COUNCIL OF EUROPE - (ECRC) Principles of Responsible Credit identified in the Recommendation adopted by the Council of Europe on 20 June 2007 - Committee of Ministers adopt Recommendation on legal solutions to debt problems.
First coherent political text for identifying legal and political measures that could be adopted by member States and lead the Implementation Process of the Consumer Credit Directive. Another Challenge for the ECRC Principles. |
(*please note to avoid confusion: This text is from the Council of Europe and NOT the European Council, they are two different organisations – see the link below to know more about the CoE. Documents attached below)
COUNCIL OF EUROPE ON RESPONSIBLE CREDIT: AHEAD OF THE EU?
RECOMMENDATION CM/REC(2007)8 OF THE COMMITTEE OF MINISTERS TO MEMBER STATES ON LEGAL SOLUTIONS TO DEBT PROBLEMS
(Adopted by the Committee of Ministers on 20 June 2007 at the 999bis meeting of the Ministers’ Deputies)
DELIBERATIONS:
The Committee of Ministers, under the terms of Article 15.b of the Statute of the Council of Europe, Acknowledging that member states have entered an era where the use of credit has become an essential part of their economies; Taking into account that the development of the consumer credit market can be beneficial both for the economic growth of member states and for the well being of individuals; Noting that although in the majority of cases credit contracts operate without difficulty, increased lending leads to increased debt problems and, in some cases, to over indebtedness; Bearing in mind that over indebtedness of individuals and families has become an increasingly widespread problem in most member states, which frequently leads to social and health problems and social exclusion of families and may put children’s basic needs at risk; Stressing the responsibility of member states for the effects of their economic and social policies; Agreeing upon the utmost importance of political, legal and practical measures which the governments of member states should adopt in order to prevent and solve debt problems effectively; Underlining the need to strike a balance between the legitimate interests of creditors and the basic rights of debtors; Taking into account Resolution No. 1 on seeking legal solutions to debt problems in a credit society, adopted by the European Ministers of Justice at their 26th Conference (2005); Recalling Recommendation Rec(2003)17 of the Committee of Ministers to member states on enforcement; Bearing in mind other work carried out at a European level concerning the settlement of disputes between creditors and debtors, Recommends that the governments of the member states, when formulating their internal legislation and practice and when seeking legal solutions to debt problems and to over indebtedness:
POLICY PAPER:
1. note that for the purposes of this recommendation over indebtedness means, but is not limited to, the situation where the DEBT BURDEN OF AN INDIVIDUAL OR A FAMILY MANIFESTLY AND/OR ON A LONG TERM BASIS EXCEEDS THE REPAYMENT CAPACITY;
2. AIM TO PREVENT OVER INDEBTEDNESS OF INDIVIDUALS AND FAMILIES IN PARTICULAR BY:
a. collecting information and statistics on debt problems and analysing the situation of over indebted individuals and families in their countries;
b. introducing and developing financial literacy on the rights of consumers in general, and budget management in particular, as part of the national education system;
c. effective access to impartial financial, social and legal advice and counselling to those who have problems with and questions about their debts;
d. providing the necessary measures and regulations to ensure responsible practices during all phases of the credit relationship including marketing of credit as well as the collection and use of credit data and other financial information;
e. safeguarding the rights of the guarantors to information as well as preventing the irresponsible use of guarantees;
3. TAKE APPROPRIATE MEASURES TO ALLEVIATE THE EFFECTS OF THE RECOVERY OF DEBT IN PARTICULAR BY:
a. ensuring an efficient and unbiased enforcement system as well as appropriate legislation, which defines the powers of enforcement agents;
b. respecting the debtor’s rights and human dignity at all stages of debt collection and debt enforcement procedures without infringing the rights of creditors;
c. introducing enforcement alleviation procedures, including the protection of the essential assets of the debtor and garnishment of part of his/her revenue, which take into account the need to strike a balance between the protection of at least the basic living needs of the debtor and his/her family and the efficiency of debt recovery;
d. ensuring the rights of the guarantors of the debtor at all stages of debt enforcement procedure, including, as far as possible, the right to treatment equal to that accorded to the debtor;
e. facilitating the recognition and enforcement in member states of payment judgments and repayment plans emanating from the competent authorities in other member states;
4. INTRODUCE MECHANISMS NECESSARY TO FACILITATE REHABILITATION OF OVER INDEBTED INDIVIDUALS AND FAMILIES AND THEIR REINTEGRATION INTO SOCIETY IN PARTICULAR BY:
a. ensuring that debtors have effective access to impartial advice and to debt adjustment in accordance with the criteria established by national law;
