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Payday loan, collections firms agree to payout over steep credit costs

The firms will pay compensation to more than 150 consumers for exorbitant credit costs.

Puhelimella haetaan pikavippiä.
Payday loan companies and debt collectors have been under scrutiny over exorbitant costs imposed on consumers. Image: Henrietta Hassinen / Yle

Payday loan firm Euro24 Finance and debt collector Gothia have agreed to an out-of-court settlement with about 150 previous customers, dodging a possible class action lawsuit by the Consumer Ombudsman.

Last autumn the Ombudsman’s office started gathering complainants for a class action lawsuit against the firms over charges associated with their loans. Although firms must comply with a cap on interest charged on loans, credit costs are not similarly regulated.

The proposed legal action also targeted Lahti-based J.W.-Yhtiöt, owner of another instant loan firm, Suomilimiitti. However a settlement has not yet been reached with that company.

The Consumer Ombudsman has argued that the costs associated with Euro24 Finance’s 2,000-euro quick loan are excessive. The firm has now said that it will pay the compensation demanded by the consumer watchdog as will collections firm Gothia, which purchased some unpaid debts from Euro24 Finance.

According to the Ombudsman, not only have the firms imposed excessive costs on customers, their credit agreements also failed to comply with the law. The Ombudsman said that all costs associated with the invalid agreements should therefore be waived.

Although the companies continue to challenge the Ombudsman’s arguments, they nevertheless announced that they would pay a total of 336,000 euros in compensation to the more than 150 loan customers who said they would join a class action lawsuit during October and November last year.

As a result of the settlement, customers will repay only the capital on the loans they took.

Class action a good deterrent

The Consumer Ombudsman said that the agency wants to use every means available to address excessive costs of payday loans.

It said that class action suits are one option, although it is a burdensome process for both plaintiffs and defendants.

It noted however that the firms involved in the current case announced that they would settle with consumers just as the Ombudsman’s office was about to begin legal proceedings in district court.

"Companies want to avoid being the defendant in a class action lawsuit. In this case they eventually decided that they would rather pay the required sums than being dragged through a trial that would likely last very long, that is expensive and that probably will not be good for their reputation," Consumer Ombudsman Katri Väänänen said in a statement.

The Consumer Ombudsman said that it will still review the companies’ proposals and that it will follow up on whether or not they make good on their pledges.

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