Earlier this year, Finance Minister Siv Jensen tightened the requirements for banks offering consumer loans through new regulations regulating the rules for processing applications.
Banks can grant loans only to those clients who have sufficient earnings to repay the loan within 5 years. The total customer debt cannot exceed five times the annual income.
The next step is the new debt register, Credit register, introduced on July 1. The debt register does not provide a full debt review but contains a list of cash loans and credit cards that applicants for a new loan have. To date, banks have obtained information on the total amount of debt from Good Finance. The problem, however, is that the debts incurred this year are not visible on the tax return, and if the borrower does not inform the bank about new debts himself, he is able to cheat the bank’s verification.
We received several loan applications, which at first glance seemed transparent, but checking the debt register showed a greater consumer debt than as specified in the applications. These requests were rejected – said Kai-Morten Terning, Communications Manager at Bank Norwegian, in an interview for E24.
Information about debts in the Credit register is updated daily to prevent borrowers from hiding their debts from the bank.
What happens in the register when the debt is repaid?
After paying off the debt, information about it is removed from the Credit register. However, it should be remembered that after paying off the credit card or cash loan, information on debts on Good Finance will still be visible to banks until they receive a new Good Finance in the next tax year.
The loan balance will show the number zero, but the interest paid on the loan, for which the borrower is entitled to a tax refund, will still leave a mark on the debt.
Customers quickly get rid of credit cards
Regulatory changes mean that all consumer credit granted – including the unused credit card limit – now counts when calculating the debt ratio. High levels of debt can cause problems in getting a new loan.
Below: An example of a debt report downloaded from the Credit register. The report shows 4 credit cards with an unused limit that affects the total amount of debt.
We have seen a clear trend where customers contact banks themselves to cancel credit cards or lower the card’s amount limit, ‘said Terning. According to the manager, the debt register increased consumer awareness and led people to take the lead over their debts. Interest in refinancing loans has also grown, which allows all debts to be transferred to one bank. In practice, this means taking another loan that will cover your debts. When paying off debt, creditworthiness is developed, which is why you can count on better conditions and lower interest rates.
The aim of all introduced regulations is to reduce the risk to the Norwegian economy. According to the Ministry of Finance, historically high household debt is one of the things that make the Norwegian economy the most vulnerable.