b. ensuring that payment plans in debt adjustment are reasonable, in accordance with national practices, both in repayment obligations and in duration;
c. ensuring that debt adjustment covers all debts, excluding only those covered by special waivers provided under national law;
d. establishing mechanisms for extra judicial settlements and encouraging such settlements between the debtor and creditor;
e. effectively limiting the means of creditors to hinder debt settlements unreasonably;
f. encouraging effective financial and social inclusion of over indebted individuals and families, in particular by promoting their access to the labour market;
g. encouraging the active participation of the debtor in debt settlement and, where necessary, counselling and advice following the debt settlement;
h. allowing partial or total discharge of the debts of individuals and, where applicable, families in cases of over indebtedness where other measures have proved to be ineffective, with a view to providing them with a new opportunity for engaging in economic and social activities;
5. FACILITATE THE IMPLEMENTATION OF THIS RECOMMENDATION IN PARTICULAR BY:
a. setting up policies relating to debt management and to treatment of over indebted individuals and families and ensuring uniformity of such policies;
b. ensuring effective co operation between the competent bodies and professionals involved in the prevention of over indebtedness, the alleviation of the effects of the recovery of debts and the rehabilitation of over indebted individuals and families;
c. setting up debt advice, counselling and mediation mechanisms, as well as ensuring, or at least encouraging, effective participation of lending institutions and other public and private creditors in implementing national policies for debt management;
d. ensuring appropriate quality standards and impartiality of the services provided by the responsible bodies and professionals as well as effective mechanisms for controlling these standards;
e. providing easy access to information about consumer rights, which should be readily understood by the general public.
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EXPLANATORY MEMORANDUM TO RECOMMENDATION REC (2007)8 OF THE COMMITTEE OF MINISTERS TO MEMBER STATES ON LEGAL SOLUTIONS TO DEBT PROBLEMS
I. INTRODUCTION
1. In many European countries, the significance of credit has increased over the past few decades. Lending drives economic growth and benefits individuals. As a matter of fact, the availability of sufficient credit is a central element in a functioning market economy.
2. Nevertheless, in some circumstances the growth in lending can lead to serious financial difficulties for individuals and families. In the member states of the Council of Europe over indebtedness of individuals and families caused by, for instance, increased marketing of and easy access to credit, over commitment of the consumers and unforeseen events that have weakened their economic situation (unemployment, sickness, change of family situation etc.) has become an increasingly widespread phenomenon.
3. Furthermore, the practices of aggressive credit marketing, making use of the latest information technologies, touch all levels of society, especially those who are most vulnerable.
4. Of particular importance is the position of young debtors, the newly emerging market segment who are particularly susceptible to aggressive credit marketing techniques. Over indebtedness of young people can pose a serious and long lasting threat to the economies of member states and the well being of society in general.
5. Governments of member states play an important role in preventing and controlling over indebtedness not only through specific measures dealing with debt problems but also by ensuring that social and economic policies do not jeopardise the financial situation of individuals and families.
6. Due to its complex nature, over indebtedness may lead to social, health and legal problems for individuals and families and may put children’s basic needs at risk. Therefore, legal and political solutions to over indebtedness should be combined with a broader range of social and financial measures implemented in different areas of society, aiming at combating poverty and financial illiteracy and promoting social inclusion, while paying great attention to human rights and dignity.
7. In a credit society it is impossible to prevent all debt problems at all times but legal, political and practical measures for limiting, as far as possible, over indebtedness and its effects should be examined and the best of these measures identified with a view to assisting the member states in their implementation.
8. Currently there is no international legal instrument dealing specifically with over indebtedness. It is hoped that the present Recommendation, setting out minimum legal standards for dealing with debt problems, could form a sound basis for member states wishing to set up a more comprehensive legal instrument on this topic in the future.
9. Nevertheless, at the level of the European Union there are several legal instruments dealing with certain aspects connected to over indebtedness, such as, for instance, enforcement of judgments in civil and commercial matters , legal recognition of foreign bankruptcy proceedings , legal framework for consumer credit activity , information to be supplied to the consumer before a credit agreement is concluded and the principle of responsible lending .
