Minister of Industry Þórdís Kolbrún Reykfjörð Gylfadóttir has introduced a new bill that is intended to curtail the illegal practices of microloan companies in Iceland, but the largest consumer advocacy group in Iceland believes the bill does not go far enough.
As reported, these companies—who advance quick, small-sum loans—often attach an astronomical compound interest rate that can reach as high as 3,500 percent of the principle. This can effectively ruin credit ratings—unless the consumer themselves take action—despite the fact that many of the practices of these companies are illegal in Iceland. This, the companies usually get away with by being registered in another country, such as Denmark.
This being the case, the bill submitted by the Minister requires the loan terms to be economical and affordable, and registering a company in another country could not be used to shield the company from Icelandic law. It would also give the government new powers to examine the internal business practices of these companies.
However, Breki Karlsson, the director of the consumer advocacy group Neytendasamtökin, told RÚV that he believes the bill does not go far enough: he believes microloan companies should be banned outright.
“This is on par with the wild west,” he told reporters. “There are no laws” when it comes to definitive rates of interest that can be charged. He proposes instead that Iceland adopt similar laws from Finland, where the maximum interest rate is set at 20 percent of the principle, and the collection fee is no greater than 50 percent.
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