Consumer Credit Act: SMS Loans Remain Expensive

The Regulation in the Consumer Credit Act Does Not Make SMS Loans Cheaper

On March 1, 2025, new regulations came into effect in the Swedish Consumer Credit Act. The government's aim was to protect consumers from unreasonably expensive loans and to prevent the growing market of high-cost credit. Among other things:

• the maximum allowed interest rate was lowered from 40 to 20 percent (plus the reference rate)
• the highest allowed setup fee cannot exceed one percent of the price base amount (for 2025: 588 SEK)
• credit agreements that are marketed must include a notice that credits incur costs

Despite the fact that this regulation aimed to prevent lenders from exploiting consumers, the market has quickly adapted. Lenders have introduced new fees that largely compensate for the loss of income caused by the regulations. What does this mean in practice? Despite the intention to lower interest rates, SMS loans will not become cheaper.

A Welcome Reform

The significant reduction in interest rates was welcomed by consumer protection organizations and politicians. Previously, loans could escalate significantly in interest, causing many to fall into debt traps. This new reform should make it harder for these companies to trap people in such situations.

The cap on the setup fee also makes it more transparent and fair for borrowers, with the limit set at 588 SEK. It is easy to become confused by all these numbers as a borrower.

New Fees Take Over

The market's response was both swift and creative. Lenders are constantly trying to find loopholes in the legislation. To circumvent the rules, they have introduced new types of fees – such as monthly administration fees, startup fees, and withdrawal fees on SMS loans. These are not explicitly prohibited and can therefore be applied freely.

The startup fee resembles the setup fee but is defined slightly differently. A setup fee is charged for administering and establishing a loan, while a startup fee is only charged when a loan is granted. Although they are used in the same context, they are treated differently in the eyes of the law.

Increased Complexity

A negative side effect of the reform is that the new fee structure makes it harder for consumers to compare loans. The effective interest rate becomes an increasingly poor measure of the total cost as fees are added in various ways. The effective interest rate must still be reported according to the Consumer Credit Act, but different setups complicate clarity for the consumer.

An SMS loan with a low interest rate but high fees can end up being more expensive than a loan with a higher interest rate but fewer fees – something that easily confuses consumers. The comparison service FinansFreak has, for example, shown that many SMS loans have become more expensive after the regulation than before March 1, 2025.

Consumer Protection is Tested

The new rules are an attempt to create a stronger safety net for consumers, but the market's development shows that the regulatory framework still has gaps. Critics argue that this proves the need for a comprehensive approach rather than just limiting individual cost items. Lenders simply adapt quickly to new rules and exploit remaining loopholes.

The Financial Supervisory Authority and the Consumer Agency are tasked with preventing financial violations but cannot act if the lenders' methods do not technically break the law.

Risk of a New Type of Debt Trap

Another concerning development is that new fees often burden borrowers directly at the beginning of an SMS loan. This means that a larger portion of the borrowed amount goes towards fees instead of covering actual expenses. As a result, the consumer receives less money than expected – yet must still repay the entire loan.

This risks creating a new type of debt trap. It will be interesting to see how the government chooses to handle this in the future.

What Happens Next?

It remains to be seen whether the legislator will choose to move forward and close the loopholes that have arisen – or if they will leave the situation as it is. Discussions are already underway about a possible cap on total fees, including monthly and additional costs.

The ongoing struggle between the loan market and consumer protection is far from over. The financial industry adapts quickly, while legislation is often slow. It will require both commitment and precision for future regulations to truly take effect in practice.

What Can Consumers Do?

It is more important than ever for consumers to be aware of the costs included in their loans. Read the fine print, request a total cost, and always review both the effective interest rate and all fees. This is crucial to avoid unpleasant surprises.

Feel free to use independent comparison sites to get an overview of the options. If you prefer personal guidance, it may be worth talking to a financial advisor.