Officials in Sweden have voiced their concerns that increasing use of so-called ‘SMS loans’ by young people is causing a mounting problem with debt.
The unsecured loans can be obtained by simply sending a text message to one of approximately 30 companies operating the money-lending scheme.
According to AFP-Reuters, the average amount borrowed equates to approximately £245, with arrangement and interest fees amounting to approximately £45. The real kicker, however, is that most SMS loans must be paid back within a month.
Last year debt recovery agency Kronofogden was reportedly tasked with collecting 20,000 debts owed on SMS loans, 35.9 per cent of which were granted to people aged between 18 and 25.
Bad debt rate
"There is reason to be seriously concerned about this development," head of the Swedish Consumer Agency, Gunnar Larsson, told AFP.
In January the Swedish ombudsman ordered those companies offering the loans to review their fees, banning SMS lenders from charging more than the cost of the initial loan in interest.
However, Carl Rosenbaum, a spokesman for Mobillaan Sverige, the first company to offer SMS loans refutes this criticism. He claims that the average age of their clients was 32 and that the company’s ‘bad debt’ rate was only 2 per cent.
Advertisements for the loans extend to buses, public billboards and even TV. Clearly targeted at impressionable young people looking to buy clothes or a night out, many Swedish youths are easily tempted.
"The thing is it's easy and fast. Young people are acting before thinking of the consequences," said Amy Tran, a 20-year-old student.