|Brussels 2006 - Report on Workshop 9 "Family and Credit: Does Consumer Credit threaten Family Ties?" chaired by Aurelia Ciacchi
|REPORT ABOUT THE WORKSHOP
“Family and Credit: Does Consumer Credit Threaten Family Ties?”
(by Dr. Dott. Aurelia Colombi Ciacchi, LL.M.)
I. GENERAL INTRODUCTION
“Family” and “Credit” go hand in hand in many respects. Their mutual interaction has both good and bad sides. One may see this interaction from a threefold perspective: benefits, needs, and problems.
First, credit may benefit the family and vice versa. Credit for the purchase of goods often increases the standard of living of the debtor’s family. . Credit which increases the debtor’s earning capacity may enable him or her to start a family, or to improve its general standard of living. Conversely, a good family environment is almost always beneficial for the credit history of the family members. Family members often help each other in managing financial resources properly and paying off debts.
Second, credit may need the family, and vice versa. Family needs may result in credit needs, for example for housing or the education of children. Conversely, a debtor may only be able to repay a loan if family members give him or her financial support. This support is often contractually formalised as a personal guarantee. Sometimes credit institutions only grant credit to a person on the condition that a close family member enters into a surety or co-debtorship.
Third, family problems may cause credit problems and vice versa. Separation, divorce, illness or the death of a family member can severely affect a person financially. Conversely, credit problems may poison familiar relationships, giving rise to conflicts which sometimes end in separation or divorce.
When dealing with family and credit from any perspective (economic, socio-political, legal etc.), one should always bear in mind the two-sided nature of the relationship between family and credit, both its good and bad sides. For example, commercial practices facilitating the access to credit of economically weak persons may increase the families’ welfare, but can also financially ruin many people and destroy family relations. Rules restricting consumers’ access to unsecured credit may prevent the financial ruin of some, but they can also exclude large portions of the population from the chance to improve their standard of living. Similarly, rules restricting the validity of personal guarantees of family members can protect some people from over-indebtedness, but they can also adversely affect the access to credit of the category of persons who would need it most.
This workshop was prepared on the basis of the following questionnaire:
II. THE FAMILY & CREDIT QUESTIONNAIRE
1. Do families in your country have a better access to credit than individuals? Why? Are there any specific family-friendly products on the credit market?
2. Does consumer indebtedness have any negative effects on the stability of marriages and families?
3. Is there any relation between the number of children in a family and its credit problems, with particular regard to indebtedness?
4. Which repercussions does the indebtedness of a family have for its children?
5. Are personal guarantees or the joint and several liability of family members for a consumer credit frequent in the banking practice of your country? If not, why?
6. How far are personal guarantees or the joint and several liability of family members related to personal or family indebtedness? In particular:
i) Do lenders frequently give credit to consumers which is only secured by a personal guarantee or the joint liability of a family member? If not, why?
ii) Do lenders frequently require personal guarantees or the joint liability of family members who do not have the financial means necessary to meet such obligations? If not, why?
7. Under which circumstances would you, and/or the prevalent opinion in your country, consider a personal guarantee or the joint and several liability of a family member for a consumer credit as being unfair? For instance:
i) Liability of young children for their parents’ debts?
ii) Spouse’s liability after a divorce?
iii) Liability of family members who were not aware of the financial risk when signing the guarantee or credit agreement?
iv) Liability of family members who, although perfectly aware of the risk, nevertheless had no choice but to sign the banking agreement because a refusal would have impaired the harmony in the family?
v) Liability of a family member which is manifestly disproportionate to his or her financial means?
8. Are there any instruments of legal protection of family members from unfair guarantees or credit agreements? Please specify, e.g.
i) Consumer protection law?
ii) General law of obligations and contracts?
iii) Specific provisions concerning certain types of contracts?
iv) Family law?
v) Consumer insolvency law?
vi) Constitutional law?
vii) Other branches of law?
9. Are there any other, not necessary legal, instrument of protection of family members from unfair guarantees or credit agreements?
10. Would you describe the overall level of protection extended to family members in case of unfair guarantees or credit agreements in your country as high or low? Do you consider this level as satisfactory?
11. Would it be possible to provide any legal or other instruments already existing in your country with a new interpretation or application practice, so as to increase the level of protection of family members?
III. THE WORKSHOP SPEECHES
1) THE CO-ORDINATOR’S INTRODUCTION
In her opening speech the workshop co-ordinator, Dr. Colombi Ciacchi, focused on the mutual interactions between family and credit (see I. above), and on the links which may be traced between these interactions and the single questions of the questionnaire:
Family needs create credit needs = Question 1
Family needs create credit problems = Question 3
Credit problems create family problems = Questions 2 and 4
Credit needs the family = Questions 1, 5, 6 and 7
Questions 8 and 9 aim at exploring the existing legal and non-legal instruments to resolve the problems of family and credit. Question 10 aims at assessing the level of protection provided by these instruments. Finally, question 11 deals with potential problem-solving instruments that could be adopted in the near future.
Question 8 mentions constitutional law instruments. In this regard, the issue here is the impact of human rights, in particular human dignity, in the regulation of family over-indebtedness. In this regard, Dr. Colombi Ciacchi refers to Mrs. Mannes’s speech in the previous Workshop 1, quoting Art. 1675/03 of the Belgian Code of Civil Procedure, according to which debt settlement plans aim tore-establish the debtors’ financial situation, enabling them to repay their debts and at the same time guaranteeing them and their families the right to live their lives in a way which conforms to human dignity.
