obtain
Obtaining this loan was a lot simpler before certain legislation came into existence. But despite these legislations, getting this line of credit is a lot simpler than getting most traditional loans. Some of the requirements include a valid means of identification, home address, proof of income source, and a few other things.
You Need your Phone Line Registered
Your phone line used to send the loan application message has to be registered. This is a major requirement for granting this loan. This is also for security reasons. For instance, it makes it difficult for people who may want to use other people’s phones to get loans.
It Is Unsecured
Collateral is not needed to obtain this line of credit. The Norwegian term for this would be uten sikkerhet på dagen, which means unsecured loans. A request for the loan will be sent via text message to the lender and the approved or unapproved reply to this request is also via text.
Challenges with SMS Loans
There have been several outcries in Scandinavian countries and many other places over the conduct of SMS loan lenders. This complaint has informed the decisions of lawmakers in Scandinavian nations and some other places to make some moves. Some of the problems with SMS loans include the following:
Outrageous Rates
A lot of people who use this line of credit do not stand a chance of getting traditional loans. This is because of their bad credit score. While SMS loans sound accommodating to them, it comes at a huge cost. The rates that come with these loans are outrageous.
This has led many people to become chronic debtors. Sweden is a perfect example of how this played out, forcing the government to take drastic measures.
Little or No Room for Negotiation
The automated manner in which conversations are made between the lender and borrower makes it almost impossible to negotiate terms. As a result, borrowers may not have a choice but to do the lender’s bidding.
Sending Spam Messages
Some of these SMS loan lenders are in the habit of sending spam messages in their bid to advertise. Many people find this very annoying and putting a stop to it can be difficult.
The State of SMS Loans in Scandinavian Nations
The governments of all three Scandinavian countries have made several fiscal policies, having taken some of the disadvantages of these loans into consideration. It should be noted that some countries have incorporated more restrictive measures than others.
For instance, Denmark has more restrictive policies to curb the excesses of SMS loan lenders. To have a better understanding of the measures that have been taken in all three Scandinavian nations, follow through till the end:
SMS Loans in Scandinavian Nations
Norway
Norway has remained a consistent example of how to run a cashless-driven society. However, the same cannot be said about curbing the excesses of SMS loan lenders and other players that act as creditors. While some fiscal measures have been taken, they have not done as much as their Danish neighbors.
This remains the stance of many financial analysts until interest rate caps are introduced. So, the question here is what has been done to curb the excesses of SMS loan borrowers?
For starters, Norway can be credited as the first among the Scandinavian nations to raise concerns about this problem. Specifically, one of the country’s past treasury secretaries openly showed disdain towards certain practices of these players in 2006.
Her remark, coupled with that of other government administrators, informed the introduction of new national legislation. The new legislation made it mandatory for lenders to run credit checks before approving SMS loans to borrowers.
This legislation did as much as reduce the number of lenders that offered this line of credit to borrowers. The reason for this is not far-fetched. First, this legislation meant that lenders had additional expenses tied to the cost of running these income-to-debt ratio checks.
Furthermore, these checks caused delays in granting SMS loans to borrowers. As a result, some prospective borrowers started looking for alternative lines of credit. Some even settled for traditional loans if they were granted. This is seeing how getting SMS loans now required filing documents for income verification and tax returns.
While the Norwegian government had done this much, some analysts believe that the decision not to introduce an interest cap is questionable. As a result, some of the few lenders still offering this line of credit impose ridiculously high rates.
Sweden
Sadly, Sweden was not as proactive as the other Scandinavian countries in this regard. While Norway and Denmark were making regulatory moves, Sweden did nothing until things started to look bad.
This is seeing how the number of debtors was reaching an unprecedented rate and many of these people were filing for bankruptcy. The media, especially print media, did not take things easy as well.
Lawmakers in the country then took a cue from their Norwegian counterparts by coming up with legislation that mandated credit checks. As a result, lenders were prohibited from issuing small loans to borrowers without confirming their income-to-debt ratio.
But in addition to this, lenders were also mandated to inform prospective borrowers about the high-risk terms and conditions that come with these loans. There are still unconcluded talks about implementing usury limits just as it is done in Denmark.
Denmark
Denmark has been the most involved of all three Scandinavian countries. Besides the fact that Norway was the first to make moves, Denmark has implemented more regulatory policies to curb the excesses of SMS loan creditors.
For starters, credit checks are mandatory regardless of the amount of money borrowed. But in addition to this, there is an extended payout period under certain conditions. The funds would be put on hold for 48 hours. Majorly, this has to do with loans that have their APR (Annual Percentage Rate) exceeding a certain percentile.
Finally, predatory lending was prohibited. As a result, creditors cannot take undue advantage of ignorance or desperation on the part of borrowers by imposing unfair terms and conditions. For more information on what can be considered predatory lending, you can visit: https://dfi.wa.gov/.
One of the major ways the country put a stop to this is by introducing an interest cap. For instance, APRs exceeding 35 percent for SMS loans are prohibited. This move was in the best interest of borrowers seeing how interest rates could be as high as 800 percent before this decision.
Conclusion
Some benefits could come with getting SMS loans. The fact that it is great for settling financial emergencies is one such. However, some lenders have taken undue advantage of people’s need for this line of credit. How the governments of the Scandinavian nations have addressed these concerns has been discussed in this article.
