Guidance on Practices for Consumer Loans

Guidance
Practices for Consumer Loans
The guidance applies to banks, credit institutions, financing undertakings, insurance undertakings, pension funds, branches of foreign financial undertakings, credit institutions conducting cross-border business 20 December 2024

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1. Introduction........................................................................................................................3
2. Regarding § 3 Exemptions ..................................................................................................3
3. Regarding § 4 Documentation............................................................................................3
4. Regarding § 5 Debt-service capacity ....................................................................................3
5. Regarding §§ 9 and 13 Repayment......................................................................................4
6. Regarding §§ 10, 14 and 16 Refinancing..................................................................................4
7. Regarding §§ 12, 15 and 17 Flexibility.......................................................................................5
8. Reporting ...................................................................................................................5
   8.1. Loans secured by residential property...............................................................................................6
   8.2. Consumer loans............................................................................................................8
   8.3. Loans secured by assets other than residential property...............................................................................8
9. Financial Supervisory Authority monitoring.............................................................................................9

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1. Introduction
   The Ministry of Finance enacted on 4 December 2024 the regulation on amendments to the regulation of 9 December 2020 No. 2648 on the lending practices of financial undertakings (the lending regulation). The regulation enters into force on 31 December 2024. This guidance replaces the Financial Supervisory Authority's circular 6/2022. Financial undertakings must adapt their internal credit procedures to the requirements set out in the lending regulation. The Ministry of Finance has commented on some of the provisions on its websites: https://www.regjeringen.no/no/tema/okonomi-og budsjett/finansmarkedene/utlansforskriften2/id3077676/. The Financial Supervisory Authority provides the following additional comments on the regulation.
2. Regarding § 3 Exemptions
   The regulation does not apply to capital release credits with a loan-to-value ratio below 90 percent. Capital release credits are loans secured by residential property that are expected to be repaid upon future sale of the property when one or more agreed and life-related events occur, for example upon the borrower's death. The loan-to-value ratio for such loans should be understood as the expected loan-to-value ratio at the time of realization of the collateral, given a prudent assessment of expected lifespan, future property price development and expected interest rate level. The regulation does not apply to the granting of credit cards if the customer's total credit card limits will not exceed 30,000 Norwegian kroner. The provisions of the Financial Contracts Act regarding the duty to assess the customer's creditworthiness apply regardless of the regulation's provisions.
3. Regarding § 4 Documentation
   The assessment of the customer's debt-service capacity must be based on "comprehensive information about the loan customer's income, total debt and value of the property if the property is provided as security". This means that information about all the customer's debt items and interest and repayment terms in the individual loan agreements must be obtained, unless the debt item is insignificant for a total assessment of debt-service capacity. If the information cannot be obtained from registers, the information must be obtained from the customer.
4. Regarding § 5 Debt-service capacity
   The financial undertaking must calculate the customer's ability to service the loan based on the customer's income and all relevant expenses, including interest, loan repayments and normal living expenses. In assessing the customer's debt-service capacity, the financial undertaking must include an interest rate increase of 3 percentage points on the customer's total debt, but such that the financial undertaking in any case must base on an interest rate of at least 7 percent. The purpose is to assess whether the borrower has a sufficient liquidity buffer to service the loan at an increased interest rate level. For fixed-rate loans, the starting point is that the interest rate increase is included on the outstanding amount at the end of the interest fixation period. Income growth can be assumed during the fixed-rate period. The financial undertaking's assessment of income growth during the interest fixation period must be realistic. It must also take into account that the customer's expenses may increase during the period, and ensure that the borrower has a sufficient buffer to withstand other changes that affect debt-service capacity.1

1 https://www.regjeringen.no/no/aktuelt/utlansforskriften-senker-kravet-til-egenkapital-for-boliglan/id3077641/