Question 11 leaves the question open whether a European harmonisation or approximation of legal rules and policies concerning the protection of consumers and their families from over-indebtedness would be possible and advisable. Dr. Colombi Ciacchi recalls that in the previous Workshop 1, Johanna Niemi-Kiesläinen argued for common European policies and principles to be followed in the debtors’ protection.
2) NICOLE PEREZ
Nicole Perez, representative of the French Union féderale des consommateurs “Que Choisir”, confirmed that difficulties encountered by consumers in repaying their debts might threaten the peace or even the stability of their family or couple relationships. One of the possible sources of family trouble is that one’s individual decisions in financial matters can have ruinous consequences for his or her family. Both spouses are often jointly and severally liable for the entire amount of a debt entered into by one spouse only. Also the suretyship of family members is very common in France. Moreover, some practices and credit products which can have adverse effect on familiar relationships are becoming increasingly popular in the French credit market: revolving credit, the so-called “fidelity card”, the prêt hypothécaire rechargeable and the prêt viager hypothecaire, and the harsh methods of the credit enforcement businesses.
3) SOPHIE VIGNERON
Interactions between family and credit in France were also the subject of Dr. Sophie Vigneron’s (University of Kent) speech. In France, one million households are over-indebted, and this is due to an excess of consumer credit. Their adverse effects on individuals and families can be tragic, as in a case of 2002 when a couple tried to kill their five children and then themselves attempted suicide because they could not pay their debts.
Dr. Vigneron outlined the legal instruments protecting family members in general contract law, suretyship law, and consumer law. She came to the conclusion that consumer credit does indeed threaten family ties, when:
- credit institutions lend money to people who cannot afford repayments,
- credit institutions accept guarantors who do not have the means to pay the debt,
- the family’s estate is made security by one spouse/partner without the knowledge of the other,
- a spouse/partner can get into different consumer credit schemes that are not seen as consumer credit (carte de fidélité, carte avantage) and sometimes without the knowledge of the other.
More information and education in credit matters is needed. French MPs have suggested the creation of a database recording the amount of credit that people owe. This would be in Dr. Vigneron’s opinion part of a responsible credit approach.
Finally, Dr Vigneron presented the March 2006 reform of sureties undertaken by the Government. The new text shows that the French government wants to facilitate credit in order to boost household consumption and help the national economy. The main reforms concern mortgages. Firstly, it is now possible to re-mortgage a house to get consumer credit (but not revolving credit). Secondly, it is possible to get a lifetime mortgage (viager hypotécaire). The credit institution lends a sum and the family home is security for that loan. The loan will be repaid on the death of the owner and interest will be charged from the date of the loan to the date of the owner’s death (the longer the person lives, the more interest her/his estate will pay!!). This reform shows a change in thinking. Houses were traditionally seen as savings and assets to give to children. They are now a means to get credit and this seems to be more in the interest of credit institutions rather than in the interest of consumers, thus results a new threat to family relationship.
4) NIALL COOPER
Niall Cooper (national co-ordinator of Church Action on Poverty, co-founder of the Debt on Our Doorstep Network, and a member of the UK Government Advisory Group on Over-indebtedness) reported very dramatic figures on the social and economic dimension of families over-indebtedness in the UK:
6.1 million families reported difficulties meeting their debt repayments. Over-indebtedness is mainly a problem of low-income households, which are three times more likely than the general population to be in arrears with payments. In 90% of cases, money is borrowed not to buy non-essential items, but to make ends meet. People regularly borrow to pay bills, to buy clothes and school uniforms, and for birthday, holidays and Christmas. Doorstep loans are very common in the UK, and are the main cause of debt traps. Local agents for doorstep lenders are privy to personal information, the residents’ dates of birth for instance: for example, they show up at a family doorstep shortly before the birthday of one of the children of the household.
The impact of over-indebtedness on family relationships is very serious. According to the UK’s main relationship counselling agency, the biggest cause of arguments within a relationship is not infidelity but money. Feelings of shame, failure and other negative internalised identities are common, and they discourage people from engaging in social relationships. Debt also has a detrimental affect on family health (stress, anxiety, depression – in particular maternal depression). Family problems, such as those of lone parents, make debt problems even more acute.
Mr. Cooper’s conclusion is that families, especially on low incomes, do indeed need access to credit, but debts can also damage families, health and wider social relationship. Irresponsible and extortionate lending practices will worsen the impact on families.
5) GAIL BURKS
Gail Burks, representative of NCRC and the Nevada Fair Housing Center, mapped the US instruments for the protection of families from unfair credit practices. General instruments of protection from discrimination in lending are the Equal Credit Opportunity Act and the Fair Housing Act. Specific protective rules are then provided for each type of debt: real estate related transactions, consumer transactions, secured transactions and unsecured transactions.
The liability regime of co-signees depends on the applicable law (Federal or State law), on the matrimonial property regime (community property or separate property), and is regulated by both family and bankruptcy law.
The psychologically adverse effects of over-indebtedness on the family are considerable. Consultancies report that the 45% of their clients who have debt problems also have marital problems.
The Fair Credit Report Act, the Fair Debit Collection Practices Act, the Truth in Lending Act are important legal instruments of protection from unfair credit practices. It may be asked whether new laws should be enacted to specifically protect family members from debts of other family members.
The workshop speeches were followed by a lively and inspiring discussion. Comprehensively, in this workshop conspicuous evidence was presented, suggesting that there is a strong interrelation between credit problems and family problems, and that irresponsible practices in the consumer credit market definitively threaten family ties. Several types of family-unfriendly credit products and practices have been described, but an answer to the question of how a family-friendly credit could and should present itself, is still missing. The design of family-friendly credit models is a difficult task, for which the joint effort of international networks such as the ECRC will be necessary.
Created: 25/07/06. Last changed: 07/08/06.
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