There are two versions of this legend (very similar):

From Iceland comes the legend of the sinister and gargantuan Yule Cat, who, it seems, is ready to eat lazy humans. Those who did not help with the work of their village to finish all work on the autumn wool by Yule time got a double whammy -- they missed out on the Yule reward of a new article of clothing, and they were threatened with becoming sacrifices for the dreaded Yule Cat.

There is a legend, that is 100-200 years old, which says that unless you get at least one new garment to wear for Christmas you "get caught by the Christmas Cat" or "dress the Christmas Cat" as the saying goes. The Christmas Cat was supposed to be some kind of a monster that originally came from the other Nordic countries. But still today it is talked about it, and they make sure that everyone has something new to wear on Christmas, otherwise they'll get caught by the cat.

A roughly-translated Icelandic poem about the Yule Cat.

The Christmas Cat

You all know the Christmas Cat
And that Cat was huge indeed.
People didn't know where he came from
Or where he went.

He opened his glaring eyes wide,
The two of them glowing bright.
It took a really brave man
To look straight into them.

His whiskers, sharp as bristles,
His back arched up high.
And the claws of his hairy paws
Were a terrible sight.

He gave a wave of his strong tail,
He jumped and he clawed and he hissed.
Sometimes up in the valley,
Sometimes down by the shore.

He roamed at large, hungry and evil
In the freezing Christmas snow.
In every home
People shuddered at his name.

If one heard a pitiful "meow"
Something evil would happen soon.
Everybody knew he hunted men
But didn't care for mice.

He picked on the very poor
That no new garments got
For Christmas - who toiled
And lived in dire need.

From them he took in one fell swoop
Their whole Christmas dinner
Always eating it himself
If he possibly could.

Hence it was that the women
At their spinning-wheels sat
Spinning a colorful thread
For a frock or a little sock.

Because you mustn't let the Cat
Get hold of the little children.
They had to get something new to wear
From the grownups each year.

And when the lights came on, on Christmas eve
And the Cat peered in,
The little children stood rosy and proud
All dressed up in their new clothes.

Some had gotten an apron
And some had gotten shoes
Or something that was needed
- That was all it took.

For all who got something new to wear
Stayed out of that pussy-cat's grasp
He then gave an awful hiss
But went on his way.

Whether he still exists I do not know.
But his visit would be in vain
If next time everybody
Got something new to wear.

Now you might be thinking of helping
Where help is needed most.
Perhaps you'll find some children
That have nothing at all.

Perhaps searching for those
That live in a light-less world
Will give you a happy day
And a merry Christmas.
I hope yours will be a happy one too