1,600 Percent Interest on Text Message Loans

In Finland Party-Goers Send Text Messages for Cash.

Veli-Pekka Kaipainen needed cash in a hurry to pay off gambling debts. So he started texting. The Zamboni ice-resurfacing machine driver used his mobile phone to contact Finland's text-message lenders. The only catch was he had to pay fees equivalent to an annual interest rate of as much as 1,600 percent.

"The easiness tricks people," said Kaipainen, 30, who lives in Heinola, 105 miles north of Helsinki. "You get the money in five minutes."

To get a loan, Finns send a text message containing the amount requested, their address, personal identity number and bank account number. The lender checks an online credit database, transferring the cash if the details check out and the applicant has a clean credit record. No security is required.

Borrowers receive the money in as little as three minutes and typically must repay it within a month, said Kari Kuusisto, who heads an association of six text-message lenders. Finns took out 270,000 text loans in the first quarter, according to the country's statistics bureau, which released its first data on the topic on July 4.

Finland has more than 40 text lenders, and the industry is spreading. About 25 firms in Sweden offer the loans, and there are text lenders in Estonia and the Netherlands, Rosenius said.

Zamboni driver Kaipainen said he took out more than a dozen text-message loans for amounts ranging from 50 euros to 400 euros as he ran up debts betting on horses and playing slot machines. "It's a vicious circle," Kaipainen said. "You take out one loan to pay another and in, say, two months, you have five at the same time, and soon you can't pay them all."

Swedes Spiral Into Debt

Text messages loans send young Swedes spiralling into debt.

Fire off a simple text message, wait 15 minutes and presto, 300 euros land in your account; the simplicity of obtaining SMS loans in Sweden is increasingly luring youths into debt.

"The first (SMS) loan was given in the middle of March 2006," said Janne Aakerlund, a spokesman for Sweden's debt recovery agency Kronofogden, adding that the first bill collectors were sent out just three months later.

Since then, the number of un-repaid text message loans has soared: in 2007, Kronofogden was tasked with collecting debts from 20,000 such loans, 35.9 percent of which were granted to people aged 18 to 25.

The new lending system, he says, has enabled people usually barred from receiving loans, like teenagers and other low- and no-income groups, to borrow cash in no time flat.

Advertising for SMS loans beckons everywhere: with loud-coloured ads offering fast cash in subways, at bus stops and on the street, as well as in newspapers and on television. "The thing is it's easy and fast. They (young people) are acting before thinking of the consequences," Amy Tran, a 20-year-old student, told AFP at a Stockholm shopping centre.

"They want to buy clothes, go to the bars, restaurant, travelling ... right now and not in one or two months," she said.

This is nothing more than a "payday loan" on steroids except it is far more tempting and easier to do. The FTC offers this consumer alert Payday Loans Equal Very Costly Cash.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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