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When calculating living expenses, it is expected that financial undertakings take into account all relevant expense items, such as expenses for kindergarten and school leisure programs, housing expenses (e.g. municipal fees, electricity, insurance and maintenance) and car maintenance expenses. If living expense assessments are based on the rates of the Consumer Research Institute SIFO, these must be kept up to date, and financial undertakings must include an addition beyond the "SIFO budget" that is sufficient to take into account relevant expense types not included in the reference budget (e.g. health services, holiday trips, gifts, etc.). When financial undertakings process applications for residential loans where there is also a need for a short period of interim financing, the long-term loan related to the new property that is regulated by the lending regulation's requirements is assumed. For loans taken out to finance the purchase of a new property in addition to the financing of existing property until this is sold (interim financing), the assumed loan need after the sale of the existing property may be used as the basis for the assessment according to the regulation's requirements. It is expected that financial undertakings base their assessment on a prudent assessment of the price that can be obtained for the existing property, so that the long-term loan need is not underestimated.
5. Regarding §§ 9 and 13 Repayment
For loans exceeding 60 percent of the property's value, the financial undertaking must require annual repayment. The provisions in §§ 9 and 13 regarding the requirement for repayment do not prevent the financial undertaking from granting repayment deferral due to circumstances that occur during the loan's term, and which temporarily worsen the customer's debt-service capacity. There has been a question about what is meant by the concept "temporary worsening of the customer's debt-service capacity", including whether circumstances such as separation, divorce, death, disability and unemployment can be included. The provision covers such circumstances provided that these are circumstances that occur "during the loan's term", and the circumstances were neither known nor should have been known to the financial undertaking in connection with the assessment of the customer's debt-service capacity. The right to grant repayment deferral applies only in cases of temporary worsening of the customer's debt-service capacity. In cases of permanently reduced debt-service capacity, the financial undertaking must reassess the loan relationship. The regulation does not set specific limits for how long the period of temporary repayment-free status can be. Banks must, in consultation with the customer, assess how long repayment-free status is needed. Banks must ensure that the customer's interests are protected when granting repayment-free status. The regulation does not regulate repayment for loans secured by assets other than residential property.
6. Regarding §§ 10, 14 and 16 Refinancing
The regulation allows financial undertakings to offer refinancing of loans in cases mentioned in § 10, § 14 and § 16, even if the new loan does not meet the provisions of the regulation regarding debt-service capacity, debt ratio, loan-to-value ratio and repayment. The requirement that the new loan must not exceed the existing loan, or the size of the loans at the time of refinancing, does not prevent the new loan from including verifiable costs (interest, fees, etc.) accrued on the loans to be refinanced. In the refinancing of residential loans, it is a requirement that the loan has security in the same property, or at the time of refinancing does not have a higher loan-to-value ratio than the existing loan. This opens up for the possibility that a loan can be replaced with a loan secured by another property, provided that other conditions in the provision are met, and that the loan-to-value ratio of the new loan is not higher than that of the existing loan. Refinancing of consumer loans according to § 14 and loans secured by assets other than residential property according to § 16 requires that the undertaking calculates the sum of interest, fees and other costs for the entire remaining term of the loan, and compares this with the corresponding sum of costs for the new loan's total term. This provision presupposes that the financial undertaking obtains information about actual costs and repayment profile for each individual loan to be refinanced. In the refinancing of framework loans without agreed repayment, the undertaking must base its assessment on repayment as an ordinary serial loan over a maximum of 10 years. Financial undertakings granting loans for refinancing must disburse the loan to the creditor(s) and not to the borrower. The financial undertaking also has a duty to obtain confirmation from the customer that repaid accounts and framework credits in other financial undertakings must be closed. This applies generally in the case of bank changes, and not only for loans that meet the requirements of the regulation §§ 10 and 14.
7. Regarding §§ 12, 15 and 17 Flexibility
"Granted loans" in § 12, "granted consumer loans" in § 15 and "granted loans secured by assets other than residential property" in § 17 that are to be included in the quarterly deviation reporting, shall be understood as loans where there is a binding agreement between the financial undertaking and the customer. This means loan offers that have been accepted by the customer. This will in most cases be disbursed loans in the period. Loan commitments and financing certificates should not be included in the reporting. Commitments that are split into two or more loans to the same customer must be reported with the total amount. The flexibility quota must only be based on the loan offers that have been accepted by the customer. Framework credits must be included with the total granted credit amount. The regulation §§ 12, 15 and 17 presuppose that the undertakings' boards, or potentially the management for branches in Norway of foreign financial undertakings, have set frameworks and guidelines for the use of flexibility provisions. It is expected that the guidelines are clear enough to be used as a basis for credit assessments, and that they make it possible to control that the guidelines are followed. It is stated in § 12, third paragraph, that residential loans that have been refinanced in accordance with § 10, should not be included in the calculation of the value of granted loans according to the first and second paragraphs. The same applies according to § 15, third paragraph, for consumer loans that have been refinanced in accordance with § 14, and according to § 17, third paragraph, for loans secured by assets other than residential property that have been refinanced according to § 16. Loans that have been refinanced in accordance with § 10 should not be included in the deviation reporting.
8. Reporting
It follows from the regulation §§ 12, 15 and 17 that financial undertakings must report to the board or management of foreign financial undertakings every quarter about what share of the value of new granted loans in the quarter that have been granted under the flexibility provision. The Financial Supervisory Authority expects that the board report is available no later than at the end of the following month after each quarter's end. If the conditions for established loans are changed such that a deviation arises from one or more of the conditions covered by the flexibility provision, these loans must also be included in the calculation. An increase in existing loans should be considered as a concluded agreement (granting of) a new loan.

