Many ordinary people cannot pay their bills and loans when they are forced to stop work, or because their shop or business is weakened or closed down by the measures related to the Coronavirus.
You try and go to the bank and say I cannot repay my loan or go along to the landlord and say I cannot pay my rent! They will not be sympathetic.
You may have read today that big airlines and other big private companies are demanding compensation from taxpayers! It is fantastic, to say the least, that these companies have been paying out dividends and huge bonuses to the bosses without planning for contingencies like we see today – the new normal… just look at Mr. Branson and his Virgin Airlines begging for a taxpayer bailout… no more needs to be said because there is clearly one law for the big debtors and another for the small man.
Ordinary folk and small business people borrow money from a bank to cover periods like this, but many start ups and very small companies cannot do that and they turn to Pay Day Loan Companies. They borrow €2000 to cover their basic needs at 20% annual rate of interest which means that they must pay an extra €400 in one year’s time.
Many honest people manage to cover this cost plus the repayment, but many others are simply not able to do this or they had no intention originally. They then face extra costs and perhaps borrow more to become stuck in a vicious circle of indebtedness.
The same problem arrises with public healthcare payments – you will recall an earlier column about this in FinnishNews at this link. When a person becomes ill and has to pay an invoice that arrives from a public healthcare service, non-payment is normally met with a demand from a private collection agency. It is a normal practice for local government to outsource their small debt collection to such companies. The result is normally a big increase in the size of the debt because the debt collection company adds on its own collection costs plus interest for late payment. If payment cannot be met on time then legal fees start to accrue.
It’s the same for payday loan companies who also outsource their collection to such companies and this is a goldmine for debt collection companies.
Debt recovery regulations in Sweden and Finland are messy and complex – they basically tend to favour loan companies and debt collection agencies – there is an urgent need to reform such regulations to prevent the socialising of losses.
When any of the above happens, the people facing this ballooning of debts normally turns to the public sector for assistance. It may take several weeks to finalise some sort of program, but the result is normally that the public sector takes over all or part of the costs for its on account.
Previous governments supported the growth of Pay Day Companies in the spirit of encouraging open markets. They then discovered the taxpayers were ending up as the lenders of last resort, which was clearly an unintended consequence of these laissez-faire policies.
Later governments introduced lending ceilings and interest rate ceilings on Pay Day Companies and attempted to control the worst abuses of collection companies. Reports in the media from Sweden and from Finland now indicate that these policies have not been successful.
A solid brick wall is now faced by many small companies and by many ordinary people who now cannot afford to make these repayments because of the Coronavirus. It is clear that taxpayers will be asked to pay many of these costs as and when these debts come for repayment.
There can be no question that stronger restrictions should be placed on Pay Day Companies and collection companies. There should be clear rules on the necessity of credit checks on borrowers by Pay Day Companies ensuring that their customers really do have capacity and willingness to repay these loans as agreed. Such data must be kept in a safe place without any possibility of being tampered with at a later date and easily accessible by the public sector. If due diligence was not exercised then the lender should be forced to suffer the loss within a prescribed period.
Furthermore, the public sector should be prohibited from outsourcing debt collection to private companies for public payments related to healthcare or care of the elderly payments, if any, should be adjusted to the means of the patient and paid upfront.