Finanssivalvonta

FIN-FSA’s assessment: some consumer lenders fail to manage default risks adequately, shortcomings also in contract terms

Share

The Financial Supervisory Authority (FIN-FSA) has reviewed the management of default risks and conduct by parties granting consumer credit in Finland. Significant differences were identified among the market participants in the management of default risk: other lenders that were transferred under FIN-FSA supervision in July 2023 have significantly more shortcomings in their credit granting practices in comparison with banks. Furthermore, some of the other consumer lenders do not fully comply with legislation on consumer lending in their contract terms. The FIN-FSA will require these entities to remediate the shortcomings identified in the reviews.

Other companies granting consumer credit were transferred under FIN-FSA supervision on 1 July 2023, when the Act on the Registration of Certain Credit Providers and Credit Intermediaries entered into force. In the same context, a new provision on the management of default risk in consumer lending also took effect.

- To ensure the functioning of the financial sector and uphold consumer rights, it is important that all parties granting consumer credit in Finland are supervised based on the same principles. The objective of our expanded supervision in this area is that all market participants comply with common rules, both with respect to the management of default risk and conduct, states Marko Myller, Head of Department for Banking Supervision.

Not all parties manage default risk adequately

Significant differences were identified among parties granting consumer credit in Finland in terms of the management of default risk. Foreign branches and credit institution operating in Finland on a cross-border basis showed significant shortcomings in their lending practices. Some of the other lenders transferred recently under FIN-FSA supervision had even severe shortcomings. However, some shortcomings were also identified among Finnish banks.

The most significant shortcomings were concerned with lending to consumers with an unreasonably high default risk as well as deficiencies in the risk rating systems used by the lenders to assess and monitor default risks associated with consumer lending in a reliable manner.

Some of the lenders applied discriminatory factors in the assessment of credit risks, such as gender or native language. Some had significantly high shares of credit losses or past due exposures as a proportion of their credit portfolio. Some failed to check for bad credit remarks before making a credit decision, while some did not assess the applicant's income or other financial circumstances adequately when granting credit. In addition, shortcomings were found in the retention period of the lending criteria applied. Some of the lenders’ maximum interest rate also exceeded the allowed limit.

Shortcomings found in contract terms

The review of conduct only covered new FIN-FSA supervised entities that actively grant new consumer credit. Preliminary assessment indicates that not all parties comply with all legislation applying to consumer lending in their contract terms. Some shortcomings were identified in individually agreed contract terms concerning the price of credit. While the general terms covered the existence of the consumer's and the lender’s statutory rights appropriately, the details on the preconditions and consequences of invoking these rights were incomplete. In some cases, key contract terms were spread across several documents, making it difficult to form a total view.

FIN-FSA requires remediation of the shortcomings

The FIN-FSA will be in contact with the lenders to ensure that the identified shortcomings are remediated. The FIN-FSA will also use the observations made in the reviews when focusing supervision on other lenders. The observations will also be used in planning periodic reporting needed in the assessment of default risks and in preparing FIN-FSA regulations and guidelines concerning consumer lending.

Review of consumer lenders will continue

The findings described in this release are based on two reviews conducted by the FIN-FSA, one of which is still ongoing.

In autumn 2023, the FIN-FSA launched a review of its new supervised entities to assess the fulfilment of the preconditions for registration, conduct concerning customer protection and compliance with obligations under the AML Act. As regards the fulfilment of the preconditions of registration and obligations under the AML Act, the results will be completed and published later.

In addition, the FIN-FSA carried out a thematic review of the management of default risk by entities granting consumer credit in Finland. These entities include both banks, which were already covered by FIN-FSA supervision, and the other lenders that entered its scope only recently.

For further information, please contact 

Marko Myller, Head of Department
Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030 (weekdays 9:00–16:00).

Contacts

Media phone service number

can be contacted on weekdays 9–16, except on Holy Thursday and New Year’s Eve on 9–13.

Tel:+358 9 183 5030

Links

Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.

Alternative languages

Subscribe to releases from Finanssivalvonta

Subscribe to all the latest releases from Finanssivalvonta by registering your e-mail address below. You can unsubscribe at any time.