10 Without doubt, such an important subject falls within the realm of activities of the Council of Europe. Up to now only a few aspects indirectly relating to over indebtedness have been covered by legal instruments adopted under the aegis of the Council of Europe. These instruments cover, for instance, the protection of personal data , the effective enforcement of judgments and the need to strike a balance between the interests of the debtor and those of the creditor as well as protecting the essential assets of the debtor and providing the possibility of protecting part of his/her income from the enforcement procedure (garnishment) and certain aspects of collective insolvency proceedings .
11. Therefore, there is the need to address the problem of over indebtedness of individuals and families in a comprehensive manner. The Council of Europe is well placed to continue playing an important role in assisting member states to best deal with problems of over indebtedness through broad intergovernmental co operation.
12. In this respect, the European Committee for Social Cohesion (CDCS) has set up a “Dialogue platform on ethical and solidarity based initiatives” , which is a constructive forum for producing new ideas and setting up alternative initiatives to combat poverty and social exclusion and factors leading to these phenomena, including over indebtedness.
13. In addition to the social and educational solutions to debt problems, their legal aspects should also be taken into account. At their 26th Conference (Helsinki, 7 8 April 2005), the European Ministers of Justice carried out a detailed examination of the issue of over indebtedness in Council of Europe member states and highlighted the need to identify possible legal and practical solutions that the authorities could bring into play when dealing with this problem. The Ministers adopted Resolution N° 1 on Seeking Legal Solutions to Debt Problems in a Credit Society, whereby they invited the Committee of Ministers of the Council of Europe to entrust the European Committee on Legal Co operation (CDCJ) with analysing existing legislation and good practices, identifying the difficulties met and preparing an appropriate instrument defining legislative and administrative measures for dealing with the problem of over indebtedness.
14. As a follow up to the above Resolution an expert, commissioned by the CDCJ, prepared a “Report on legal solutions to debt problems in credit societies”. In this Report existing legislation and good practices were analysed and difficulties in finding solutions to debt problems were identified. The Report discussed the concept of over indebtedness, the prevention of over indebtedness, the alleviation of the payments of debts and the rehabilitation of over indebted individuals and families, and served as a basis for the structure of this Recommendation.
15. Within the framework of its contribution to the implementation of Resolution N° 1 of the 26th Conference of the European Ministers of Justice, the Committee of Ministers adopted, on 11 January 2006, the Terms of Reference of the Group of Specialists on Seeking Legal Solutions to Debt Problems (CJ S DEBT), instructing it to prepare, under the authority of the CDCJ, an appropriate instrument defining legislative and administrative measures as well as to consider remedies to prevent and solve debt problems.
II. SCOPE OF THE RECOMMENDATION
16. To facilitate implementing this Recommendation a non exhaustive definition of over indebtedness is proposed. Over indebtedness should cover at least the situations where the debt burden of an individual or a family continuously and/or manifestly exceeds its payment capacity, resulting in systematic difficulties, and sometimes in failure, in paying the creditors . Member states are encouraged to consider a more precise definition of over indebtedness to apply within the framework of their legal systems.
17. At the same time the distinctions between the concepts of over indebtedness, poverty and consumer insolvency should also be taken into consideration, noting however that all three phenomena may lead to social and health problems and exclusion of individuals and families from society.
18. There are three principal complementary ways through which debt problems can and should be dealt with: prevention of over indebtedness, alleviation of the effects of the recovery of debts and rehabilitation of over indebted individuals and families.
19. The Recommendation aims at identifying possible legal and political measures that can be applied by the states in order to prevent over indebtedness of individuals and families, to adjust the recovery of debts from the over indebted in a manner that avoids their social and financial exclusion and to facilitate rehabilitation of the over indebted with due regard to their human dignity.
20. The Recommendation also considers the role and co operation of competent bodies at international, national, regional and local level, such as courts, administrative authorities, non governmental organisations involved, as well as financial and lending institutions.
III. COMMENTARY ON SPECIFIC PROVISIONS
PREVENTION OF OVER INDEBTEDNESS
21. To deal successfully with the problems that over indebted individuals and families encounter it is necessary to have a regularly updated overall picture of the extent and characteristics of over indebtedness in member states. The collection of statistics and other information on debt problems and the analysis of the situation of over indebted individuals and families is an indispensable prerequisite for obtaining a complete picture and for monitoring the effects of the measures undertaken. That is why authorities are recommended to collect and use this information systematically so that they are able to keep track of all the developments and anticipate potential difficulties by taking necessary measures in advance.
