| European Consumer Organisations (BEUC) on the Financial Crisis: Consumer Information and Responsible Lending; American Legislator on the Financial Crisis: The Credit Card Act 2009 |
The umbrella organisation of many European consumer and test organisations has published its opinion concerning the financial crisis and its roots. It also has developed concrete demands to overcome this crisis and prevent future problems.
Entitled "FACING UP TO THE FINANCIAL CRISIS - BEUC’s concrete suggestions to protect consumers in the short and long term January 2009" BEUC asks for more precontractual consumer information, more consumer advice and more supervision of banks and more transparency. It thus remains within the political frame as defined by recent EU politics promoted by DG SANCO, Internal Market and Competition. The fruit of this information model in consumer protection is now discussed at the national level where the new Consumer Credit Directive is implemeted with an enormous amount of detailed information rights and duties. Grassroot organisations as well as banks see this approach rather critical. Too much superfluous costly information creates an information overflow. The necessary information - a one price disclosure and an obligatory repayment plan - have instead been sacrificed to repeated useless details on credit. It is therefore unclear why this critique at the national level has not been taken serious by BEUC.
The vast number of analysis on this crisis reveal that the most uninformed customers of financial products have indeed been the banks themselves. They bought hazardous products and believed in skyrocking profit promises. Should they get more information rights? The subprime crisis in credit card and mortgage credit in the US and the UK has shown that irrespective of enormous information duties usurious and irresponsible products have massively been marketed to customers who had no choice. The lack of choice was not at all a problem of information but a problem of need and existing debt. Only stricter product regulations would have ameliorated the fate of these customers. Products with kickback provisions of up to 30% will always be efficiently marketed to consumers if allowed. Usurious credit will always be imposed on consumers in refinancing arrangements.
The new US Credit Card Act is the exact answer to this challenge. It should carefully be studied by BEUC and the Commission since it enumerates all practices and products which have been identified and forbids many of them. These practices and not the uninformed consumers themselves have led to the financial crisis of consumers and consequently of the financial system. The credit card act is a law where the information model is visibly left aside and products and marketing practices itself are targeted.
In so far the statement of BEUC support a widespread illusion that financial markets with sufficient information would be able to serve all people in society regardless of their income and social stance.
But two elements of this declaration show that the close relations in Brussel may not always lead to similar views. The declaration does not support the view that financial education of consumers could have brought major improvements to the system. It therefore does not join those who implicetly blame consumers for the crisis. Second there is an interesting point on Responsible Lending. It does not use the concept of "responsible credit" as promoted by the worldwide Coalition on responsible credit. It instead sticks to the narrow defintion of the new Directive on responsible lending as a principle that impedes credit extension at all and not only the extension of unproductive and irresponsible credit products.
But its following applications goes far beyond a duty of assessing the creditworthiness of consumers. Here we find some elements of the seven principles of responsible credit as promoted by ECRC. We invite all to take up the vast discussions which ECRC has started with many of its members in many national and international conferences.
The chapter on Responsible Lending reads as follows:
"CREDIT – RESPONSIBLE LENDING
Facts:
Irresponsible lending is one of the main causes of the current financial crisis. As a consequence, more attention should be paid to this issue. Lenders should be obliged to assess the financial capacity of consumers asking for a credit and check their creditworthiness.
Our demands:
• Regulate variable interest rates to protect consumer from interest burden:
- Cap variable interest rates to limit interest rate variations.
- Improve information on variable rates.
- Prohibit promotional rates, i. e. attractive (or fixed) interest rates that
switch to higher (or variable) interest rates after a certain period of time.
• Foster consumer protection and responsible behaviour of credit institutions with legislation on mortgage credit: if the bank’s decision is based on a poor quality assessment of consumer’s financial situation the costs of irresponsible lending should be bared only by lenders and not by consumers (see Belgian law on responsible lending).
• Regulate crediting activities that seriously endanger the solvency of consumers (foreign currency credit, credit secured with mutual funds, Lombard credit, revolving credit…) as well as usury rates and excessive costs.
• Accompany and evaluate closely the implementation of the Consumer Credit Directive with a specific focus on the level of consumer protection (including the regulation of credit distributors), a responsible credit business and
necessary adjustments in the future and monitor specifically the transposition and implementation of Article 8 (lender’s obligation to assess the creditworthiness of the consumer)."
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| ID: |
43031 |
| Author(s): |
iff |
| Publication date: |
04/06/09 |
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Created: 04/06/09. Last changed: 08/06/09.
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