Reckless Lending within the Post-Crisis age: may be the EU Consumer Credit Directive Fit because of its Purpose?

Reckless Lending within the Post-Crisis age: may be the EU Consumer Credit Directive Fit because of its Purpose?

Abstract. Significantly more than ten years following the outbreak of…

Significantly more than a ten years following the outbreak of this international crisis that is financial customers throughout the EU have now been increasing their amount of financial obligation with regards to both amount and value of credit rating items. 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 new dangers to customers and pose brand brand new challenges for regulators when it comes to how exactly to address them. This short article is designed to discover the problematic facets of credit rating supply into the post-crisis environment that is lending the EU and also to evaluate as to the extent the 2008 Consumer Credit Directive presently in effect, which is designed to guarantee sufficient customer security against reckless financing, is fit because of its function today. The article explores the general meaning of “responsible lending” with emphasis on consumer credit, identifies the most imminent irresponsible lending practices in the consumer credit payday loans in Indiana markets, and tentatively analyses their key drivers in this context. In addition it reveals some essential restrictions of this customer Credit Directive in supplying consumer that is adequate against reckless lending while offering tentative suggestions for enhancement. 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.


A lot more than 10 years following the outbreak for the international economic crisis, customers throughout the European Union (EU) are increasing their amount of financial obligation in regards to both amount and value of credit rating services and products (European Banking Authority 2017, pp. 4, 8). On the list of good reasons for this trend will be the low interest environment, the novel business methods of lenders directed at finding brand new income sources, such as for instance costs and costs on loans, in addition to revolutionary company models rising in an extremely digital market, such as for example peer-to-peer financing (P2PL) (European Banking Authority, 2017 pp. 4, 8). These developments provide brand brand brand new dangers to customers and pose brand new challenges for regulators when it comes to just how to address them. The situation of reckless credit lending deserves special attention in this context. Such financing may cause unsustainable quantities of overindebtedness causing major customer detriment. In addition, it might be disruptive towards the functioning for the EU’s solitary market in monetary solutions.

The main bit of EU legislation presently regulating the supply of credit – the 2008 customer Credit Directive Footnote 1 –aims at assisting “the emergence of a well-functioning interior market in consumer credit” Footnote 2 and ensuring “that all customers ( … ) enjoy a top and comparable amount of security of these passions,” Footnote 3 in specific by preventing “irresponsible financing.” Footnote 4 This directive, which goes back towards the pre-crisis period, reflects the information and knowledge paradigm of customer security therefore the matching image of this “average consumer” as a fairly well-informed, observant and circumspect star (Cherednychenko 2014, p. 408; Domurath 2013). The concept behind this model will be enhance the customer decision – making process through the principles on information disclosure directed at redressing information asymmetries between credit organizations and credit intermediaries, regarding the one hand, and customers, in the other. Especially in the aftermath for the economic crises, nevertheless, severe issues have already been raised concerning the effectiveness associated with the information model in ensuring consumer that is adequate against reckless financing practices plus 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 matter.

The aim of this article is twofold against this background. First, it seeks to discover the problematic areas of credit rating provision into the post-crisis lending environment across the EU. Next, it tries to assess as to what extent the 2008 credit rating Directive is fit for the function today so far as the buyer security against reckless financing methods can be involved. The analysis commences by having a research regarding the basic meaning of “responsible lending” into the context of consumer credit—that is, unsecured credit given to individual, home, or domestic purposes. Building upon the contours associated with the notion of accountable financing that features emerged out of this quest, plus the outcomes of the study that is empirical by the writers, the content afterwards identifies the absolute most imminent reckless financing techniques within the credit rating markets throughout the EU and tentatively analyses their key motorists. Besides the desk research, the empirical research included a few semi-structured interviews utilizing the representatives for the customer organizations and national competent authorities directed at verifying the initial findings and getting more info on the problematic components of credit rating, both in old and brand new Member States. Footnote 5 this article then proceeds to look at as to the extent the buyer Credit Directive acceptably addresses the situation of reckless lending and analyses customer security requirements and their enforcement inside the broader EU framework that is regulatory credit rating. The latter also contains a wide range of horizontal EU measures, in specific the unjust Contract Terms Footnote that is directive 6 the Unfair Commercial Practices Directive. Footnote 7 This analysis reveals some essential limits associated with the current EU regulatory framework for credit rating, in specific compared to the customer Credit Directive, in supplying sufficient customer security up against the reckless financing techniques previously identified. The writers conclude by providing tentative strategies for enhancement and distinguishing areas for further research.

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