The number of individuals struggling to keep up with fast loan payments is on the rise, exacerbated by increased prices, higher loan interest rates and growing unemployment. Whereas previously, it took a day or two to get an appointment with a debt advisor at the Tallinn Social Work Center, now it takes at least a week. Heete Simm, a debt advisor at the center in Tallinn, noted that the current crisis is different from the last.

"The total debt of individuals coming for consultations has increased. They already have dozens of loan obligations. Compared to the previous economic crisis where problems mainly arose with mortgage loans, the current pattern shows that consumption loans and so-called travel loans have been taken. When I've asked people, both of you work, why didn't you save up for your trip, I'm told: but it was so easy to get the loan."

Heete Simm's experience shows that relying on the responsibility of lenders is futile.

"More and more young people are coming to see the debt advisor. In my daily work, it amazes me when I see a 21-22-year-old individual, earning about €1,000, getting a loan of €5,000. When you see the age, when you see the salary, it seems strange to me that such large sums are given out as first-time payday loans?! My analysis shows that the problem lies in obtaining the first loan. Once a person gets that first loan, they keep getting better offers. And once you're caught in that net, you receive offers and think that you need more and so take on more," Simm described.

She acknowledged that young people lack the knowledge and experience to understand that payday loans do not solve financial problems and can actually make things worse.

In Ida-Viru County, the situation is even grimmer due to higher unemployment and lower financial literacy. Debt advisor Svetlana Sorokina mentioned that she often sees unemployed individuals who have still managed to obtain loans.

"I wouldn't say the majority, but a significant number have easily obtained payday loans, despite being unemployed. This astonishes me. Every day I deal with people taking out loans and then, for example, asking to file for bankruptcy, claiming they have no money and will go abroad. People think this way! Most people who come to me wanting to file for bankruptcy indeed believe that they won't have to pay and that all debts will be erased," Sorokina explained.

She too acknowledged that lending is a business, and one cannot rely on the responsibility of credit firms.

"We have a delinquency register. It was said that if a person ends up there, they wouldn't be able to get more loans. But they still do! Loans are still given out because it's a business!" Sorokina noted.

Debt advisors have been waiting for years for the introduction of a so-called debt register, where lenders would check the existing loan obligations of applicants. Thomas Auväärt, the deputy head of the financial services policy department at the Ministry of Finance, said that over-borrowing is a significant issue in Estonia and the creation of a positive loan registry has been decided. A cybernetics study is expected to be completed in March, followed by the drafting of a bill. Auväärt emphasized that risks must be mitigated.

"In simple terms, there are two main risk points. First, that the data wouldn't just leak, that someone couldn't hack into it. And second, that banks and other lenders themselves wouldn't misuse this data. For example, that they wouldn't go into this registry to 'surf' and see if some people have sufficiently small loan obligations to make them new loan offers. This would further amplify the over-borrowing," Auväärt stated.

The Ministry of Finance hopes to have the necessary loan registry bill ready and sent to the parliament this year. If everything goes according to plan and the parliament approves the law, implementing the law will take about a year, so the registry's operation is not expected before 2026.

--

Follow ERR News on Facebook and Twitter and never miss an update!