22. Introducing financial literacy and budget management as part of national education is important for individuals and families to cope with the financial aspects of their lives in general and can be a very efficient tool to ensure that they have the minimum knowledge necessary in order to make informed choices when considering credit proposals offered by the market, thus promoting responsible borrowing and preventing over indebtedness.
23. In order for access to financial, social and legal advice and counselling to be effective it should not only be available free of charge (or at low cost), but also physical access to such advice and counselling should be uncomplicated and this advice and counselling should be impartial .
24. Due to objective reasons, lending institutions are best placed to assess the repayment ability of a potential consumer. This is why these institutions should be encouraged to take their part of responsibility when offering credit, especially to young people. A legal framework, effectively preventing inconsiderate or even predatory lending, as well as misleading or aggressive advertising should be set up, ensuring that lending institutions establish certain criteria that should be applied before the credit is granted. This framework could envisage, inter alia, the temporary exclusion from access to credit of over indebted individuals and families in respect of whom a specific debt related procedure has been initiated. Furthermore, the responsibility of banks and lending institutions does not start, nor does it end at the stage of granting a credit. Marketing of credit and the use of credit data by lending institutions are also activities that have direct influence on credit consumers’ behaviour and their well being. Establishing appropriate regulations, such as, for instance, codes of conduct for the banks, as well as responsible practices during all phases of the credit relationship could significantly contribute to preventing over indebtedness of individuals and families. Member states should encourage creditors to act in the interests of the general body of creditors and those of the debtor.
25. Guarantors are one of the possible players in a credit relationship. When the debtor fails to meet his/her financial obligations it is the guarantor’s financial interests that are at stake. It is necessary to ensure that guarantors are informed of the situation concerning the debtor’s repayment abilities, especially in the case of a change of circumstances. Mechanisms should be introduced that would protect the guarantors and prevent abuse of the guarantees.
ALLEVIATION OF THE EFFECTS OF THE RECOVERY OF DEBTS
26. An efficient enforcement system is one of the key elements of effective access to justice. With regard to the credit relationship it is important to stress the right of creditors to have their legitimate financial interests protected, where necessary, through the enforcement of court decisions . However, in the case of over indebted individuals and families the law should clearly delimit the powers of enforcement agents when enforcing a decision against such individuals and families.
27. When enforcing a decision of a judicial authority, as well as carrying out extra judicial debt collection, the debtors’ rights and human dignity should be duly safeguarded. Equal dignity of all human beings was confirmed to be one of the common values of the Council of Europe member states and should therefore be protected at all stages of debt enforcement without infringing the legitimate interests of creditors.
28. Over indebtedness may have a strongly adverse impact on the development of children in over indebted families. It may not only reduce the capacity of adult members of the family to re engage in an income generating activity but, inter alia, can also prevent or substantially limit the same capacity for their children. Therefore debt recovery procedures should protect the essential assets of the debtor by means of, for instance, garnishment of a part of income in order to ensure that a fair balance is struck between the basic living needs of the debtor and his or her family and the efficiency of debt repayment.
29. Although the guarantors voluntarily take the risk of having to pay the creditors if the debtor fails to do so, their interests also need a certain degree of protection. At the very least debt enforcement should avoid leading to over indebtedness of the guarantor. The right to similar treatment for guarantors, including, as far as possible, the right to treatment similar to that of the debtor, should be taken into consideration at all stages of debt enforcement. Guarantors should have appropriate legal remedies to safeguard their position and to protect their interests in debt related proceedings .
30. The rapid development of the international credit market has opened possibilities for obtaining credit in foreign countries. An increased risk of over indebtedness arising from the possibility of easily obtaining a transfrontier credit by means of the latest information technologies should be borne in mind . In any case, it is important that member states facilitate recognition and, where applicable, enforcement of decisions concerning payment judgments and payment plans emanating from competent foreign authorities.
REHABILITATION OF OVER INDEBTED INDIVIDUALS AND FAMILIES
31. Despite the preventive measures that have already been taken by some member states in order to avoid over indebtedness of their individuals and families, some still find themselves unable to pay their debts within the foreseeable future. Evidently, it is not possible to eradicate over indebtedness completely, at least not without unnecessarily curbing access to credit. This is especially true because many debtors become over indebted for reasons which are not of their own making and which they could not have reasonably predicted. Over indebted individuals and families should therefore have effective access to impartial advice and debt adjustment procedures, for which clear criteria should be established. The effectiveness of access to such procedures implies not only that they should be free of charge (or low cost) and impartial, but also easily accessible on a physical level.