Latest releases from Finanssivalvonta

Bedrägerier och svindlerier i anslutning till betalningar är ett ökande fenomen – enligt Finansinspektionens utredning är det möjligt att förbättra säkerheten vid skötseln av bankärenden19.3.2024 09:55:00 EET | Tiedote

Olika bedrägerier och svindlerier i anslutning till betalningar har ökat kraftigt under de senaste åren. Även de metoder som de kriminella använder utvecklas hela tiden. Enligt Finansinspektionens utredning är det möjligt att förbättra säkerheten vid skötseln av bankärenden bland annat genom att utveckla säkerhetsgränser för nät- och mobilbetalningar samt genom att effektivare monitorera och stoppa obehöriga betalningstransaktioner. Tjänsteanvändarna har också eget ansvar.

Maksamiseen liittyvät petokset ja huijaukset kasvava ilmiö – Finanssivalvonnan selvityksen mukaan pankkiasioinnin turvallisuutta mahdollisuus parantaa19.3.2024 09:55:00 EET | Tiedote

Erilaiset maksamiseen liittyvät petokset ja huijaukset ovat olleet voimakkaassa kasvussa viime vuosina. Rikollisten käyttämät keinot myös kehittyvät jatkuvasti. Finanssivalvonnan selvityksen mukaan pankkiasioinnin turvallisuutta on mahdollista parantaa muun muassa verkkopankki- ja mobiilimaksamisen turvarajoituksia kehittämällä sekä tehokkaammalla petoksellisten maksutapahtumien monitoroinnilla ja pysäyttämisellä. Oma vastuunsa on myös palvelujen käyttäjällä.

Payment-related frauds and scams are a growing phenomenon – Financial Supervisory Authority investigation reveals scope for improving security of banking transactions19.3.2024 09:55:00 EET | Press release

Various payment-related frauds and scams have been sharply increasing in recent years. The means used by criminals are also constantly evolving. According to an investigation by the Financial Supervisory Authority (FIN-FSA), there is scope for improving the security of banking transactions, for example by developing security restrictions on online banking and mobile payments and by more effectively monitoring and blocking fraudulent transactions. Users of services themselves also bear responsibility.

Ett starkt år för den finansiella sektorn trots den osäkra omvärlden – de största riskerna härrör också i år från den ekonomiska utvecklingen och det geopolitiska läget13.3.2024 10:00:00 EET | Tiedote

Trots en allt dystrare omvärld var kapitaltäckningen och solvensen inom den finansiella sektorn fortsatt stark i fjol. Fastän bankernas kreditrisker för utlåningen till företags- och hushållskunder ökade, var den finländska banksektorns oreglerade fordringar och kreditförluster dock alltjämt bland de lägsta i Europa. Också försäkringssektorns solvens var fortsatt god, även om den försämrades något. Inom arbetspensionssektorn ledde ökningen av aktiernas andel till nästan hälften av placeringsallokeringen till en försämring av sektorns stresstålighet, som dock låg kvar på en måttlig nivå. Den ekonomiska utvecklingen och det geopolitiska läget är fortfarande förenade med betydande risker och sårbarheter som företagen under tillsyn kan skydda sig mot med en stark kapitaltäckning och likviditet, sund riskhantering och god beredskap.

Finanssisektorilla vahva vuosi toimintaympäristön epävarmuudesta huolimatta – talouskehitys ja geopoliittinen tilanne merkittävimpiä riskejä myös tänä vuonna13.3.2024 10:00:00 EET | Tiedote

Toimintaympäristön synkkenemisestä huolimatta finanssisektorin vakavaraisuus säilyi viime vuonna vahvana. Vaikka pankkien yritys- ja kotitalousasiakkaiden luottoriskit kohosivat, olivat Suomen pankkisektorin ongelmaluotot ja luottotappiot kuitenkin edelleen Euroopan matalimpien joukossa. Myös vakuutussektorilla vakavaraisuus säilyi hyvänä, vaikka heikkenikin hieman. Työeläkesektorilla osakesijoitusten määrän kasvu lähes puoleen sijoitusallokaatiosta heikensi stressikestävyyttä, joka kuitenkin säilyi kohtalaisella tasolla. Talouskehitykseen ja geopoliittiseen tilanteeseen liittyy edelleen merkittäviä riskejä ja haavoittuvuuksia, joilta suojaavat valvottavien vahva vakavaraisuus ja maksuvalmius, laadukas riskienhallinta ja varautuminen.

In our pressroom you can read all our latest releases, find our press contacts, images, documents and other relevant information about us.

Visit our pressroom
HiddenA line styled icon from Orion Icon Library.Eye