|SWISS ECRC CONFERENCE - 100 participants gathered in Berne and discussed the threat of consumer credit law in Switzerland through the pending EU-Directive as well as issues of financial education. GE Money announced 30 principles of responsible lending.
|About 100 representatives from Swiss debt advice agencies including the head of Swiss Debt Advice Peter Gründler from Zurich, Mario Roncoroni from Berne Debt Restructuring, as well as bankers and officials from government and communities attended the first national ECRC conference which was dedicated to Consumption, Credit and Debt.
SWISS NEW CONSUMER CREDIT ACT 2002 THREATENED BY UP-COMING EU-CREDIT DIRECTIVE
Main speakers on the Swiss credit law were Dr. Marlis Koller-Tümler lecturer from Berne University and clerk at the Berne Court of Appeals and Dr. Felix Schöbl, head of the civil law legislation department of the Swiss government. Both expressed their concern with the latest draft of the EU Directive. While the scientist focussed on the achievement of the Swiss law which had been developed in an eight year discussion process the government official compared it to the latest draft from Brussels.
Swiss law obliges the parliament (Bundesrat) to fix a rate ceiling. Its unique principle of “Credit Capabality”, which in fact influenced the responsible lending principle of the 2002 EU draft without ever reaching its precision and impact (“mere paper principle”), requires that only such credit will bear interest which has been extended with caution. This is based on a test in which the instalment calculated down to a model credit life time of 36 month would not surpass the disposable income of the borrower at the time of the contract. The supplier has to investigate thoroughly on the basis of the requested information using additional own information. If not, the credit is void and the supplier punished, which according to the government official had caused a near heart attack to his Austrian homologue that saw freedom in society in danger.
Both experts revealed that as Switzerland had agreed to adapt its legislation to EU regulation in the frame of the European Economic Area Treaty and is constantly pressured to do so especially by a recent decision of the EU Court of Justice excluding Swiss suppliers from freedom from host country admission, this achievement would have to be abandoned if the new maximum harmonisation principle were to apply. Also its inclusion of leasing contracts if the technical form reveals that the whole price of the item is financed would have to be given up if the purely legal definition of EU law where the “obligation to buy the item” is the only criteria of inclusion would be realised. Also the Swiss principle of revocation is in peril when the EU imposes its unrealistic principle that the debtor who wants to exercise these rights needs to repay everything in full within 14 days which under Swiss law is not necessary. The representative of the ministry of justice also criticised the exemption on leasing in the EU Directive which factually would exempt Swiss leasing companies who had just successfully be integrated into the consumer protection.
Other backlashes especially the newly introduced fee for early repayment in Brussels as well the enormous number of additional exemptions especially as far as credit card credit is concerned would deeply conflict with the Swiss level of national consumer protection law. Many in the audience expressed their relief that Switzerland was not a member of the EU, stating this should give them at least a slight chance to be omitted from the process of liberalisation.
Even the representative of the Leasing industry did not complain about the application of the credit law on most leasing contracts in Switzerland, as these leasing contracts are a normal way of financing cars in the country. The application of the credit capability criteria meant some stress.
GE-MONEY HEAD OF RESPONSIBLE LENDING DEPARTMENT DESCRIBES RESPONSIBLE LENDING STRATEGY
The head of the GE Money Responsible Lending Unit, sponsor of the Swiss event, whose company’s market share in Switzerland represents 50% of the market (while 25% is held by subsidiaries of Credit Suisse), explained the strategy of her company to develop an own responsible lending philosophy which was based on information, transparency, fairness and respect, as well as care in the event of difficulties in repayment. This extension into the lifetime of the credit was largely welcomed by all participants who understand the term “responsible lending” in the way of responsible credit that has to remain responsible during the entire life time of the credit. GE Money has 30 principles in responsible lending passed by its council of ethics and which all GE Money subsidiaries will have to comply with by January 1, 2007. Its implementation is supervised through the questioning of employees, customers, post sale calls and mystery shopping. It concerns all stages from credit soliciting to debt enforcement. In each country one member of the presidency must be in charge of compliance. She also talked about a website www.moneybasics.ch which also exists in this form in other countries, sites which contain pure information on money issues. This information is also used in numerous letters sent by GE Money. In this project, this responsible lender is working together with the Berne association which organised the event.
CONSUMER DEBT CRISIS OF YOUNG PEOPLE IN SWISS, AUSTRIA AND GERMANY – A MYTH?
On the issue of “Jugendverschuldung” (Youth overindebtedness), Udo Reifner from the ECRC was invited to speak at the conference. The speaker gave an overview on the enormous amount of initiatives that claim to cope with overindebtedness of young people. Many politicians (mostly conservative but also green government officials), debt collection agencies and those banks not directly involved in consumer credit, actually sponsor and induce projects to teach young people to be careful with spending. In these public announcements, young people are reproached of being hazardous with money, of buying luxury goods and services on credit, and of generally over-consuming. The existing data, as well as legal expertise, reveals that there is no evidence at all for youth overindebtedness. Instead “youth” is vaguely defined as “in between 10 and 24 years old”, and is linked to consumer credit which people are mistaking for over-indebtedness. These campaigns claim that overindebted persons have been alike already before, and suggest education as the only way to help the situation. This simplified analysis ignores the other vast possibility of instead, teaching the credit system how to cope with the major problems of unstable income and sudden expenditure, i.e. help to deal with the likes of unemployment, divorce, accident and health problems. Debt advisors often support this ideology because for them, these projects give the debtor the chance to come back into business after a steady erosion of his funds (with only 90 debt advisors being left by their debtor in Switzerland).
But intelligent schooling projects will need active participation of debt advisors. They should not teach how to take up credit (an area in which they have little knowledge and experience) but instead how one can cope with a financial crisis, by explaining and using all the legal and other means available, and ensuring one’s dignity and pride remain intact. This would make debt advice a valid partner in the future of financial education. A model where banks play an important role in providing practical examples and the lieu of education in their outlets, while science has to care for an independent and acceptable content that is able to develop critical consumer consciousness for credit and debt.
(the link at the bottom of the page is to Prof. Reifner’s paper on Youth overindebtedness, currently only available in German)
NO CREDIT OR ANY CREDIT – THE FINAL QUESTION
In the final conference discussion, it became obvious that there was a different attitude to consumer credit in Switzerland than in other countries. Due to the low figures on consumer indebtedness and the relative welfare of poor people, many people in the public assume that lower class people should more or less be totally prevented from taking out credit at all – i.e. that they should try to get along with what they have. Over-consumption and the purchase of unnecessary goods were the evils exploited by irresponsible marketing practices. On the other hand, some debt advisors as well as supply-side participants insisted instead that Switzerland was no exception, and that due to developing instability of living conditions, credit here too, becomes a more and more important tool to cope with basic necessities. However, there should not be any juxtaposition between an Anglo-Saxon system of unregulated credit on one side, and a system in which credit regulation has the goal of keeping creditors and debtors away from credit relations. Responsible credit would mean that the borrower decides what he or she think is important while the creditor should both decide whether it is feasible and show the consequences of the credit to the debtor. If improvident credit extension would burden the creditor with the foreseeable risk of bad investments, providence and fair lending would be a goal for all.
At the end of the conference there was a general will to participate more actively in the world wide activities for a more responsible credit system and work together to get Brussels back to responsiveness to consumer protection issues in Europe.
Created: 13/11/06. Last changed: 13/11/06.
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