32. A specific debt adjustment procedure often results in the adoption of a payment plan that is approved with respect to the debtor in question. A payment plan should contain the amount that the debtor is obliged to pay periodically to his/her creditors, as well as the reasonable time frame within which these payments should be completed. What may be considered “reasonable” may vary from one member State to another and that is why the reference to national practices is included in the Recommendation. Any payment plan, approved as the result of a debt adjustment procedure, should ensure that amounts of payment as well as the entire duration of the plan do not deprive the debtor and/or his/her family of the ability to satisfy their basic needs with due regard to their human dignity.
33. Debt adjustment should cover all debts, excluding only those debts covered by special waivers provided under national law.
34. In most member states disputes related to credit relationships in general and debt problems in particular are resolved by judicial and extra juridical bodies with relevant competence. The increasing problem of over indebtedness in Europe makes it necessary to find alternative solutions, where possible, for solving debt problems. Member states should establish mechanisms encouraging extra judicial settlements between the debtor and creditor in order to find easier, faster and cheaper solutions and to avoid an increased case load for the courts with a view to preserving court proceedings as a last resort in case voluntary debt settlement fails.
35. In certain cases creditors may, willingly or unintentionally, hinder conclusion of debt settlements between debtors and other creditors. The authorities should seek to limit such impediments when they are created unreasonably. What may be considered “unreasonable” may vary from one member State to another. To this end a competent body could be entitled to impose a debt settlement when no legitimate reason is provided by the creditor for refusing to respond to the proposed debt settlement or to carry out other measures that would encourage creditors to accept extra judicial settlements.
36. Over indebtedness may, and sometimes does, result in exclusion of individuals and families from society including a loss of motivation to be engaged in income generating activities, exclusion from social activities and health problems. This is not only detrimental to the individuals and families concerned, but also to society as a whole as it suffers evident financial loss . That is why one of the paramount objectives of rehabilitation should be social and financial inclusion of over indebted individuals and families.
37. One of the aspects of social and financial inclusion is encouraging active participation of the over indebted in debt settlement as well as professional counselling and advice once the debt settlement is in force as well as upon its completion where necessary.
38. Total or partial discharge of debts can be a useful solution in cases of over indebtedness where other measures have proved ineffective. In some cases it may be the result of the successful fulfilment of debt adjustment plans, in other cases discharge of debts can be used as an independent solution. In all cases discharge of debts should be accompanied by measures aimed at preventing repetitive over indebtedness bearing in mind the specific reasons which lead to the over indebtedness in each case. When considering total or partial discharge of debts due regard should be paid to the fact that all debts should be included, with the exception of those covered by special waivers provided under national law.
IMPLEMENTATION OF THE RECOMMENDATION
39. There are a number of strategic policy decisions that the authorities should consider taking with a view to facilitating the implementation of this Recommendation. Member states should ensure that all policy decisions relating to debt management and treatment of over indebted individuals and families are uniform and conform to an established country wide standard, with a view to guaranteeing their equal treatment.
40. In order to tackle the problem of over indebtedness in the most effective and efficient manner, it is important to set up competent bodies involved in prevention of over indebtedness, alleviation of the effects of the recovery of debts and rehabilitation of over indebted individuals and families and to ensure effective co operation between them. Along with the mainstream solutions, proposed in the Recommendation, alternative debt mediation could be considered.
41. The services of the competent bodies could be financed not only by public sector, but also by lending institutions, without prejudice to the impartiality of these services. As banks and lending institutions are key actors in a credit market, their participation is essential in setting up and implementing national policies for debt management, without excluding the participation of other creditors.
42. Public or private professionals with competence in issues of over indebtedness could significantly contribute to prevention of over indebtedness, alleviation of the effects of the recovery of debts and rehabilitation of the over indebted individuals and families. It is important however that quality of all services related to over indebtedness and the impartiality of their providers are ensured, including by means of special certification by the relevant state authority.
43. States should promote awareness in relation to financial management. However, information on consumers’ rights, if exposed in a purely legal language, might be difficult to understand fully for persons of average legal and financial literacy. Therefore such information should not only be easily accessible, but also be presented in a user friendly and easily understandable language. |
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40006 |
| Author(s): |
iff |
| Publication date: |
06/08/07 |
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Created: 06/08/07. Last changed: 22/08/07.
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