Irresponsible Lending into the Post-Crisis age: could be the EU Consumer Credit Directive Fit for the Purpose?

Irresponsible Lending into the Post-Crisis age: could be the EU Consumer Credit Directive Fit for the Purpose?

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

A lot more than 10 years following the outbreak regarding the international crisis that is financial consumers throughout the EU have now been increasing their amount of financial obligation with regards to both amount and value of credit rating services and products. The novel business practices of lenders aimed at finding new revenue sources, such as fees https://tennesseetitleloans.net/ 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 risks to customers and pose brand brand new challenges for regulators when it comes to how exactly to deal with them. This short article aims to discover the problematic facets of credit rating supply into the post-crisis environment that is lending the EU also to evaluate as to the extent the 2008 credit rating Directive presently in effect, which is designed to make sure sufficient customer security against reckless financing, is fit because of its function today. In this context, the content explores the overall meaning of “responsible lending” with emphasis on credit rating, identifies the absolute most imminent reckless financing techniques into the credit rating areas, and tentatively analyses their key motorists. It reveals some crucial limits associated with the customer Credit Directive in providing sufficient customer security against irresponsible lending and provides tentative tips 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 a ten years following the outbreak regarding the worldwide crisis that is financial customers throughout the European Union (EU) have already been increasing their degree of financial obligation when it comes to both amount and value of credit rating services and products (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 directed at finding brand new income sources, such as for example charges and charges on loans, and also the revolutionary company models rising in an extremely electronic market, such as for example peer-to-peer lending (P2PL) (European Banking Authority, 2017 pp. 4, 8). These developments provide brand new dangers to customers and pose brand brand new challenges for regulators when it comes to just how to deal with them. The difficulty of reckless credit lending deserves attention that is special this context. Such financing may cause unsustainable degrees of overindebtedness leading to major customer detriment. In addition, it could be troublesome into the functioning for the EU’s market that is single economic solutions.

The main 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 internal market in consumer credit” Footnote 2 and ensuring “that all customers ( … ) enjoy a higher and comparable degree of protection of these passions,” Footnote 3 in specific by preventing “irresponsible financing.” Footnote 4 This directive, which goes back towards the pre-crisis duration, reflects the information and knowledge paradigm of customer security and also the matching image regarding the “average consumer” as being a fairly well-informed, observant and circumspect star (Cherednychenko 2014, p. 408; Domurath 2013). The theory behind this model is always to increase the customer decision – making process through the principles on information disclosure targeted at redressing information asymmetries between credit organizations and credit intermediaries, regarding the one hand, and customers, regarding the other. Especially in the aftermath regarding the economic crises, nevertheless, severe issues have already been raised in regards to the effectiveness associated with the information model in ensuring consumer that is adequate against reckless financing methods together with 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 writeup on the buyer Credit Directive planned for 2019 provides the opportunity to mirror upon this problem.

From this back ground, the purpose of this informative article is twofold. First, it seeks to uncover the problematic areas of credit rating supply within the post-crisis environment that is lending the EU. Next, it tries to evaluate as to what extent the 2008 credit rating Directive is fit because of its purpose as far as the consumer protection against irresponsible lending practices is concerned today. The analysis commences by having a research for the basic concept of “responsible lending” when you look at the context of customer credit—that is, unsecured credit given to individual, home, or domestic purposes. Building upon the contours associated with notion of accountable financing that includes emerged using this quest, plus the link between the study that is empirical because of the writers, this article later identifies probably the most imminent reckless financing methods when you look at the credit rating areas throughout the EU and tentatively analyses their key motorists. Besides the desk research, the empirical research included a few semi-structured interviews with all the representatives associated with the customer companies and national competent authorities geared towards verifying the initial findings and obtaining more info on the problematic areas of credit, both in old and brand new Member States. Footnote 5 the content then proceeds to look at as to the extent the customer Credit Directive acceptably addresses the problem of reckless financing and analyses customer security standards and their enforcement inside the broader EU framework that is regulatory credit rating. The latter also incorporates a quantity of horizontal EU measures, in specific the unjust Contract Terms Footnote that is directive 6 the Unfair Commercial techniques Directive. Footnote 7 This analysis reveals some essential restrictions of this present EU regulatory framework for credit rating, in specific compared to the customer Credit Directive, in supplying sufficient customer security from the reckless lending techniques previously identified. The writers conclude by providing tentative tips for enhancement and distinguishing areas for further research.

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