Reckless Lending within the Post-Crisis age: may be the EU Consumer Credit Directive Fit because of its function?

Abstract. Significantly more than a ten years following the outbreak of…

A lot more than ten years following the outbreak associated with worldwide crisis that is financial customers over the EU have now been increasing their amount of debt with regards to both amount and worth of credit rating services and products. The novel business practices of lenders aimed at finding new revenue sources, such as fees and charges on loans, and the innovative business models emerging in an increasingly digital marketplace, such as peer-to-peer lending among the reasons for this trend are the low interest rate environment. These developments provide brand brand new dangers to customers and pose brand new challenges for regulators with regards to just how to deal with them. This short article is designed to discover the problematic components of credit rating supply into the post-crisis lending environment across the EU also to evaluate as to what extent the 2008 Consumer Credit Directive presently in effect, which aims to make sure sufficient customer security against reckless financing, is fit for the function today. In this context, the article explores the typical concept of “responsible lending” with emphasis on credit rating, identifies the absolute most imminent reckless lending methods into the credit rating areas, and tentatively analyses their key motorists. In addition reveals some crucial limitations regarding the customer Credit Directive in supplying consumer that is adequate against reckless lending while offering tentative suggestions for enhancement. The time now seems ripe for striking a different balance between access to credit and consumer protection in European consumer credit law in the authors’ view.

Background

A lot more than 10 years following the outbreak associated with international crisis that is financial customers throughout the European Union (EU) are increasing their degree of financial obligation with regards to both amount and value of credit items (European Banking Authority 2017, pp. 4, 8). On the list of cause of this trend would browse this site be the low-value interest environment, the novel business techniques of lenders directed at finding brand new income sources, such as for example charges and costs on loans, in addition to revolutionary company models appearing in an increasingly electronic market, such as for instance peer-to-peer lending (P2PL) (European Banking Authority, 2017 pp. 4, 8). These developments provide brand brand new dangers to customers and pose brand brand new challenges for regulators with regards to how exactly to deal with them. The difficulty of reckless credit lending deserves special attention in this context. Such financing might cause unsustainable quantities of overindebtedness leading to major customer detriment. In addition, it may possibly be troublesome to your functioning for the EU’s solitary market in monetary solutions.

The main little bit of EU legislation presently regulating the supply of credit rating – the 2008 customer Credit Directive Footnote 1 –aims at assisting “the emergence of the well-functioning interior market in consumer credit” Footnote 2 and ensuring “that all customers ( … ) enjoy a top and comparable amount of security of these passions,” Footnote 3 in specific by preventing “irresponsible financing.” Footnote 4 This directive, which goes back to your pre-crisis duration, reflects the info paradigm of consumer security additionally the matching image for the consumer that is“average as a fairly well-informed, observant and circumspect star (Cherednychenko 2014, p. 408; Domurath 2013). The concept behind this model will be enhance the customer decision – making process through the guidelines on information disclosure targeted at redressing information asymmetries between credit organizations and credit intermediaries, from the one hand, and customers, regarding the other. Especially in the aftermath regarding the economic crises, nonetheless, severe issues have now been raised concerning the effectiveness associated with information model in ensuring consumer that is adequate against reckless financing techniques additionally the appropriate functioning of retail monetary areas more generally speaking (Atamer 2011; Avgouleas 2009a; Domurath 2013; Garcia Porras and Van Boom 2012; Micklitz 2010; Nield 2012; Ramsay 2012). The summary of the customer Credit Directive planned for 2019 provides the opportunity to mirror upon this problem.

The aim of this article is twofold against this background. First, it seeks to discover the problematic areas of credit rating supply when you look at the post-crisis environment that is lending the EU. Next, it tries to evaluate from what extent the 2008 credit rating Directive is fit because of its function as far as the consumer protection against irresponsible lending practices is concerned today. The analysis commences with a research for the basic meaning of “responsible lending” when you look at the context of customer credit—that is, unsecured credit given to personal, home, or domestic purposes. Building upon the contours regarding the notion of accountable financing which has had emerged using this quest, along with the link between the study that is empirical because of the writers, the content later identifies probably the most imminent reckless financing techniques when you look at the credit areas throughout the EU and tentatively analyses their key motorists. The empirical study involved several semi-structured interviews with the representatives of the consumer organizations and national competent authorities aimed at verifying the preliminary findings and obtaining further information on the problematic aspects of consumer credit, both in old and new Member States in addition to the desk research. Footnote 5 this article then proceeds to look at to what extent the buyer Credit Directive acceptably addresses the difficulty of reckless financing and analyses customer protection requirements and their enforcement in the broader EU regulatory framework for credit rating. The latter also contains a quantity of horizontal EU measures, in specific the unjust Contract Terms Directive Footnote 6 and the Unfair Commercial techniques Directive. Footnote 7 This analysis reveals some essential limits of this present EU regulatory framework for credit rating, in specific compared to the buyer Credit Directive, in supplying sufficient customer security up against the reckless financing methods previously identified. The writers conclude by providing recommendations that are tentative enhancement and determining areas for further research.