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8.1. Loans secured by residential property
The reporting of residential loans according to the lending regulation § 12 must at least include the following matters for respectively repayment loans and framework credits:
Loans secured by residential property outside Oslo municipality, covered by § 12 (figures in 1000 Norwegian kroner) Repayment loans Framework credits Violates only § 5 Violates only § 6 Violates only § 7 Violates only § 9 Not applicable Violates § 5 and § 6 Violates § 5 and § 7 Violates § 5 and § 9 Not applicable Violates § 6 and § 7 Violates § 6 and § 9 Not applicable Violates § 7 and § 9 Not applicable Violates § 5, § 6 and § 7 Violates § 5, § 6 and § 9 Not applicable Violates § 5, § 7 and § 9 Not applicable Violates § 6, § 7 and § 9 Not applicable Violates § 5, § 6, § 7 and § 9 Not applicable Total loans covered by § 12 Total loans secured by residential property granted in the quarter

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Loans secured by residential property in Oslo municipality, covered by § 12 (figures in 1000 Norwegian kroner) Repayment loans Framework credits Violates only § 5 Violates only § 6 Violates only § 7 Violates only § 9 Not applicable Violates § 5 and § 6 Violates § 5 and § 7 Violates § 5 and § 9 Not applicable Violates § 6 and § 7 Violates § 6 and § 9 Not applicable Violates § 7 and § 9 Not applicable Violates § 5, § 6 and § 7 Violates § 5, § 6 and § 9 Not applicable Violates § 5, § 7 and § 9 Not applicable Violates § 6, § 7 and § 9 Not applicable Violates § 5, § 6, § 7 and § 9 Not applicable Total loans covered by § 12 Total loans secured by residential property granted in the quarter

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8.2. Consumer loans
Only consumer loans granted to persons residing in Norway are to be included.
The reporting of consumer loans according to the lending regulation § 15 must at least include the following matters for respectively repayment loans and framework credits:
8.3. Loans secured by assets other than residential property
The reporting must cover new loans secured by assets other than residential property, such as boat and car loans, to consumers residing in Norway. Consumer loans covered by § 15 in the lending regulation (figures in 1000 Norwegian kroner) Repayment loans Framework credits Violates only § 5 Violates only § 6 Violates only § 13 Not applicable Violates § 5 and § 6 Violates § 5 and § 13 Not applicable Violates § 6 and § 13 Not applicable Violates § 5, § 6 and § 13 Not applicable Total loans covered by § 15 Total consumer loans granted in the quarter Loans secured by assets other than residential property covered by § 17 in the lending regulation (figures in 1000 Norwegian kroner) Repayment loans Framework credits Violates only § 5 Violates only § 6 Violates § 5 and § 6 Total loans covered by § 17 Total loans secured by assets other than residential property granted in the quarter

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9. Financial Supervisory Authority monitoring
The Financial Supervisory Authority will follow up compliance with the lending regulation through on-site supervision, by obtaining board reports on an ad hoc basis and through quarterly reporting from the largest providers in the Norwegian market. The undertakings that are covered by the quarterly reporting are notified separately.

Financial Supervisory Authority
Revierstredet 3
P.O. Box 1187 Sentrum
NO-0107 Oslo
Tel. +47 22 93 98 00 post@finanstilsynet.no finanstilsynet.no