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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.
"There is reason to be
seriously concerned about this development," head of the
Swedish Consumer Agency, Gunnar Larsson, told AFP.
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.
But then the loans, on average
amounting to 3,000 kronor (320 euros, 500 dollars), along with
average fees of 500 kronor and interest payments of 50 kronor, must
also be repaid at a breakneck speed of just 30 days.
And if the loans are not repaid
in time, borrowers are "trapped" in a vicious debt circle
and are in many cases forced to take new loans to repay the sky-high
interest rates and late charges that ensue, Larsson and Aakerlund
explained.
"The loans are granted for
one month and at the end of the month there's simply not enough
money to pay back the loan and the fee," said Larsson, calling
on creditors to improve their credit-checks before lending money.
Carl Rosenbaum, a spokesman for
Mobillaan Sverige, the first company to offer SMS loans in the
Scandinavian country in 2006, insisted however that the criticism
was "exaggerated."
He pointed out that the loans,
which also exist in the United States and several European
countries, have been well-received by Swedes, renowned for high
consumption habits and enthusiastic early-adapters for new
technologies.
"The huge success (of the
SMS loans) caught the authorities by surprise, and ... they did not
know how to handle it," Rosenbaum said, explaining the
criticism.
He insisted that the average age
of his company's customers was 32, that their financial situation
was scrutinised before they received a loan, and that the company's
bad debt rate was less than 2.0 percent, "which is far lower
than other companies in the unsecured credit market."
His comments are unlikely to
reassure Swedish authorities, who are so concerned about the
out-of-control debt build-up among some young and low-income Swedes
that they in January banned interest payments superior to the cost
of the initial loan.
The main danger of the new
lending system is that it gives people "the possibility to get
money very, very quickly, which is stimulating impulsive actions
without thinking," according to Aakerlund.
And there are certainly plenty of
people eager for a bit of quick cash at the touch of a cell phone
button.
While Mobillaan Sverige was alone
on the market when the loans first appeared in Sweden in March 2006,
there are some 30 similar companies competing for customers in the
country today.
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.
"Youths are exposed to the
pressure (to consume) as much as adults with full-time
employment," said Dick Forslund, an economist preparing a
doctoral thesis at the Stockholm School of Business, pointing out
that for people with little or no income, SMS loans can look like an
easy fix to their consumption woes.
"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.
--AFP
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