| BRUSSELS CONFERENCE – Having attended ECRC’s event, our Finnish partner Kuluttajavirasto (The Consumer Agency) comments on it in its newsletter. |
Extract from The Finnish Consumer Agency's Newsletter 3/2008 and report on our ECRC conference in September 2007
THERE IS A NEED FOR SMALL LOANS, TOO
REASONS FOR THE OVER-INDEBTEDNESS OF THE POOREST SEGMENTS OF SOCIETY WERE PONDERED AT AN INTERNATIONAL CONFERENCE ON RESPONSIBLE LENDING. THERE IS A NEED FOR REASONABLY PRICED MICROLOANS IN ALL COUNTRIES.
Questions about lending are being discussed around the world. In September 2007, the European Coalition for Responsible Credit (ECRC), an informal body, organized the seventh international conference on the topic in Brussels. The conference title was "Regulation, Education & Cooperation in Responsible Financial Services", and special topics included over-indebtedness, credit card loans, financial education, credit ratings and microloans. These are familiar issues in Finland as well.
CAN CREDIT AT REASONABLE RATES HELP PREVENT OVER-INDEBTEDNESS?
Discussions about over-indebtedness and responsible lending emphasize appropriate marketing, estimating a borrower's ability to pay back a loan, and the importance of fair contractual terms and debt collection methods. The possibility to receive reasonably priced credit, however, is not yet widely discussed as a method for preventing over-indebtedness.
One tenet of the ECRC is that reasonably priced credit on fair terms should be available for everyone. We live in a credit society, in which the possibility of getting credit is an important part of everyday life. Credit availability is important to help even out income and expenses and finance major purchases. Research is needed on how credit offerings correspond to the needs of the most financially disadvantaged consumers. Do people in a weaker position receive loans that have considerably higher interest rates?
In Finland, according to a study of SMS loan users conducted by the Advisory Board on Finance Management, the majority of the credit recipients used quick loans to cover their everyday financial needs. Quick loans are available to poor people as well, whereas getting a bank loan usually requires a security, a guarantee or permanent employment. Based on the study, the major problem with quick loans is that they further impoverish the financially disadvantaged due to the high interest rates involved.
Compared to the international situation, Finland's responsible lending situation is reasonably good. Our Consumer Protection Act provisions on stating the annual percentage rate of charge, fair contractual terms, and borrowers' right to pay back loans ahead of schedule without being charged a fee, as well as the Debt Collection Act, have helped prevent many cases of over-indebtedness.
CREDIT CARD LOANS ARE CURRENTLY A PROBLEM IN MANY COUNTRIES
There was discussion at the conference about the increasingly common use of credit cards in Europe. An increasing number of consumers use multiple credit cards simultaneously, which makes it difficult for them to manage payment schedules. To deal with overdue payments, older credit cards may be paid off by taking out a new one. Over-indebtedness can easily result. It is considered preferable for consumers to have one credit card, or perhaps a few.
Overly aggressive marketing was seen as the culprit in creating this situation. Credit cards have been marketed especially to financially vulnerable consumers, for example. Notifications of raised credit limits have been sent to consumers who did not ask for them. A new factor also seen as an explanation is that instead of a high interest rate, credit costs may be hidden in various sorts of fees collected as part of the credit agreement and as overdue payment fees, which makes it difficult to assess credit expenses. In this respect also, the situation in Finland is fortunately a bit better than in many other countries, though the phenomena mentioned are not unknown to us. For example, the Finnish Consumer Agency in cooperation with the Federation of Finnish Financial Services just recently drew the attention of credit card providers to conducting sales appropriately.
SEVEN PRINCIPLES OF RESPONSIBLE LENDING
The ECRC has drafted seven principles of responsible credit. The principles are:
• Responsible and affordable credit must be provided for all.
• Credit relations have to be transparent and understandable.
• Lending has at all times to be cautious, responsible and fair.
• Adaptation should be preferred to credit cancellation/destruction.
• Protective legislation has to be effective.
• Over-indebtedness should be a public concern.
• Borrowers must have adequate means to defend their rights and be free to voice their concerns.
Participants in the responsible lending conference came from all of the EU member states, the USA, Brazil, South America, Japan, Canada and Albania. Finland was represented by the Consumer Agency. The chairman of the conference, and the driving force behind it, was Professor Udo Reifner of the Institut für Finanzdienstleistungen, Hamburg. The director of the Consumer Agency, Anja Peltonen, gave a presentation about the Finnish situation.
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| ID: |
41227 |
| Author(s): |
SCR |
| Publication date: |
28/04/08 |
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Created: 28/04/08. Last changed: 28/04/08.
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