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EU Study on the over-indebtedness of European households – preliminary findings presented

The preliminary findings of the “The over-indebtedness of European households: updated mapping of the situation, nature and causes, effects and initiatives for alleviating its impact” study was presented at stakeholder seminar on January 24th in Brussels. DG Sanco has announced to publish the final version in April 2013.

The summary document for the stakeholder workshop (Study for DG SANCO of the European Commission, conducted by Civic Consulting, presented at the Stakeholder seminar 24 January 2013) and the associated slides presented are available below.

The Study does not seem to bring substantial new findings compared to the joint-work done led by DG Employment in 2008. It basically finds that the phenomenon has gotten worse and that establishing a common definition of overindebtedness has not improved since the 2008 study (where confusion excisted between overindebtedness meaning high levels of borrowing, or referring to an inability to meet financial commitments in general). The mapping of the situation by the Study looks at the level of overindebtedness, the types of households in financial difficulties, the causes, consequences and measures to alleviate the impact of overindebtedness.

Extracts from the findings copied below

The research has used the following definition:

Households are considered over-indebted if they are having on an on-going basis difficulties meeting (or are falling behind with) their commitments, whether these relate to servicing secured or unsecured borrowing or to payment of rent, utility or other household bills. This may be indicated by, for example, credit arrears, credit defaults, utility/rent arrears or the use of administrative procedures such as consumer insolvency proceedings

Stakeholders reported:

Less than half (48%) use a specific definition for households or individuals being over-indebted.
– Stakeholders from civil society and independent experts were more likely to use a specific definition.
– Despite the lack of definitional clarity, there was surprisingly little support among stakeholders for a better definition of over-indebtedness – expressed by just 36% of those interviewed.
=>Points to a need to review concept of OI.

Suggested deconstruction of OI
The definition of an over-indebted household is widely accepted in principle, but difficult to apply in practice, and empirical studies have tended to adopt more practical definitions.
“The time may have come to abandon the attempt to define a term that many people seem to find unhelpful” (Elaine Kempson).
Instead, the focus could be on identifying the key policy concerns that exist and developing indicators to track them.
To do this, we suggest to deconstruct ‘over-indebtedness’ into two dimensions. These are:

– The type of financial commitment: consumer borrowing; other household commitments (such as utility bills or rents), or both of these.
– The nature of the concern: principally either the level of those commitments (in absolute terms or as a proportion of income) or an inability to meet them when they fall due.

We analyse levels of over-indebtedness as measured by the following indicators:
Macro-economic indicators (household debt to income ratio, non-performing loans);
– Statistics on arrears (EU-SILC);
– Statistics on debt settlement (mortgage defaults);

– Assessments by households of their financial burden (EU-SILC, Eurobarometer, European Social Survey);
Other indicators (incl. use of debt advice, stakeholder assessments).

Levels of over-indebtedness: Country clusters

Comparing countries across the dimensions of absolute debt to income ratio, overall levels of arrears, and ability to make ends meet, we find:
1) Very high levels of arrears combined with a very high inability to make ends meet (EL, RO, CY, LV, HU, BG). Moderate debt to disposable income ratio. Mostly non-Eurozone.
2) High levels of arrears with mostly high inability to make ends meet (IE, LT, PL, EE, SI, IT), and low to moderate debt to income ratio, with the exception of IE (very high).
3) Moderate level of arrears but with an inability to make ends meet ranging from very high, to low. The debt to income ratios are also varied, running from very high (DK) to low (SK). Majority are Eurozone countries.
4) Low levels of arrears and low levels of households unable to make ends meet (NL, SE, LU, DE). However, debt to income ratios tend from moderate to very high. Older MS, mostly Eurozone.

Consequences for affected households can be divided into two categories:

Consequences affecting personal welfare:

• Reduced standard of living;
• Social stigma and exclusion;
• Deterioration health and well-being;
• Relationship breakdown;

Punitive sanctions or social consequences for non-payment:

• Financial exclusion;
• Home repossession or eviction;
• Utility disconnection;
• Reduced labour market activity.

Measures to alleviate the impact of households’ over-indebtedness

Early identification of households at risk

  • Only in some MS were measures for the early identification of households at risk of OI reported to be common.
  • The most commonly reported measure is to require lenders to comply with responsible lending provisions in order to assess the creditworthiness of prospective borrowers.
  • In addition, ratios of loan to income have been recommended or enforced in some markets, especially for mortgage credit.
  • In many EU MS there is a Public Credit Register and/or private Credit Bureaus which at least record 'negative' credit events such as defaults and are used to assess creditworthiness.
  • In a few countries (including the UK, FR, NL) stakeholders mentioned initiatives by lenders (and at their discretion) to proactively identify households at risk or in the early stages of financial difficulty.
  • There are a few examples of information or tools for consumers to help them self-assess the risk (e.g. printed   materials disseminated through consumer-facing organisations and the media to encourage contacting creditors at an early stage; online financial health check available free of charge).

Debt advice

  • Research conducted for this study confirmed previous findings that the provision of debt advice is better developed in some countries than others.
  • According to the stakeholder data face-to-face debt advice is the type of help most available to people in debt.
  • As a general pattern, there seems to be less provision of debt advice in EU12 than in other EU MS.
  • Previous research and interviews conducted for this study also pointed to some regional disparities within the individual countries in terms of the provision of debt advice.

