The Consumer Ombudsman in Denmark is cracking down on loan originators that have bad credit ratings and use misleading marketing.
The following loan originators were reported to the police:
- 4finance ApS (Vivus.dk)
- Capitolia ApS (Simbo.dk)
- Creamfinance Denmark ApS (Lendon.dk)
- GoKredit ApS (Gokredit.dk)
- Finans 247 ApS (Minifinans.dk)
- Ferratum Denmark ApS (Ferratum.dk)
Simbo and Creamfinance are both loan originators on the Mintos Marketplace.
If you’re coming 12000 DKK (~1600 EUR) at the end of the month, Vivus has an offer for you. You can have the money quickly deposited on your bank account. You can choose yourself how you want to pay off the loan, as long as you’re paying the interest that is due.
Unfortunately for the borrower, the interest rate is 20% per month, or equivalent to a borrower APR of 817%. This is the type of loans that the Consumer Ombudsman is currently looking into in a new study in the industry for payday loans.
All 6 companies have been reported to the police for having used misleading marketing according to the Consumer Ombudsman.
Five of the companies have also offered loans as credit lines or overdraft facilities in violation of the regulation. Meanwhile, several companies also have inadequate credit scoring models. In several cases, loans were granted, but the credit rating showed that the consumer is able to pay interest.
Giving consumers interest-only loans without having properly assessed whether they can afford to pay off the loan is a violation of the credit agreement act.
Wouldn’t be able to pay back
Loans have been granted to people with such a high debt to income ratio or low income, that it would have been impossible to repay the loan, according to the assessment. The Consumer Ombudsman assumes that the borrowers should have a disposable income of 6290 DKK (600 EUR) to live from. Unfortunately a specific number of cases shows that loans were given where this was not the case.
This was how customers became rated:
- One company granted 5 loans of 1000 to 4000 DKK with 19% interest per month or 228% annually). Borrowers had already taken on other ‘substantial loans’ or had ‘very modest’ loans. Their disposable income to repay the loans were far below the available amount of 6290 DKK required to ‘maintain a modest living’.
- A company granted 4 loans of between 3000 and 8000 DKK at a monthly interest rate of 15% or 180% annually. Borrowers had modest incomes and/or other loans in advance, but the company did not obtain information on their actual debt to income ratio or other expenses before the loans were granted. According to the Consumer Ombudsman, this is an insufficient credit rating.
- A company granted loans to 4 applicants, although they stated that their rent and other overhead expenses were below average for people with similar income.
- A company borrowed money for 3 people, although their income was so low that the Consumer Ombudsman estimates that their disposable income was less than half of the 6290 DKK, which according to the Debt Reorganization Order is the minimum.
However, several of the police-reported companies are members of the industry association ‘Digitale Långivere’ (‘Digital Lenders’). It is believed that the loan originators in the industry do everything possible to properly assess its customers.
Insufficient information is obtained on the consumers’ finances, and we have long expressed the wish that we get a state debt register, which provides a comprehensive overview of the individual citizen’s debt situation. For we sit and count the disposable amounts in the blind when we cannot see what people are having debt, says Christina Trauboth, director of the police-reported company Gokredit and spokesman for Digital Lenders.
If a person owes what corresponds to an annual income, he or she must not have new consumer loans. But that overview does not exist now, and we hope that there will be political will to resolve, she continues.
At the same time, digital lenders emphasize that in many of the cases consumers have in the meantime repaid the loan when the Consumer Ombudsman is criticizing.
It’s the companies’ problem
In the ‘Forbrugerrådet Tænk’ (‘Consumer Council Thinking’), however, it is said that is difficult to properly assess the customers with the information available.
The mortgage companies should be far more cautious, it says.
Anja Philip, Consumer Council Tanke’s chairman, says that they see the consequences in their debt counseling, where more than half of the thousands of people who approach them have this type of loan in their luggage. It is a huge problem if one cannot get out of his debt, and that is precisely why there is a legislation to credit the loan applicant.
She does not think it is an excuse that it is difficult to find information about the borrowers.
It is a borrower’s obligation to obtain the information required. It’s a problem they have to solve, otherwise they should not take on those loans, says Anja Philip.
Has corrected errors
4finance, Finans 247 and GoKredit are represented by the industry association Digital Lenders, while Capitolia believes that it is too early to comment on the police report.
Ferratum, the second largest provider of payday loans in the Danish market, has been reported to the police for misleading marketing. However, all errors that the Consumer Ombudsman has pointed out have already been corrected, according to a written reply from the company.
Ferratum is a responsible lender and attaches great importance to always complying with all local laws and regulations. Unfortunately, in this particular case of some terms in our example, it has not been fully successful. This was certainly not our intention, and we corrected all errors immediately after the Consumer Ombudsman made us aware of them in August 2018, writes Ferratum’s CEO Jesper Hammer.