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Interest rate cap on payday loans by summer

MPs have agreed to cap interest rates on quick loans in the new parliamentary term. A one-month loan of a hundred euros would cost the borrower a little over four euros in interest, with separate charges for text messages banned.

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Image: Jouni Pilto / Yle

The vote on the bill’s first reading in parliament on Thursday evening was unanimous. The second and final reading will come in the next few days, with the law coming into force in late spring or early summer.

Under the new law, annual interest rates for instant loans would be pegged at 50 percentage points above the reference interest rate. That compares to current rates cited in the legislative proposal of more than a thousand percent.

Under the new system a hundred euro loan would cost a maximum of just over fifty euros per year, or a little more than four euros if paid back within a month. Payday lenders previously claimed that the new interest rate cap will effectively end their short-term lending operations in Finland.

Parliament’s commerce committee found in the autumn that payday lending was particularly harmful to young people, who often have little experience in financial matters.

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