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Reckless Lending into the Post-Crisis Era: may be the EU Consumer Credit Directive Fit for the function?

By on July 18, 2021
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Reckless Lending into the Post-Crisis Era: may be the EU Consumer Credit Directive Fit for the function?

Abstract. A lot more than a decade following the outbreak of…

Significantly more than 10 years following the outbreak regarding the international economic crisis, customers throughout the EU have now been increasing their standard of financial obligation when it comes to both amount and value of credit rating services and products. The novel business practices of lenders aimed at finding new revenue sources, such as fees and charges on loans, and the innovative business models emerging in an increasingly digital marketplace, such as peer-to-peer lending among the reasons for this trend are the low interest rate environment. These developments provide brand brand brand new dangers to customers and pose brand new challenges for regulators when it comes to simple tips to deal with them. This short article is designed to discover the problematic components of credit rating supply within the post-crisis lending environment across online payday loans Ohio the EU also to evaluate from what extent the 2008 Consumer Credit Directive presently in effect, which aims to make sure sufficient customer security against reckless financing, is fit for the function today. In this context, the content explores the typical concept of “responsible lending” with emphasis on credit, identifies the essential imminent reckless financing methods within the credit rating markets, and tentatively analyses their key motorists. In addition it reveals some crucial limits regarding the customer Credit Directive in supplying consumer that is adequate against reckless lending while offering tentative tips for improvement. The time now seems ripe for striking a different balance between access to credit and consumer protection in European consumer credit law in the authors’ view.

Background

Significantly more than 10 years following the outbreak regarding the international crisis that is financial customers throughout the European Union (EU) were increasing their degree of financial obligation with regards to both amount and value of credit rating services and products (European Banking Authority 2017, pp. 4, 8). The novel business practices of lenders aimed at finding new revenue sources, such as fees and charges on loans, and the innovative business models emerging in an increasingly digital marketplace, such as peer-to-peer lending (P2PL) (European Banking Authority, 2017 pp. 4, 8) among the reasons for this trend are the low interest rate environment. These developments provide brand new dangers to customers and pose brand brand new challenges for regulators when it comes to just how to deal with them. The issue of reckless credit lending deserves unique attention in this context. Such financing may cause unsustainable amounts of overindebtedness leading to major customer detriment. In addition, it may possibly be disruptive into the functioning regarding the EU’s market that is single monetary solutions.

The main little bit of EU legislation presently governing the supply of credit rating – the 2008 customer Credit Directive Footnote 1 –aims at assisting “the emergence of a well-functioning internal market in consumer credit” Footnote 2 and ensuring “that all customers ( … ) enjoy a higher and comparable amount of security of these interests,” Footnote 3 in specific by preventing “irresponsible lending.” Footnote 4 This directive, which goes back towards the pre-crisis duration, reflects the information and knowledge paradigm of customer security additionally the matching image associated with the consumer that is“average being a reasonably well-informed, observant and circumspect star (Cherednychenko 2014, p. 408; Domurath 2013). The concept behind this model is always to increase the customer decision – making process through the principles on information disclosure geared towards redressing information asymmetries between credit organizations and credit intermediaries, from the one hand, and customers, on the other side. Especially in the aftermath for the economic crises, nonetheless, severe issues have already been raised in regards to the effectiveness associated with information model in ensuring consumer that is adequate against reckless lending practices additionally the appropriate functioning of retail economic areas more generally speaking (Atamer 2011; Avgouleas 2009a; Domurath 2013; Garcia Porras and Van Boom 2012; Micklitz 2010; Nield 2012; Ramsay 2012). The writeup on the customer Credit Directive planned for 2019 provides the opportunity to mirror upon this problem.

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The aim of this article is twofold against this background. First, it seeks to discover the problematic areas of credit rating supply into the post-crisis lending environment across the EU. Secondly, it tries to assess as to the extent the 2008 credit rating Directive is fit for the function as far as the consumer protection against irresponsible lending practices is concerned today. The analysis commences with a research of this general concept of “responsible lending” when you look at the context of consumer credit—that is, unsecured credit given to individual, home, or domestic purposes. Building upon the contours associated with idea of accountable lending that includes emerged out of this quest, along with the link between the empirical study carried out because of the writers, the content afterwards identifies the essential imminent reckless financing methods into the credit rating areas over the EU and tentatively analyses their key motorists. The empirical study involved several semi-structured interviews with the representatives of the consumer organizations and national competent authorities aimed at verifying the preliminary findings and obtaining further information on the problematic aspects of consumer credit, both in old and new Member States in addition to the desk research. Footnote 5 the content then proceeds to look at as to what extent the customer Credit Directive acceptably addresses the situation of reckless financing and analyses customer security criteria and their enforcement inside the broader EU framework that is regulatory credit rating. The latter also contains a quantity of horizontal EU measures, in specific the unjust Contract Terms Directive Footnote 6 and the Unfair Commercial Practices Directive. Footnote 7 This analysis reveals some essential restrictions of this present EU regulatory framework for credit rating, in specific compared to the buyer Credit Directive, in providing sufficient customer security contrary to the irresponsible financing techniques previously identified. The writers conclude by providing tentative suggestions for improvement and determining areas for further research.

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