Kåre Lilleholt, University of Oslo

Consumer credit and responsible lending in Norway

Consumer loans

• Loans taken by consumers, irrespective of purpose

• Mainly non-secured loans– but mortgage loans for other purposes than

acquisition of the property are common

• Loans for extremely short periods and other consumer loans

• Credit cards, overdraft facilities etc.– not dealt with here, but may serve the same

purposes

Legislation and supervision

• EEA agreement and EU rules– free movement of capital and freedoms of

establishment– requirement of license; supervision– credit institutions with Norwegian branches and

subsidiaries– cross-border consumer credit?

• Financial Contracts Act• Rules on unfair terms etc.• Marketing Act

Loans for extremely short periods

• Folkia AS (Monetti)– Credit period 30 days– NOK 1000–5000 (EUR 125–625)– APR up to 9245

Other consumer loans

• Example Bank Norwegian– Credit period one year or more– NOK 5000–400 000 (EUR 625–50 000)– Nominal interest rate 8,99–21,44

• Other banks• Intermediaries

Financial Contracts Act

• Also implementing Directive 2008/48• Advertising• Pre-contractual information• Duty to explain• Duty to warn• Formal requirements

Procedures, exemplified by Folkia AS

• Advertising (dir. art. 4)– amount, period, credit costs (representative

example) on the Internet

• Pre-contractual information (dir. art. 5)– “in good time”, contract details, on paper or other

durable medium; but exceptions for voice telephony communication

• Assessment of creditworthiness (dir. art. 8)– credit information agencies– no credit database

ctd. procedures

• Explanations to the consumer (dir. art. 5(6))– by phone?

• Warning against taking up the loan– written and, if possible, verbally– written confirmation by consumer– breach may lead to adjustment of the consumer’s

obligations

ctd. procedures

• Written agreement (dir. 10)– use of electronic medium is allowed– the contract must be available– secure method of authentication– current dispute with the Consumer Ombudsman

• Returning customers– are offered “SMS loans”– overdraft facility?– current dispute with the Consumer Ombudsman

Formation of Contracts Act

• Contracts void for usury?– not applied in practice

• General clause on unfair terms– mostly a question of sufficient information

Marketing Act

• Control of marketing• Control of terms in standard contracts• Both by the Consumer Ombudsman

Responsible lending and over-indebtedness• No financial crisis – so far

– employment numbers– bankruptcies– debt recovery

• Requirements for owner’s capital• Capital requirements for banks• Housing bubble?• Duty to warn against credit seems to be of

small practical relevance