In a recent interview on Vikerraadio's "Vikerhommik," Harju District Court judge Maris Juha highlighted the bad situation with quick loans, noting that she sees cases in her work every day where small loan providers justify lending to financially insolvent clients by citing monthly payments equaling less than half of the borrower's monthly income.

This is at odds with responsible lending principles, however; in reality, the lender must ensure that a borrower can fully service the loan over the duration of the loan term.

Some lenders will only verify income through the Estonian Tax and Customs Board (MTA) without asking for additional documentation, such as bank statements, Juha noted, making loans available in minutes.

Around one-tenth of Estonia's working-age population struggles with loans, some with several or even dozens at a time, and late fees and debt collection charges are quick to accumulate.

"And then a refinancing loan is provided, which consolidates everything, and interest and penalties are calculated on the total debt amount," the judge continued.

After that, the loan office will hand bad debts over to a collection agency, which the latter will then take to court.

Lenders may end up without interest

According to Bigbank CEO Jonna Pechter, a lender specializing in loans, the change won't significantly affect banks as lenders, because bank customers undergo more thorough checks. There are, however, credit institutions that don't ask for any paperwork, making them very convenient for customers.

"They simply do registry inquiries and that's it," she noted. "If that's how small loan amounts are issued, then this business model will disappear from the market."

Pechter believes many quick loans could be challenged in court, with financial institutions recovering only the loan principal and not the interest in the lawsuit process.

She added that the change will have a significant impact on that segment of the loan market, but the decline of quick loan lenders' market share, in turn, will not have a major impact on banks.

The CEO noted that it's difficult to say how many quick loan customers would be considered creditworthy by banks, acknowledging that in theory, some borrowers may be able to get a loan from a bank, but just favor a faster borrowing process.

"But there's surely also a significant share of those who have been turned down by banks," she added.

Collection agencies to feel the impact

Argo Virkebau, CEO of Aktiva Finance Group, which owns the collection agency Julius Inkasso, said the suspension of the automated system will make debt collection more costly for both collection agencies and debtors.

While his company can proceed with lawsuits, he criticized the limit on payment orders, as lawsuit fees are around 20 times more expensive for the debtor.

"The client has a debt, the debt remains," Virkebau said. "I don't understand how this is reasonable."

He also disputed the claim that collection agencies charge excessive fees in payment orders, noting that the amounts are ultimately consistent between payment orders and lawsuits.

Virkebau emphasized that if credit providers aren't lending responsibly, then responsible lending should be organized and regulated.

He believes the change will definitely impact the market, but stressed that, ultimately, things should be kept as simple and automated as possible, because when processing requires manual work, "it becomes extremely expensive for the debtor."

The CEO also welcomes state-level efforts to ensure responsible lending.

"Of course loans must be issued correctly," he acknowledged. "I don't want it to be played against collection agencies or debt portfolio buyers. We don't issue loans."

However, this could mean years of delays in proceedings, with Virkebau warning of a tenfold increase in workload — resulting in significantly more work for collection agencies and the need to hire additional staff.

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