Three main groups of countries

Overall, research findings so far suggest three groups of countries in terms of the availability of debt advice.

  • The first group comprises a small number of countries where municipalities have a legal obligation to provide debt advice (including NL, SE, FI). As a result, personalised debt advice is widely available to people in financial difficulties either free of charge or at low cost.
  • A second group of countries (including the UK, AT, BE, IE and DE) has a relatively mixed economy of debt advice: There is widespread coverage of personalised debt advice delivered free-of-charge mainly by NGOs and public authorities (such as social welfare services).
  • There also exist organisations that provide services for a fee. These range from professionals such as lawyers and financial advisers who tend to help particular sociodemographic groups (such as the self-employed people) to debt management firms that specialise in providing specific debt solutions. 

Compared to other countries, the third group has limited debt advice provision of any kind.

·         In several countries (including SI, BG, LT, PL and RO) debt advice services are uncommon and under-developed. In FR, some NGOs and financial services firms provide debt advice services free-of-charge, but this help is not widely available. Social workers are a common source of free advice, but they do not specialise in debt problems. Consumer organisations in some countries reportedly provide debt advice, but with rather limited capacities.  

Main providers of debt advice

·         The main types of debt advice providers are (adapted from Eurofound 2012):

  • – Non-governmental organisations;
  • – Consumer organisations;
  • – Public services;
  • – Publicly funded organisations at some distance from public authorities;
  • – Private for-profit companies.

·         Note that individual organisations can belong to more than one category (for example, consumer organisations can operate as non-governmental organisations and be publicly funded).

Availability of other key measures for alleviating the impact of OI

  • ·         According to the stakeholders in most Member States informally brokered arrangements are available to help people sort out their debt problems.
  • ·         Formal out-of-court debt settlement procedures are somewhat less common.
  • ·         Court-based consumer insolvency procedures were reported to be available in most MS, but some seem to lack any legal procedures for dealing with consumer debt.
  • ·         Financial support for households in debt was reported to be relatively rare.


Informally brokered arrangements

·         With a few exceptions (including PL and RO), informal arrangements were reported to be available in most MS.
Debtors negotiated informal repayment arrangements with their creditors directly (at no cost), or with the help of a debt advice service. For the most part, debt advice services provided this help free-of-charge. In a few MS, for example in BE and the UK, assistance in setting up and administering repayment plans was also offered by private firms on a fee-charging basis. Hard evidence on which to assess the effectiveness of informally brokered arrangements is generally lacking. Some concerns were raised regarding potential impediments to effectiveness of this measure. These included:

  • – Scepticism about creditors’ motives in agreeing informal repayment arrangements;
  • – Creditors being very unwilling to agree informal arrangements, preferring court-based debt solutions;
  • – Issues around the process of agreeing repayment plans and the level of repayment;
  • – Concerns about poor practice among private firms that set up and administer payment plans.

 Formal out-of-court procedures

  • Formal out-of-court procedures for debt settlement are available in some MS (e.g. BE, the UK, NL, FR and AT). They are generally free-of-charge to consumers (with a few exceptions, e.g. the UK and BE).
  • In some MS, formal out-of-court measures are a mandatory precursor to legal court-based consumer insolvency procedures.
  • The reluctance of creditors to participate in these measures was a significant barrier to their effectiveness reported by some stakeholders, as it was with informal arrangements.
  • Other factors cited as potential obstacles to effectiveness were:
– The eligibility criteria for some formal measures, which limited their use by debtors;
– A lack of resources to develop personalised repayment plans that were best-suited to the debtor’s circumstances;
– A lack of support for debtors to maintain repayment arrangements once repayment plans were in place;
– A view that arrangements could fail because debtors were not prepared to accept the budget requirements.

Legal (court-based) procedures

·         In most MS it was reported that court-based consumer insolvency procedures were available.
This was the case e.g. in Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Spain, Lithuania, Luxembourg, the Netherlands, Portugal, Sweden, Slovenia and the UK.
Some Member States seem to lack any legal procedures for dealing with consumer debt (see following map).

Financial support for households to repay debts

  • Various types of financial support to help households in certain circumstances or with certain costs were reported, but only a few MS appear to have financial support specifically to help households repay debts.
  • Such support is typically targeted at low-income households and related to the repayment of particular types of debts, notably rent or utility arrears.
  • Such measures were reported in the UK, FR and SI (provided by the state or charities). Elsewhere, for example in SE, the state was considering various proposals to help people to repay debt (e.g. state loans), but none of these had been implemented. 

Best practices

  • Financial education;
  • Resource/income
  • adequacy;
  • Responsible lending;
  • Good practice guidance;
  • Early engagement of
  • creditors/lenders;
  • Debt advice;
  • Temporary suspension of
  • debt servicing;
  • Preventing evictions;
  • Out-of-court procedures for
  • debt settlement;
  • Collective debt settlement;
  • Legal procedures for the
  • discharge of debts;
  • Responsible debt
  • collection;
  • Prevention of financial
  • exclusion;
  • Other practices.


It has been proposed in this context that the creation of a policy framework, incorporating a national strategy, is the best way of ensuring the implementation of an effective, co-ordinated policy response within a MS. This finding has been reconfirmed by research conducted for the present study.

ID: 48215
Publication date: 01/02/13

Created: 01/02/13. Last changed: 01/02/13.
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