Written by Johan Ragnar, lawyer at Synch and John Lundberg, thesis intern
The rules on how consumer credits can be granted and marketed are spread out in several different acts and regulations. The Swedish Consumer Agency’s (“the Agency”) General Advice on Consumer Credits (“the Advice”) is one of the main sources of guidance in this matter. The Advice is a complement to existing legislation where the Agency’s opinion is clarified in issues with room for interpretation. The Agency’s opinion is of interest for businesses since it is the supervising authority of consumer credits. The Advice also contains a reference to the Swedish Financial Supervisory Authority’s advice on consumer credits which also should be considered. In this blog post, the Agency’s proposal on a revised version of the Advice is examined.
The proposal contains a major editorial revision. The Advice was previously illustrated with citations of law, references to case law and comments from the preparatory works. The Agency now declares that businesses should have knowledge of applicable law and therefore these parts are not necessary.
An important part of the Advice revolves around the concept of “best credit granting practices”, a term that occurs in Section 6 of the Consumer Credit Act (2010:1846). All granting of consumer credits must be made in accordance with best practice. The proposition expands what is called the creditor’s “obligation to explain” to a responsibility to ensure also that the consumer has in fact understood the terms.
The terms of the credit agreement should correspond to the product’s or service’s assumed lifespan. This is not new however, it is now clarified that smaller credits should be paid during a shorter time, and not in very small payments during a longer period. The Advice also contains guidance on the layout of a part payment invoice. The Agency is of the opinion that the consumer has decided about the payment plan when entering the agreement. Therefore, an alternative plan to the one agreed should not be marketed with a conspicuous placement on the invoice.
A part of best credit granting practices is to be moderate in marketing, which follows from Section 6a of the Consumer Credit Act. If this is not adhered to, the marketing can be deemed as undue. The Advice gives a few examples of offers that it holds as not suitable for marketing. An example is to present a fluid interest with only the lowest rate possible and not include the full range. Moderation in credit marketing means that the consumer should be able to take a well-founded decision about the credit offered based on the information provided. The nature of credits must be considered, for example the interest rate is a cost for the consumer that must be properly informed about – clarity is of essence. Offers should be illustrated with a representative example. The example should now be reviewed every three months in order to make sure it is still relevant.
In order to make the consumer able to take a well-founded decision about the credit, sufficient information must be provided before an agreement is made, at least the amount available for credit and the time in which it shall be paid back. The information must be given through a standardized document, which is used throughout the EU. Terms of special importance to the consumer not included in the document must therefore be highlighted in marketing, or at least provided before the agreement is concluded.
The proposal contains guidance on how a credit rating should be performed. This evaluation must be done before accepting a consumer as a debtor, the granter must evaluate if the consumer can handle the financial burden of a credit; this follows by law. The creditor must collect information about the consumer’s income, expenses and about any other debt it has. This information must thereafter be double checked, e.g. compared with the consumer’s tax report.
If accepted, the proposal will be in force from 1 January 2020. The Swedish Financial Supervisory Authority has already recommended that the proposal should be accepted, and we can expect a formal decision soon. In its consequential analysis the Agency states that the revision will not inflict any direct costs for the businesses active on the consumer credit market.