The Ministry of Economic Affairs and Communications (MKM) wants to lift strict advertising restrictions currently in place for quick credit providers that were laid down three years ago when Estonia decided to contain fast loans. The ministry now finds it is time to soften the restrictions.
Quick loan advertisements must currently consist only of mandatory information, such as interest rates, total cost of credit and the company’s contact information. New draft legislation would lift these restrictions and allow loan providers to advertise freely.
“Proposed changes do not affect other consumer credit advertising requirements, meaning that ads and commercials could not be made attractive,” said MKM Deputy Secretary General Kristi Talving. She explained that ads must still be responsible and balanced. “Providers are not allowed to make borrowing sound simple and risk-free,” Talving said.
While slogans such as “easy loans”, “cheap leasing” and “not another hour without money” the likes of which were used three years ago would still not be allowed, the amendment would make it possible for credit providers to advertise themselves; for example, by publishing content marketing.
The ministry finds that the amendment would foster competition and innovation on the consumer credit market. Credit providers agree.
“We can compare it to buying a car. People tend to look at a model’s advantages and price, why some cars are more reliable than others. The new law would allow them to scrutinize fast loans in much the same way,” said CEO of Credit24 Ivo Popp.
Member of the board of the Estonian Debt Counseling Association Ester Saag was less optimistic. She said changes could be welcomed if credit providers could be trusted to share unbiased information.
“However, it is probable ads will only highlight aspects that support the credit providers’ bottom line,” Saag said.
For example, while credit providers could advertise loan holidays and the possibility of changing contract details, it wouldn’t necessarily be in the interests of their clients. “It makes people feel they can just stop making payments temporarily should they run into financial difficulties. The fact that opting for a loan holiday increases additional costs goes unmentioned and is something borrowers might not think of by themselves,” Saag said.
Saag learned of the planned changes from the journalist. The ministry never thought to consult debt counselors over the changes. Kristi Talving from MKM said no one was excluded on purpose.
The draft amendment’s explanatory memo lists consumer credit providers’ and mediators’ organization NGO FinanceEstonia as an advisor in the process. Talving said the idea to ease the restrictions came from ministry officials. “We took a proposal to revisit the restrictions to Minister of Economic Affairs and Infrastructure Taavi Aas earlier this year,” Talving said.
She explained that the ministry has been keeping an eye on consumer credit surveys ever since the restrictions were laid down and that figures suggest the time to ease up has come. “The relative importance of loans that are not repaid in time has been cut in half, meaning that consumers can be given a little more information,” she said.
Talving pointed to Bank of Estonia statistics according to which borrowers who are not able to service their loans are fewer today.
However, more people being able to repay their loans has done nothing to reduce the number of quick loan clients. On the contrary – the number of borrowers has been growing briskly in recent years.