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

Abstract. Significantly more than a decade following the outbreak of…

Significantly more than 10 years following the outbreak for the worldwide economic crisis, customers throughout the EU have now been increasing their degree of financial obligation in 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 brand new challenges for regulators when it comes to how exactly to deal with them. This informative article aims to discover the problematic facets of credit supply within the post-crisis environment that is lending the EU and also to evaluate as to what extent the 2008 credit rating Directive presently in effect, which aims to guarantee adequate customer protection against reckless financing, is fit because of its function today. In this context, this article explores the overall concept of “responsible lending” with emphasis on credit rating, identifies probably the most imminent reckless lending techniques within the credit rating areas, and tentatively analyses their key motorists. Moreover it reveals some essential limits associated with customer Credit Directive in providing sufficient customer security against reckless lending while offering tentative tips for improvement. The time now seems ripe for striking a different balance between access to payday loans CA credit and consumer protection in European consumer credit law in the authors’ view.

Background

Significantly more than ten years following the outbreak associated with the international crisis that is financial customers throughout the European Union (EU) are increasing their amount of financial obligation with regards to both amount and worth of credit items (European Banking Authority 2017, pp. 4, 8). One of the reasons behind this trend will be the low interest environment, the novel business methods of lenders targeted at finding brand new income sources, such as for instance costs and fees on loans, as well as the revolutionary company models appearing in an extremely electronic marketplace, such as for example peer-to-peer financing (P2PL) (European Banking Authority, 2017 pp. 4, 8). These developments provide brand brand new dangers to customers and pose brand new challenges for regulators with regards to how exactly to deal with them. The situation of reckless credit lending deserves attention that is special this context. Such financing may cause unsustainable amounts of overindebtedness leading to major customer detriment. In addition, it might be troublesome towards the functioning associated with EU’s market that is single monetary solutions.

The main little bit of EU legislation presently regulating the provision of credit rating – the 2008 Consumer Credit Directive Footnote 1 –aims at assisting “the emergence of a 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 lending.” Footnote 4 This directive, which goes back into the pre-crisis period, reflects the data paradigm of customer security additionally the corresponding image associated with consumer that is“average as a fairly well-informed, observant and circumspect actor (Cherednychenko 2014, p. 408; Domurath 2013). The theory behind this model would be to increase the customer decision – making process through the guidelines on information disclosure targeted at redressing information asymmetries between credit organizations and credit intermediaries, regarding the one hand, and customers, on the other side. Particularly in the aftermath for the economic crises, nevertheless, serious concerns were raised concerning the effectiveness regarding the information model in ensuring sufficient customer security against irresponsible lending methods therefore the appropriate functioning of retail economic markets more generally speaking (Atamer 2011; Avgouleas 2009a; Domurath 2013; Garcia Porras and Van Boom 2012; Micklitz 2010; Nield 2012; Ramsay 2012). The writeup on the buyer Credit Directive planned for 2019 provides the opportunity to mirror upon this matter.

The aim of this article is twofold against this background. First, it seeks to locate the problematic facets of credit rating supply into the post-crisis lending environment across the EU. Next, it tries to evaluate as to the extent the 2008 credit rating Directive is fit for the function today in terms of the buyer security against reckless financing methods is worried. The analysis commences with a research associated with the basic meaning of “responsible lending” in the context of consumer credit—that is, unsecured credit given to individual, home, or domestic purposes. Building upon the contours associated with notion of responsible financing that features emerged out of this quest, plus the outcomes of the empirical research carried out by the writers, the content later identifies the absolute most imminent reckless financing methods when you look at the credit rating areas over 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 the content then proceeds to look at to what extent the buyer Credit Directive acceptably addresses the situation of reckless lending and analyses customer security requirements and their enforcement in the broader EU regulatory framework for credit. 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 restrictions associated with the present EU regulatory framework for credit rating, in specific compared to the Consumer Credit Directive, in supplying adequate customer security from the reckless financing techniques previously identified. The writers conclude by providing recommendations that are tentative enhancement and pinpointing areas for further research.